The Apple Pay announcement finally came yesterday and the company’s orchestration of much of the complex and fractious card payments ecosystem demonstrates Apple’s insight into how the current payments ecosystem works and how it must be aligned in order to meet its own needs. Combining NFC, Apple’s Passbook wallet, Touch ID biometric reader, cards stored in the iTunes account, and a stronger security model, Apple Pay could give the NFC “tap and pay” gesture a reinvigorated future.
Looked at it from the payment context alone, Apple Pay does not do a great deal more than what Softcard/Isis and Google Wallet have already achieved. But the combination of Apple’s design focus and its assumption of a reasonably non-threatening role within the payments ecosystem should make a difference.
The timing could be very good for both NFC and EMV adoption. Merchants are looking at the EMV liability shift date of October next year and are considering whether or not to turn on the NFC / contactless capability in those readers. While it will take a couple of years for the iPhone user base to upgrade to the company’s Apple Pay capable models, merchant will not have to take another leap of faith that contactless capable customers will show up at their door this time. Apple states there are (only) 220,000 NFC capable merchant locations. That’s not a lot. But if Apple Pay catches on, more merchants should add contactless acceptance. This could already be underway. A good re-start for NFC.
Apple Pay should also encourage issuers to get on with their evaluation of host card emulation for their Android using customers. The HCE model of using the NFC radio to manage communication between a handset and a terminal while pulling payment credentials from the cloud is neither improved or discredited by the Apple approach. It’s just a different model. Issuers will have plenty of customers using Android phones and HCE will be their route to that installed base. Issuers wanting to play with Apple Pay have to do it Apple’s Way.
Apple Pay is also a strong initial use case for the tokenization services now coming to market from Visa and MasterCard. Removal of live PANs from the payment network is imperative. Amid all the Apple Pay excitement, it’s easy to forget that the Home Depot data breach could be as large or larger than Target’s (breach fatigue anyone?) These new tokens require token-specific BIN ranges for proper routing and how easily that will work at scale, beyond the early adopters, remains in question because of the likely BIN range reallocation that will be required. Still, a good start for network-level tokenization.
The Apple Pay announcement can’t be good news for Softpay, the NFC payment method (formerly known as Isis) that has had nothing but bad news for some time, starting with HCE’s arrival. Softpay issued a hasty blog post yesterday saying they are in dialog with Apple but it is hard to see how, to take on one issue, a Softpay wallet app could compete with a tightly integrated Passbook implementation. The litany of challenges for Softpay continues to grow.
We will be watching how MCX and its CurrentC wallet respond, or not, to Apple Pay. The Paydiant wallet on which the CurrentC wallet is based is not locked to a QR code based transaction initiation step. An NFC radio + Touch ID biometric + Apple Pay Device Account Number combination could provide strong credentials to pass to MCX for processing over its payment switch. If MCX connects with Apple, it could mean that MCX members will look at NFC in a whole new light. Some MCX members, like 7-Eleven, have been actively decommissioning their contactless footprint. Apple Pay may get them to turn it back on.
Plenty of questions remain about the Apple Pay network process flow, costs and more. We’ll be tracking and evaluating the Apple Pay impact, of course, and we look forward to assisting you with your payments strategy in this newly altered payments landscape.
This Payments Views post was written by Glenbrook’s George Peabody.