Apple’s first Pay day

Yesterday, October 20, saw the US launch of Apple’s digital payment system, Apple Pay, which combines Near Field Communication (NFC) data transmission with a secure element, a dedicated chip that stores encrypted payment information.

It’s probably too early to assess the full implications of this move, given that the system will, for the moment, be limited to the United States. After all, we’ve been talking about electronic payment systems to replace credit card technology for many years now, all of which have proved impossible to implement, given the complex nature of the relationship between the different parties involved.

There have already been some serious attempts to get new payment systems off the ground, such as Softcard, a joint venture between AT&T, T-Mobile, and Verizon, with the launch of pilot schemes in Salt Lake City, along with $100 million investments and alliances with Visa, Mastercard, Discover, and American Express. Then there was Google Wallet, along with Square, as well as less-ambitious initiatives such as PayPal and many others.

Some valuable insight into the electronic payments story so far can be found in Quartz’s guide, while MasterCard discusses the main issues in Death of the Wallet? on Mashable. TechCrunch has also written about the experience of using Apple’s initiative, as has Cult of Mac, albeit in less positive terms.

So what’s different about the launch of Apple Pay? On the one hand, it has developed its own technology and patents for its so-called secure element, the protected part of the chip that processes the transactions. The future of the system will in large part depend on the robustness of this element: not just in terms of making it difficult to hack into, but in the way it is distributed and the ceding to third parties in the run up to the creation of a system in which Apple’s devices will have smaller shares to those enjoyed in its main market.

Nobody else so far has been able to leverage its plans on so many agreements between so many competitors: card companies, payment processors, retail chains, and of course the banks, several hundred of which have already signed up. Previous efforts were in some cases based on one bank, one credit card, and one terminal… not quite comparable.

Thirdly, there is the promise of transparent data processing, outlined in a statement of intent by Apple’s CEO that supposedly reflects the company’s corporate philosophy. At the same time, Apple has said that the service will have a single number that will reduce the risk of theft or subsequent processing of information; the company has shown its willingness to let customers have the final say on how their data is processed. Guaranteeing anonymity is proving a real challenge to some retail chains that want to use information on their customers’ transactions as part of their loyalty schemes.

The company’s policy on anonymity and the treatment of its clients’ information is proving controversial: the US government has expressed its disapproval of the use of communication systems that cannot be deciphered, even if the subject of a judicial order, it has also been discussed by security experts, while the new Yosemite operating system seems to share a lot of information about what users are up to with the company or partners like Bing, forcing Apple to clarify what it’s up to.

And finally, the aspect that really defines Apple’s products: usability. Based on incidents mentioned over the course of its first day of use, the majority of people have complained about the small number of establishments where it could be used, or that staff in those there were, were not properly trained. But there were few complaints that it didn’t work or that the system was hard to use, unlike with Google Wallet.

Further down the road, aside from the possible progress of competitors like Twitter, with its “click to buy” button, or Facebook’s incorporation of credit cards into its Messenger service, the system could be expanded into other markets, particularly into emerging economies with limited banking networks and where credit cards are not widely used.

This is a major event, and the most serious advance in terms of electronic payment we have seen with respect to this hypothetical “death of the wallet”, so often and so prematurely announced. As an example of technology implantation, this is a whopper of a case study.

(En español, aquí)