Apple’s role in getting the future right has always been been a little strange. Everything it has done, from the mouse and visual display of the Mac, to the mobile music player of the iPod, to the computer-as-phone of the iPhone, Apple has had to work hard to convince consumers these moves were the future they wanted. But with Apple Pay, the new secure commerce tool in the iPhone 6, iOS may have hit the market at a time consumers are ready for a major technology change. And the aggressive control of on-line commerce technology could be a huge new business for Apple.
Like the original Mac, the iPod, and the iPhone, Apple Pay does not represent much of an Apple technical revolution. The major components have, in fact, been around for quite a while. NFC, the short distance wireless communication technology, has been available on Nokia phones since 2006. EMV, a secure communications protection based on standard chips, is built on technology first developed by France’s Bulle in 1985. The two technologies–the basic security tech and wireless links–have been included, if little used, in a variety of mobile devices including most recent Android phones.
Apple is making this move as the desire increases for consumers to pay with credit cards and the ability of retailers and banks to protect the security of those cards is crumbling. From TJ Max to Target to Home Depot, information from millions of consumer credit cards has been stolen in retail transactions. There’s not much retailers can do to defend the cards–even those with the best anti-theft measures are getting ripped off by the millions. They need new technology.
The new approach is your phone replaces your credit card though–and this is vital–the credit card number and other information is not stored on the phone. It’s hardly a new idea. It has been promoted in Europe for a while, particularly by Nokia. Google Wallet uses the same technology on Android phones to transfer card information from secure network cloud storage to a card processor with well-guarded transmission. But it has failed to achieve much use by consumers because of the failure of Android makers to promote it. Samsung includes NFC on most of its phones and has been building in EMV since 2002 (!). If you should want to use Google Wallet, Google’s web site will give you vague instructions for your Samsung. But I could not find a word of reference to Google Wallet on Samsung’s web site. That means most Samsung phone customers will never think of Wallet.
Apple, by contrast, made Apple Pay a prominent feature of the iPhone 6. The banks and credit card companies supporting Apple Pay before the launch of the iPhone 6 had made the service available and began promoting it as soon as the phone was announced. Apple Pay started with the support of Visa, MasterCard, Discover/Diners Club, American Express, and JCB. And, in a hugely important move this week, UnionPay, the largest credit retail processor in China, climbed aboard Apple Pay.
Apple understands it still has to fight for the dominance of Apple Pay, especially in U.S. retailing. As popular as Apple Pay is with banks, small to medium retailers, and a handful of daring big retailers such as Walgreens, some of the leading retailers such as CVS and Wal-mart are blocking it. Instead, they are favoring a rival called CurrentC created by a consortium of large retailers.
Whether the big retailers see an advantage to Apple Pay or not, many of them are prevented from implementing it by contracts they have signed with CurrentC. CurrentC does have an advantage of sorts by being able to work on just about any phone–it uses a QR code on the display and does not require any specific hardware like Apple Pay or Google Wallet.
But the disadvantages of CurrentC are critical. It transmits a considerable amount of information about the owner of the phone–the exact amount is the subject of some dispute–while Apple Pay requires only a single code. Even more important, Apple Pay and the more limited Google Wallet are ready to be used today with the banks and retailers who support it, while CurrentC still has a lot of details, both technical and commercial, to work out before it is available to consumers.
Assuming the initial success of Apple Pay, the challenge for Apple is what to do next. Apple can’t make Apple Pay available just by offering a download through the Apple Store. Participation also requires hardware and dedicated software, similar to but not identical to the EMV chips, needed to support communication. The way to get competitors to accept Apple hardware, or perhaps a way to unify the secure retail communications approaches applied by both Apple Pay and Google Wallet, pose a huge challenge.
Of course, the transitional action of Apple is to limit development like this to Apple products. The company traditionally has reserved keeping such devices to itself to protect sales of its products. But Apple could also be in the position to dominate the rapidly growing market for secure retail communications by licensing competitors the hardware and software needed for Apple Pay, which has shot out as the leader of consumers’ product.