Apple's Pay Evolution Can Be More Ambitious

Posted by Kirhat | Monday, March 07, 2016 | | 0 comments »

Apple Pay Wallet
Apple Pay may be just over 15 months old and supported in five countries, including the U.S., U.K., Canada, Australia, and, most recently, China, but, along the way, the company has faced criticism from banks, merchants, and customers, all frustrated by limitations of the service's capabilities.

In a more depressing note to Apple, many of Apple Pay's irksome issues are completely out of the company's control. As with Apple's rumored TV streaming service, other companies have sufficient leverage to make demands of the world's biggest corporation. In the case of Apple Pay, it's credit card-issuing banks and local merchants.

Like most mobile payment systems, Apple Pay began with a modest proposal: to simplify and secure credit card payments by removing the need for a physical card.

When Apple Pay debuted in 2014, it became apparent that Apple made the right decision in partnering with the banks — the companies that issue credit cards on behalf of payment networks Visa and MasterCard — because there are nearly 200 million Americans with credit cards, and disrupting an industry of that size and complexity takes time.

Rather than forge off on its own path separate from the banks and merchants, Apple did what it does best: the company made the right deals and adopted the right burgeoning standards. It built Apple Pay with EMV (Europay, MasterCard, and Visa) chip-and-pin and tokenization in mind, hoping it would incentivize merchants to upgrade their terminals in support of NFC (near field communications)-based tap-to-pay, which Apple Pay relies on.

In addition, Apple emphasized the security angle: EMV technology substitutes a credit card's magnetic stripe for a small storage chip, which has proven to be more difficult to clone and nearly impossible to hack using person-in-the-middle interception attacks.

Tokenization pushes that security aspect forward further by randomizing a credit card's PAN — the 12 digits we all know as our credit card numbers — so that only the current payment network knows the real numbers. Should an interloper get ahold of those tokenized numbers, they will either be useless, or only useful for one or two transactions. Once the token has been disabled, access is cut off, saving your credit card from being cancelled in the event of fraud.

Apple Pay also forces customers to use a second factor of authentication: a fingerprint. Using biometrics such as Apple's Touch ID sensor, the payment network is reassured that the person making the payment is actually the credit card's owner; the merchant is reassured, from a liability standpoint, of the same thing.

Unfortunately, one of Apple Pay's biggest pain points in the U.S. is still the overall lack of acceptance at merchants. By Apple's own count, the service is accepted at over two million "locations" in the five launch countries, but many big-name brands like CVS and Walmart have either refused to support the service, or have supported a competitor like CurrentC, which woefully lacks both security and scruples.

In order to become relevant, maybe it is time for Apple Pay to offer the core feature of mobile payment and become a digital wallet. Like a physical wallet, not everything inside it is intended as a payment output. Most people carry licenses, gift and loyalty cards, photos, receipts, and even cash, all of which is being increasingly digitized and indexed by various startups.

Apple's Wallet, née Passbook, performed some of these functions well before the company launched Apple Pay. Since iOS 6 in 2012, Wallet has been storing boarding passes, loyalty cards and movie tickets, using a variety of techniques, such as GPS coordinates and beacons, to surface them when they're most needed.

However, reports reveals that some grocery stores may accept Apply Pay, but the customer's iPhone has no idea that is has a loyalty program. Some loyalty programs are supported by the service, but tighter integration — and automation— is key to ensuring people return to Apple Pay.

This feature, more than additional locations, is what will really drive the evolution of Apple Pay from a transactional system into a full fledged platform.


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