Welcoming Apple to the World of Payments

The long-awaited iPhone 6 has finally arrived, gift-wrapped with Apple’s exciting plans to break into mobile payments. The initiative, deemed Apple Pay, encompasses both in-store (proximity) and in-app (online/remote) payments, with expected launch in October. To support the mobile wallet, a new operating system, iOS 8, is targeted for release on September 17th, which coincides with arrival of the iPhone 6 in stores two days later.

As expected, Passbook will serve as the wallet app and NFC (Near Field Communication) will be the technology leveraged for transmitting payment credentials. To get started, users can add an existing card from their iTunes account or take a picture of their debit or credit card from a participating bank (see below). To pay in a store, users simply open the Passbook app, choose the desired payment card, hold the iPhone next to the point-of-sale terminal and press the home button for TouchID authentication.

apple-payKudos to Apple for making the process behind enrollment and execution as simple as possible. The not-so-simple task for Apple is quickly on-boarding thousands of retailers and financial institutions to help enable widespread acceptance of its mobile wallet by consumers.

Achieving scale across a variety of merchants will take time and, quite frankly, Apple is off to a rousing start. Apple has nabbed partnerships with a handful of merchants that your average urban consumer frequents, including Subway and McDonald’s. The company has also bagged several big fish for its in-app, one-touch payments, including Target, Groupon and Uber.

Unlike the many mobile wallets to hit the market thus far, Apple has landed partnerships with merchants outside of the wallet-friendly QSR industry. In addition to Whole Foods and Macy’s, Apple has added Walgreens as a partner, a known hub for diversified consumer spend that already has NFC point-of-sale infrastructure in place thanks to its experiment with Google Wallet.

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Apple Pay is not a darling in every merchant’s eyes – MCX (Merchant Consumer Exchange) merchants have been predictably quiet in the partnership talks with Apple. Wal-Mart, a backbone to the merchant consortium that just announced its CurrentC wallet last week, announced its intention to remain separate from Apple on the payments front. Similarly, Best Buy’s rocky experience with NFC has also steered the retailer away from Apple Pay for the time being.

Perhaps the greatest value-add for payment-apathetic consumers is the enhanced levels of security associated with Apple Pay. Through the use of NFC, encryption and tokenization, card credentials are never exposed to merchants or third parties during authorization and settlement of funds. Further, Apple itself does not collect transaction data, which, admittedly, comes as a bit of a surprise.

By not capturing transaction data, Apple foregoes the opportunity to profit from consumers’ shopping behavior. Also off the table is personal financial management (PFM), a service that many believe can be better delivered by tech companies than banks.

But profiting from data is Google’s game. Apple’s intentions in payments are clear: get consumers in the habit of paying with Apple, control the payment experience tightly and sell more iPhones. With consumer familiarity around mobile payments on the rise and popularity of existing wallets flat-lining, Apple’s entry into the payments space couldn’t have come at a better time.

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