Banking and Merchant Changes at the Core of Apple Pay
The late-October launch of Apple Pay has already generated more buzz around mobile payments than we’ve seen in the past decade.
In fact, according to the New York Times, a mobile app like Apple Pay — via the new iPhone 6 and the forthcoming Apple Watch — could have the same impact on cards that cards had on cash and checks.
Until now, mobile payments seemed little to get excited about. Previous efforts, such as Google Wallet and Softcard, were not ubiquitous and merchants weren’t on board, with only 200,000 out of 9 million equipped to handle the technology. Consumers were concerned about security or simply disinterested in using the option.
All that may change with contactless Apple Pay. The Cupertino company will have a mobile-enabled device in the hands of an estimated 1 in 3 American adults in 2015, and its users are both bigger earners and bigger spenders than other device users.
Security benefits and strategic timing
Crucially, those users also trust Apple. And the enhanced security that comes with the new system offers all-round benefits:
- Tokenization eliminates storage of the card number on the phone and in the authorization request transmission.
- Card information is stored in a secure vault managed by card brands.
- Use of fingerprint biometrics adds another layer of safety.
- Data can be remotely wiped from individual devices if they’re lost or stolen.
Then there’s the matter of timing. The launch comes just a year ahead of the mandate for merchants to update POS systems for chip-enabled EMV. Those merchants can now streamline mobile acceptance by simply ensuring those devices also support Near Field Communication (NFC), the underlying Apple Pay mechanism — so they only need to upgrade once.
Bank implications
So, what does this mean for banks? On the face of it, Apple has struck what seems to be a bank-friendly posture and has said it expects to have about 500 bank partners on board in early 2015, though experts anticipate most of the initial participants to be the largest banks.
There are concerns about the submergence of banks’ own branding below the high-visibility labeling of Apple Pay. As of now, bank branding inside of the Apple Pay app is not possible, and Apple Pay itself can’t be accessed from inside a bank’s own app.
As a commentator from PaymentsSource magazine put it: “Apple Pay stands to insert its brand in front of up to 40% of the bank’s customers 30 to 50 times each month, reducing the bank or retailer’s brand to just another name on a list.”
Many banks, however, may see this as somewhat of a non-issue because even with the force of Apple behind it, the universe of smartphone users remains diverse. Pundits still see mobile payments growing only incrementally, remaining a modest fraction of the $264 billion eCommerce spend. And as the market for the new payment methods grows, banks will have the chance to find ways to enhance their visibility with Apple users, as American Banker recommends.
Android response?
Banks may also take another look at how payment options for Android technology, and its key proponents Google and Samsung (plus other big players like Amazon and PayPal), will affect the landscape. Although Apple has a large chunk of the smartphone market, they are certainly not the only player.
The shift away from mag-stripe technology may be gradual, but it will happen in the U.S. as it has already happened around the world over the past decade. And as we remove barriers for both merchants and consumers, we’ll begin to see monumental changes in the way we pay for goods and services.
There’s one thing you can be sure of: Regardless of how or how soon customers want new payment methods, it’s reassuring to know that your payment processing partner is ready, willing, and able both to act and advise during this time of transition.
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