While most of the buzz surrounding Apple’s recent keynote was about the new iPhone 6 models and the Apple Watch, one of the announcements that may have flown under the radar was the introduction of Apple Pay. This new feature, which will be available next month, allows iPhone 6 users to complete a one touch payment transition using their phone (or Apple Watch). It utilizes the iPhone’s Passbook app to store credit card information.
While Apple Pay is a new feature for the iPhone, it is not a revolutionary product. Much like similar endeavors such as Google Wallet, Apple Pay uses Near Field Communication (NFC) technology in the device to complete the payment transaction. So why does Apple Pay have a chance to succeed where others have lagged behind? Joe Reithmeier, Client CIO at Miles Technologies, believes the answer lies within the power of Apple’s brand and the timing of the release of Apple Pay.
Reithmeier, who has been working with banking and financial technology for over 20 years, has seen the evolution of electronic banking grow from virtually nothing to what it is today. He explains that for a system like Apple Pay to succeed, Apple must win over three stake holders who are involved in the transaction process. The stakeholders are:
- Payment Processors
Apple can already check the first one off the list. Major credit card companies Visa, MasterCard and American Express have already signed on to work with Apple pay—ditto the major national banks that issue debit cards.
For the consumers, iPhone 6 and 6+ users will have the ability to use Apple Pay right out of the box. Reithmeier says that based on past history, users will jump on board quickly. “Let’s face it; Apple has raving fans all over the world,” he says. “They tend to get their technology out very quickly. [Apple Pay] will be in a lot of hands very shortly.”
The final potential stumbling block for Apple will be getting merchants on board with accepting Apple Pay as a form of payment in their stores. “The stake holder that normally derails the electronic payment movement is the merchant who needs to accept those payments,” Reithmeier says. “In the past, NFC technology has been expensive to implement and maintain.”
So what is different now? According to Reithmeier, there are two main factors. This first—and more obvious one—is that Apple was never involved before. “Apple is a big player in the market, and they may have a lot of their customers asking [merchants] about it,” he says.
Secondly, it’s getting closer and closer to October 2015. Why is this date so important? “In October of 2015 there will be a liability shift,” Reithmeier says. “What that means is that all the big payment processors like MasterCard, Visa and American Express will begin to require EMV technology—an embedded chip—in their cards to make them more secure and make fraud more difficult. Today, if data from a credit card transaction is stolen and used for fraud, the credit card company assumes liability. Come October of next year, if the merchant is not accepting cards with EMV or other enhanced security methodologies like the Apple Pay technologies, that liability shifts to the merchant.”
The immediate implication of this liability shift is that merchants who still want to accept credit and debit cards must upgrade their technology to accept EMV chip payments lest they put themselves at risk at being held liable for countless potential fraudulent charges.
Reithmeier says that this shift may be the impetus merchants need in order to upgrade their technology. Before, there was no incentive to do so. Now they must do so in order to protect themselves from potential liabilities. “[The liability shift] may be the onus for the merchants to begin to look at investing in new technologies and brining in something like Apple Pay.”
According to Reithmeier, the winning over of the three stake holders, backed by Apples strong brand history, may be what allows these electronic payments to take off. “Apple has a track record of changing some of these industries that seemed to be unchangeable in the past. Just think of the music industry,” he says. “Apple also has some features that are already on the iPhone that people use today—namely the Passbook functionality. That’s a trusted place that people already use to store important information, so storing a credit card there isn’t too big of a stretch for consumers.”
“It’s a bit of a perfect storm brewing,” Reithmeier adds. “You have a very popular technology company that has a lot of people who are looking forward to adopting the newest technology, merchants that need to do something anyway, and payment processors that want to stay in the game. It’s best for them to stay on the side of Apple.”
Time will ultimately tell whether or not these payments catch on, but based on his vast experiences, Reithmeier thinks the likelihood is there thanks to Apple and October 2015.
Interested in learning more about this topic? Check out the latest Miles Technologies Podcast where Reithmeier discusses Apple Pay in further detail, and predicts the impact it will have in the financial world: