Apple enters the mobile wallet arena.
What's the issue?
The payment services provider space is becoming increasingly full with companies vying to become the market leader. Contactless payment devices, initially slow to catch on, are now growing in popularity as consumer confidence grows. Leading banks have produced contactless payment cards and near field communications technology (NFC) is allowing mobile devices to become mobile wallets. Google launched Google Wallet in the USA in 2011 and UK telecoms operators had teamed up in the hope of creating their own mobile wallet. While in Japan, use of NFC is widespread, take-up of mobile wallets has been slow in the USA and faces regulatory challenges in Europe.
What's the development?
With the launch of iOS8, the iPhone 6 and the Apple Watch, Apple entered the mobile wallet arena with Apple Pay, launched in the USA on 1 October 2014.
What does this mean for you?
With a number of banks behind it, Apple Pay may help normalise mobile wallets. This is of interest to traders, banks and, of course, to others in the sector. Mobile wallets will need to comply with the European payment services and data protection regulatory regimes which are stricter than those in the USA, before they can enter the European market so stakeholders will be keeping a keen eye on both take up and market entry of significant players into Europe.
Devices which are Apple Pay enabled use NFC to make payments at the touch of a button. No credit card details will be stored on the device or on Apple servers (unless the card being used is also the card linked to the user's iTunes account). Each device is assigned its own Device Account Number (DAN), which is encrypted and stored on the Secure Element chip in the iPhone or Apple Watch. Each purchase a user makes is authorised with a one-time unique number using the DAN before Apple Pay creates another single-use security code to verify the transaction. If using an iPhone rather than Apple Watch, you also have to be holding down a button which recognises your fingerprint in order to make a transaction. Apple claims that if the device is stolen, it will be impossible for the payment details to be taken from the device once the device is wiped or put into 'lost mode'. Apple will reportedly get 15 cents per US$100 spent. Details of purchases will not be stored by Apple but will be retained in the consumer's 'passbook' for their own reference. Google Wallet is similar in that it does not store the user's card number on the mobile device but it does store it on its servers and also keeps transaction records. In addition, there is no Touch ID verification.
US banks have been quick to sign up to the Apple Pay scheme together with payment card providers. Apple Pay and Google Wallet are already accepted in between 220,000 to 300,000 stores in the USA (although many of these are branches of large chains like Walgreens, Staples and McDonalds). Reports are that Apple Pay will not hit the UK before 2015. In the meantime, UK mobile operators have abandoned their joint attempt to set up a mobile wallet system although other European telecoms operators are still progressing with their own mobile wallets.