Recently, Apple announced a product roll out to its customers soon that it promises will change the way we view making payments. While they seem confident in that statement (they have to if it’s going to work), they have left many merchants wondering just how this is going to affect them if Apple is successful.
Apple Pay is not a new idea. There are other services such as Google Wallet which have attempted to do the same thing years ago. The idea is to load all of a person’s desired payment methods, such as credit cards and debit cards, into a secure app on a smart phone. When the customer wishes to pay with those cards, instead of swiping the physical credit card into a credit card machine, they simply wave their cell phone across the NFC reader of that credit card machine. Yes, a special credit card machine or accessory is required to read the NFC signal.
Why is Apple Pay different?
Apple Pay is only slightly different, technologically speaking. The smartphone still interacts with the merchant’s NFC enabled device, but a few key features allow Apple Pay to transmit the transaction data in a more secure environment, utilizing a technical process called “tokenization” (basically, an encrypted code is generated and sent to Visa/Mastercard for card and account verification instead of the credit card number). Additionally, Apple Pay has made a few deals with major card issuing banks which allow for a few features such as previous transaction history reports, automatic card information updates (if your card expires, Apple Pay will update to the new one automatically), and a few smaller conveniences.
Apple’s Muscle? iPhone, iTunes and the App Store. Previously, similar services had a difficulty penetrating the market due to Apple’s refusal to allow such services on the iPhone (effectively erasing 40% of the market potential). It’s tough to get merchants to upgrade equipment, users to download the apps, and card brands to support and authenticate if such a large portion of the market is not eligible to use the service by default. But Apple now has decided it is time, after much of these services have already lost popularity and momentum, to enter the market. To bolster their case, they converted all of their transactions through iTunes and the App Store over to Apple Pay. This is a strategic move of transaction volume which, in their view, legitimizes Apple Pay as a viable service.
What do merchants need to worry about?
Whether or not this pans out for Apple and they re-establish themselves as the game-changers they used to be, time will only tell. The smart merchant however, should be prepared to accept payments from these services if they want to be ready. Many existing credit card machines and POS systems can be outfitted with an accessory to accept payments through an NFC reader. New models come with a built in option, and some older credit card machines will not be able to integrate an accessory and thus are unable to take advantage of the new technology.