What your mom didn't tell you about Apple Pay

The riskiest move from Apple at the iPhone 6 launch event wasn’t the hardware — it was Apple Pay. With this upcoming service, Apple will ignite a battle over payment economies. Financial institutions, retailers, mobile service providers and hardware companies are all strengthening their positions. In the projected $250B mobile payment space, everyone wants a spot in the digital wallet.

By announcing Apple Pay in conjunction with the iPhone 6 and 6 Plus, one of these devices will be required to use Apple Pay. In early 2015, with the Apple Watch release, those owning the previous generation of the iPhone will also be able to join the ranks of Apple Pay users, since the NFC hardware will be embedded into the watch.


Apple Pay comes with two main features:

  1. The ability to make in store purchases using NFC hardware

2. The ability to make purchases within an app for physical goods and services

This is completely separate from traditional In-App Purchases (IAP), which is specifically for virtual goods and digital content.

Using Apple Pay for in store purchases poses some interesting implications.

The store will require NFC hardware connected to the point of sale (POS) system for Apple Pay systems to work. While the number of technology ready retailers is currently small, all retailers will need new card readers to support the upcoming EMV (EuroPay, Mastercard, Visa) chip mandate. These upgrades for retailers are already required, so including NFC readers can be bundled with the new hardware.

Ultimately its is consumers that will benefit from using Apple Pay, since it’s more secure than traditional credit cards. Apple Pay utilizes tokens instead of a customer’s sensitive card numbers and personal information; with these tokens expiring after a single use. Retailers will not receive consumers’ actual card number or even their name when using Apple Pay. With hackers stealing 54 million credit cards from Home Depot this year and 40 million cards from Target last year, Apple Pay is a refreshing option for customers.

Besides the cost, retailers may not eagerly adopt Apple Pay due to the impact on loyalty programs and CRM.

Since the transaction is only between Apple Pay and the financial institution, retailers will not receive any customer information. This creates a challenge for retailer programs that track loyalty through purchase. Apple Pay does not have a way to pass a loyalty number to the POS system along with customer payment. Loyalty programs will require additional card swipes or verbal identification to gather the needed information – just when consumers started to clean off their keychains.

Several retailers are eager to bypass these new payment services altogether. A large conglomerate of merchants including Wal-Mart, Best Buy, 7–11, Lowe’s, CVS and ExxonMobil have created the Merchant Customer Exchange (MCX) to be an alternative form of payment. This merchant-led company, that will be known by the customer brand CurrentC, will include payment, loyalty and promotion combined in a single customer experience. CurrentC will not use NFC chips to communicate payment information to point of sale systems, rather it will use single-use QR codes. There have been rumors that joining the MCX requires an exclusivity agreement to not support any other mobile payment methods, including Apple Pay. While unable to verify this rumor — founding partners Best Buy and Walmart have publicly stated they will not support Apple Pay.

Mobile service providers AT&T Mobility, T-Mobile USA and Verizon Wireless have also created a partnership for mobile payments, called Softcard (formerly called Isis Wallet). Softcard is another NFC-enabled service that promises most Android phones can be used for mobile payments by putting the secure element on an enhanced SIM card. And we can't forget about Blackberry, who is also is trying to get in on the battle of the economies by making BBM Money cross-platform through Blackberry Messenger. Beyond device manufacturers, retailers and current mobile wallets such as Paypal or Amazon will want to join in, although I suspect Amazon will curtail to customer’s requests for Apple Pay out of security concerns.

What I believe will be the quick win for Apple Pay supporting purchases from within iOS apps.

Apple Pay can be incorporated into an existing app purchase process, for buying physical goods and services. Think of it is as a third payment option next to major credit cards and Paypal during checkout. Apple Pay can be used to provide payment, billing, shipping and contact information for purchases. By selecting the Apple Pay button, all of the needed customer information is provided automatically to a retailer – streamlining the purchase path. In fact, apps will no longer even need a shopping cart feature to support purchasing single items. All that is needed is the Apple Pay purchase button to start the process.

While not mentioned in the Apple launch event, I anticipate that Apple Pay will extend into purchasing on the web using Safari from your iPhone. With that, I expect the next iPad release will support Apple Pay for both app and online purchases.

How will Apply Pay force Apple to evolve traditional IAP exclusivity?

With Apple Pay, will I be able to purchase physical books from Amazon? What about eBooks and music? What about bundled physical and virtual goods together (many Blu Ray DVDs include a digital copy as well)?

Will Apple’s immense following finally take mobile payment mainstream? Are customer’s fed up with credit card hackers enough to change a 50 year habit of plastic filled wallets? While I can’t predict the future, I do know that 2015 will be the year to watch.