Happy Birthday, Apple Pay! You’re two years old, time to put on the big boy shoes. Well, actually, considering who your parents are, we expect a lot from you already; let’s see how far you’ve come, and where you’ll go.
A bit of background, Apple Pay is a mobile payment and digital wallet service that lets users make payments using their iPhone or Apple Watch. It uses NFC (Near Field Communications), so just tap your phone near the terminal, and use the Touch ID sensor to authenticate. Apple Pay is now in 10 countries, with Japan and New Zealand being added soon. As of June 2016, Apple says it was adding one million users a week to the service.
The first market for Apple Pay was the US, a late adopter of NFC technology for payments. Europe and Canada already had NFC in terminals, but in the US it was a chicken versus egg scenario - US consumers who were the early adopters wanted to use the technology, but US merchants didn't want to overhaul their systems until enough demand justified this update. And, Apple was one of the first companies to want to push this through in the US - even though other banks were already using the technology around the world. However, with the sudden widespread use of smartphones in the US, Apple Pay helped merchants recognize the value of updating their systems to accept payment using NFC (which isn't exclusive to Apple, but to all tap).
As a matter of fact, last year, the US made a push for merchants to update their terminals. As of October 1, 2015 the US enacted a liability shift, putting the cost of fraud on retailers who are still using swipe instead of chip technology. For retailers that make the shift to the new terminals, the cost of fraud falls on the bank; otherwise the merchant is responsible for the cost. The shift is a work in progress, with many smaller merchants balking at the cost of upgrading and consumers being forced to change their payment habits – insert chip and pin versus swipe and sign.
As the new terminals continue to roll out across the US, fraud is decreasing in the brick and mortar retail environment and shifting to the online environment. According to Mastercard, counterfeit card fraud decreased by almost 40 percent from Jan. 2015 to Jan. 2016. This is one factor in the increase in online fraud; the security in cards with chips is better, making fraudsters look elsewhere for money to steal. Online businesses can take similar steps to the card issuers and improve their fraud prevention and risk mitigation by improving their ID verification and authentication systems.
While Apple Pay in a retail environment does lower friction by a small amount, retail payments are not a big pain point for consumers. Produce a card, tap, swipe or insert, maybe enter a few numbers, and you’re done. The bigger pain point is online, especially mobile and filling out extended forms. You can see huge numbers of consumers that, while they browse on their mobile, they save their buying to when they get back to the desktop.
The recent developments allowing Apple Pay use on websites and apps offers a potential great stride in e-commerce simplicity. Enabling single-click pay integration with the phone eases form fills and lessen security concerns. On the desktop that’s a solid gain, but on mobile it’s a godsend. Now it’s a matter if the adoption becomes widespread enough to gain traction and become an industry standard.
One of the reasons for the slow adoption is due to the fact that Apple Pay is limited to the (newer) iPhones, however, thanks to Apple Pay paving the way for NFC technology in the US, many other payment processors are able to piggyback off this upward trend, which in turn drives faster adoption.
The Future of Payments
No one entity should “own” money; it’s always just visiting, on its way flowing through the economy. The more a digital money service syncs with this model, the more successful it will be. Digital money that is safe and secure, that retains privacy while enabling advanced marketing initiatives such as precise targeting and loyalty programs, that has built-in safeguards to prevent fraud and financial crimes, will prevail in the end.
The idea of trusted identities is one model that helps deliver this next generation of money. In this model, a merchant verifies identity once and then all further transactions use the trusted identity. The identity is verified on the back-end, allowing the person to remain private and reducing the risk of fraud and other financial crimes. Actual cash or credit card information, which can be stolen, is never in play, so trusted identities provide a safer transaction. And, as profile data can still exist apart from the individual, trusted identities can deliver all the promise of data-driven commerce such as special deals, advanced customer tracking, and seamless loyalty programs, without the creepiness. This model can inspire a whole ecosystem of developers, startups and significant players to innovate and expand the potential.
Apple Pay has seen solid growth and uptake by many major banks, merchants and consumers. Really though, it’s still in its beginning. With the rapid advancement of fintech, whole new technologies, models, and opportunities will, no doubt, be incorporated into later versions. We can’t wait to see what Apple Pay develops into!