Wednesday, September 10, 2014

Apple Pay


Gone are the days of searching for your wallet. The wasted moments finding the right card. The swiping and waiting. Now payments happen with a single touch.

Apple Pay will change how you pay with breakthrough contactless payment technology and unique security features built right into the devices you have with you every day. So you can use your iPhone 6 or Apple Watch to pay in an easy, secure, and private way.

As a wallet replacement, I don’t really see the attraction. If it’s not ubiquitous, I’ll still have to carry my cards. I’ll need my driver’s license in any case. Even if everyone accepted Apple Pay, I wouldn’t want to leave home with all my eggs in one breakable basket. I’m not convinced that Passbook and NFC are easier than using a card.

But the potential for purchasing from third-party stores, within an app, is very promising:

Convenient checkout. On iPhone, you can also use Apple Pay to pay with a single touch in apps. Checking out is as easy as selecting “Apple Pay” and placing your finger on Touch ID.

Too bad it isn’t available on Macs or older iPhones.


Apple Pay marks the first time a popular operating system is making payments a platform service for real-world, non-digital-good transactions, in a broad, inclusive manner that is compatible with the mainstream payments processing industry. At Clover we’re particularly excited because we believe it opens up lightweight apps that can interact and transact with small-and-medium brick-and-mortar restaurants. By lightweight, I mean that these apps won’t need to maintain a user database, require user logins, worry about getting cards on file, or being an unwilling payment aggregator. i.e., it will be at least 10x easier. I expect a huge amount of innovation in real-world mobile commerce as a result over the coming years because of the revolution that Apple Pay is starting.

Marko Karppinen:

Apple Pay comes with the key benefits of IAP: frictionless transactions, strong privacy protections for the consumer, and a user base that will soon number in the millions. It is backed, in part, by those same credit cards on file at iTunes.

The big difference is that Apple doesn’t charge anybody anything for the use of Apple Pay. That’s because Apple sees Apple Pay as an end-user feature of iPhone 6, not as an independent revenue source. (Update: According to Bloomberg, Apple is charging banks. But that is coming from the fees paid to banks by merchants, so the thesis about this being free for both merchants and customers still stands.)

The comparison with In-App Purchase is interesting:

A newspaper’s iOS app can sell print subscriptions using Apple Pay, get all the conversion benefits of the one-tap payment, and pay 2.9% (to Stripe or some other credit card processor) for the transaction. But if the paper offers the same content digitally, within the same app, Apple will charge 30% in IAP commission.


Apple’s overall business would be well served by dismantling of the IAP monopoly on iOS and allowing Apple Pay to be used for the payment of in-app goods and services.


So Apple Pay is a payment method management application. It is not a payment protocol. The payment protocol Apple Pay uses to interface with point of sale terminals is the same EMV protocol that is used for other solutions.

Update (2014-09-13): Rich Mogull:

Tokenization is great because it reduces or eliminates the need to update legacy systems that expect a credit card number, without ever exposing the real number. Tokenization is typically handled by the payment network, which (in some implementations) encrypts the credit card number right when you swipe it, sends it back for the token, and then provides that to the merchant to keep for things like refunds or customer tracking. If the merchant’s system is breached, no real numbers are exposed; the tokens can also be merchant-specific for any given credit card, making them useless anywhere else.


Using per-device tokens means that only the bank that issued the card (or its payment network) ever has your card: You don’t have to trust Apple with it. This is different from the Google Wallet system, in which Google holds your cards on their servers.


Apple is in a unique position due to its business model. It doesn’t want or need to track transactions. It doesn’t want or need to be the payment processor. It isn’t restricted by carrier agreements, since it fully controls the hardware.

9 Comments RSS · Twitter

There are many advantages to the in-store solution besides just "You don't need to actually carry your credit card." Specifically, it is MUCH more secure, and it is faster to use. You're not handing over your actual CC data, and you're not having your card swiped (where a reader could snag the number).

As someone who has had his CC number swiped 3 times in the past 3 years, I can say I welcome anything that makes the chances of this less. While it doesn't cost me any money, it DOES cost me time, as I have probably 10-15 things that are set up to autopay with my CC and each of those takes me 5-15 minutes to fix once I get a big warning that a payment has failed. The fewer attack vectors I have on my CC number, the better, and Apple Pay helps with that a lot.

@John I’m skeptical about the speed advantage. I would have to unlock the phone, open Passbook, and select the proper card. I do agree with your point about security, though I’m lucky enough not to have had those sorts of problems, so it’s only a theoretical advantage for me at this point.

I thought the sequence of events would be less about unlock phone->open passbook-> select card, more about hold phone to payment box->select card from selection that automatically pops up on screen.

Not necessarily a big improvement over swiping a card, but a lot less cumbersome than manually unlocking/finding/using Passbook app.

@Nigel Could be; I haven’t seen a full description of how it will work yet. Apple’s description says that to pay with the default card you press Touch ID and hold the phone near the reader without even looking at the screen. But it also says that you “can go to Passbook” to pick a different card, which sounds like more steps.

@Michael Passbook opens automatically if you present your iPhone 6 to a reader without putting your finger on the Touch ID sensor. This video shows both the preferred-card and Passbook-selected-card approaches:

@Nicholas Sounds good—thanks.

One thing is not clear to me. Was it not the case, and still is today, that Apple gets a cut of 30% for anything bought from an app in iPhone?

Now what, all of a suden no more 30% cut?!

@peter That’s what Karppinen is talking about. The 30% still applies to digital content.

"This video shows both the preferred-card and Passbook-selected-card approaches"

That is indeed slick. Still can't imagine using this, but slick nonetheless.


Very interesting point by a Georgetown law professor that states that Apple Pay may put Apple under the jurisdiction of the Consumer Financial Protection Bureau, which would put Apple under strict regulatory control against "unfair, deceptive, or abusive acts and practices", not just for Apple Pay, but for all of its businesses..

Would be immensely good news in my book, as the result would be cops on the beat closely watching Apple in a similar fashion that Microsoft faced during their long Antitrust proceedings.

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