Christmas came early this year for the payments industry which has been stuck in ‘lack of consumer and merchant adoption land’ for years. Perhaps, and that’s a big maybe, Apple Pay, the new payments process available on the new iPhone 6 and iPhone 6Plus will be the catalyst to wide adoption. Apple Pay uses NFC (Near Field Communication) technology and TouchID (biometric fingerprint ID) technology to process transactions for purchases of good and services, by using credit card information associated with your iTunes account.
When NFC was introduced I was skeptical about the security. A couple years ago I had seen a video demonstrating how credit card info could be lifted from your cards and your smartphone, via the founder of Identity Stronghold, Walt Augustinowicz. I was curious to get Walt’s take on the new iPhone 6 security features. I couldn’t find a blog post or article, but I did find the following tweet from him: “Waiting on the new #iPhone launch! Here is to hoping they don’t add the digital wallet. If they do, can we opt out? #RFID vulnerabilities.” So, I guess he’s not a believer.
Here’s what you should to know about Apple Pay:
- Apple Pay uses a combo of NFC, TouchID and a Secure Element Chip.
- What is NFC? It’s a two-way communication between your phone and the merchant payment terminal using wireless radio frequency ID.
- What is TouchID? Just like iPhone 5s users press the Home Button to unlock their phone using their fingerprint, the same will occur for a purchase.
- What is a Secure Element Chip? CNET does a good job explaining it: “Built as a chip and only available in the iPhone 6 and iPhone 6 Plus, the secure element is where your financial information is stored. It is only accessed when a random 16-digit number must be generated for a transaction. The data stored on the secure element never makes their way onto your phone’s software, so even if someone hacked your operating system, there would be no way to extract your financial information.
- You can use the credit card associated with iTunes or add other cards.
- Beginning in October 220,000 merchants will begin accepting Apple Pay transactions via American Express, MasterCard and Visa
- Merchants who have signed on so far: Macys, Bloomingdales, Whole Foods, McDonalds, Subways, Staples, Nike, Petco, Toys R Us, Babies R Us, Disney and Walgreens.
- The technology uses a dynamic security code with a one-time encrypted payment number, so the merchant does not see your credit card number, name or security code. A different code is used each time you make a transaction.
- If you lose your phone, the Find My Phone feature can disable the payments portion
- Apple doesn’t keep the transaction data and claims, “Apple doesn’t know how much you paid.”
There are two reasons I think this could be a game changer for the payments industry.
- According to BankInnovation.com, Apple has reportedly cut deals to lower its transaction fees with five of the largest financial institutions in the nation. The financial institutions are American Express, JP Morgan Chase, Citigroup, Capital One, and Bank of America. This is essentially a wash for the financial services industry: they lowered fees for Apple for the privilege of being included in Apple’s payments initiative, but managed to put some of the transaction risk to Apple. My take: with Apple assuming some of the risk, I would think FIs would want to ride the Apple wave.
- Millenials. My 18 year old son lost his debit card within the first two days of living away at college, but he has never lost his phone. He has walked into an Apple store and used the Easy Pay (without heading to the check-out) and said he wished he could shop like that in all stores. Just a hunch, but I don’t think millenials are as attached to plastic like us Gen Xers.
Of course, we have to wait and see how this all plays out, but won’t it be fun to be along for the ride? You won’t catch me waiting in line on September 19 (I hate lines), but I will get my hands on a new iPhone 6 as soon as I can! How about you?