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September 12, 2014

So, will Apple Pay change the world?

Analysis: Is the new payment service about to propel mobile payments into the mainstream?

By Vinod

Alongside the launch of Apple’s new iPhones and Apple Watch on Tuesday night was another crucial announcement, one which might have been missed by many casual observers at first. Responding to a massively growing demand, the company revealed Apple Pay – its first foray into the world of mobile payments.

Far from just getting users to do away with their coins, debit and credit cards, Apple Pay was an important statement of intent by a company which is not used to doing things by halves, or for following the crowd.

apple pay launch

Similar to many existing mobile payments service, Apple Pay will use near field communication (NFC) technology in order to connect to point of sale terminals to quickly and easily process payments. Where it differs from the competition, however, is in incorporating the TouchID fingerprint scanner inside the iPhone as a way to authenticate a user’s identity, meaning it should be harder than before to forge payments.

The service has received a warm reception from industry observers, which have praised Apple for its move into the payments space, whilst also putting its own spin on the technology. But how big an effect will it actually have?

Slotting in nicely

"Apple’s entry to the market represents a critical piece of the mobile payments jigsaw," said Steve Perry, Chief Digital Officer at Visa Europe, one of the payment suppliers already signed up by Apple.

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"Apple’s decision to enter the market reflects the scale of opportunity that exists in digital payments today. Its support will drive awareness and usage of contactless services around the world – we anticipate a "halo effect" that will benefit all players in the mobile payments ecosystem."

American customers will be able to use Apple Pay in over 220,000 merchant locations across the US that have contactless payment enabled, including retailers such as Disney Store, McDonald’s, and Subway. However UK customers will have a little longer to wait, with Visa confirming that although it is working on bringing Apple Pay to Europe, it won’t happen until next year.

As well as the new devices revealed on Tuesday, Apple Pay is also available to users with an iPhone 5, 5C or 5S, estimated by the company to be around 200m customers, a number which will surely swell when the new iPhone 6 and iPhone 6 Plus go on sale later this month – making a huge initial audience for the service.

Interestingly, it will also be open to users of Apple’s new smartwatch, opening up a whole new world of payment opportunities. So far, payment integration into existing wearables has been sketchy, with users often unwilling to trust something they wore on their wrist with their bank details. Seeing as an Apple Watch requires an iPhone 6 or 6S to use fully, this could again help push Apple Pay into the mainstream.

High competition

But as mentioned, Apple is far from being the first company to offer a mobile payments service, with the likes of Square and PayPal already well-established with their own solutions.

"The introduction of ApplePay to the iPhone 6 will encourage the whole industry to adapt at a faster rate," says Tobias Schreyer, co-founder and chief commercial officer at the financial solutions company PPRO Group.

"This advancement could position Apple as the most powerful force in mobile payments, where it will contend with the Google Wallet and PayPal app, neither of which have had significant uptake amongst retailers."

Brand recognition will doubtlessly help Apple, as it has with the iPod, iPhone and iPad line of products, but retailers will need some form of assistance to integrate the technology. Let’s not forget that many shops in the US still don’t fully utilise chip and PIN authentication for payments – meaning that a quick-fire process like Apple Pay could become very popular very quickly.

Retailers will also need to ensure they have a compatible NFC reader to process the payments, alongside their existing PIN or magnetic-stripe systems. Apple could do worse than mirroring Amazon’s credit card reader, a simple plug-in device costing $10 that allows retailers to process mobile payments.

Security risk?

Security is going to be a major obstacle for Apple to overcome if it wants consumers to get to grips with Apple Pay. In its press release announcing Apple Pay, the company calls the service an, "easy, secure & private way to pay", but following the well-publicised iCloud hack earlier this month, how willing will customers be to share their payment information?

"Near Field Communication, or NFC, isn’t as well tested from a security perspective as the more common wireless technologies," says Tim Erlin, director of IT risk and security strategy at Tripwire.

"If the Apple Watch takes off in the market, it will quickly become an interesting target for attackers. We may see the rise of the modern day pickpocket. After all, attackers follow the money, so if Apple puts your money ‘on’ a watch [as an attack vector], it suddenly becomes a very interesting target."

It is also worth remembering that users will need to use their fingerprint to confirm a payment – Apple’s unique approach to two-factor authentication – an approach which could again put some customers off using the service. Although Apple says retailers will not store any biometric data (which will remain encrypted on the company’s servers), the iCloud hack raised questions about just how impenetrable it really is, and when it is people’s physical data on the line, there may well be more opposition.

After all, many customers remain wary of mobile payments, despite the range of advances and developments in the industry over the past year – and a mass-market solution like Apple Pay could be the service that changes all this.

"This is a pivotal moment for digital payments and one that demonstrates the momentum behind mobile and contactless services," Visa’s Perry believes.

As always, Apple seems to be at the forefront of popularising a particular area of technology. Its previous products helped revolutionise the smartphone, music player and tablet industry, and Apple Pay could well be the catalyst to helping mobile payments finally make it big.


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