Ondrej Holzman It's been a few weeks since Apple introduced new products. After the Apple Watch, which was discussed mainly due to the fact that almost nothing was actually known about it, the most attention is now focused on the "bending" iPhone 6. However, there could also be a third - and no less significant - novelty in October: Apple Pay.
The new payment service, which Apple is entering into hitherto uncharted waters, is to experience a sharp premiere in October. For now, it will only be in the United States, but it may still mark a significant milestone in the history of the Californian company, as well as in the field of financial transactions in general.
[do action="citation"]Apple Pay has followed in the footsteps of iTunes.[/do]
These are just predictions for now, and Apple Pay may eventually end up like the now-almost-forgotten social network Ping. But so far everything indicates that Apple Pay is following in the footsteps of iTunes. Not only Apple and its partners will have the deciding word on success or failure, but above all the customers. Will we want to pay for iPhones?
Come at the right moment
Apple has always said: it's not important for us to do it first, but to do it right. This was more true for some products than others, but we can safely apply this "rule" to Apple Pay as well. There has long been speculation that Apple will enter the mobile payments segment. Even with regard to the competition, when Google introduced its own Wallet solution for paying with mobile devices in 2011, it was estimated that Apple must also come up with something.
In Cupertino, however, they do not like to rush things, and when it comes to creating services as such, they are probably twice as careful after several burns. Just mention Ping or MobileMe and some users' hair stands on end. With mobile payments, Apple executives surely knew they could do no wrong. In this area, it is no longer just about the user experience itself, but above all, in a fundamental way, about security.
Apple finally bailed on Apple Pay in September 2014 when it knew it was ready. The negotiations, led largely by Eddy Cuo, senior vice president of Internet Software and Services, lasted more than a year. Apple began dealing with key institutions in early 2013, and all proceedings related to the upcoming service were labeled "top secret." Apple tried to keep everything under wraps not only in order not to leak information to the media, but also for the sake of competition and more advantageous positions in negotiations. Employees of banks and other companies often did not even know what they were working on. Only essential information was communicated to them, and most could only get the overall picture when Apple Pay was introduced to the general public.
[do action=”quote”]The unprecedented deals say more about the potential of the service than anything else.[/do]
An unprecedented success
When building a new service, Apple encountered a virtually unknown feeling. He was entering an area with which he had no experience at all, he had no status in this field, and his task was clear - to find allies and partners. Eddy Cue's team, after months of negotiations, finally managed to conclude completely unprecedented agreements in the financial segment, which in themselves can say more about the potential of the service than anything else.
Apple has historically been strong in negotiations. He's managed to deal with mobile operators, built one of the most sophisticated manufacturing and supply chains in the world, convinced artists and publishers that he could change the music industry, and now he's on to the next industry, albeit a long shot. Apple Pay is often compared to iTunes, i.e. the music industry. Apple managed to bring together all that it needs to make the payment service a success. He also managed to do it with the biggest players.
Cooperation with payment card issuers is key. In addition to MasterCard, Visa and American Express, eight other companies have signed contracts with Apple, and as a result, Apple has over 80 percent of the American market covered. Agreements with the largest American banks are no less important. Five have already signed, five more will join Apple Pay soon. Again, this means a huge shot. And finally, retail chains also came on board, also an important element for starting a new payment service. Apple Pay should support over 200 stores from day one.
But that's not all. These agreements are also unprecedented in that Apple itself has gained something from them. It is not surprising from the point of view that wherever the apple company operates, it wants to make a profit, and this will also be the case with Apple Pay. Apple contracted to get 100 cents from every $15 transaction (or 0,15% of each transaction). At the same time, he managed to negotiate approximately 10 percent lower fees for transactions that will take place via Apple Pay.
Faith in a new service
The aforementioned deals are exactly what Google failed to do and why its e-wallet, Wallet, failed. Other factors also played against Google, such as the word of mobile operators and the impossibility of controlling all hardware, but the reason why the managers of the world's largest banks and payment card issuers agreed to Apple's idea is certainly not just that Apple has such good and uncompromising negotiators.
If we were to point to an industry that developmentally remained in the last century, it is payment transactions. The credit card system has been around for decades and has been used without major changes or innovations. In addition, the situation in the United States is significantly worse than in Europe, but more on that later. Any possible progress or even partial change that would move everything forward has always failed because there are too many parties involved in the industry. However, when Apple came along, everyone seemed to sense an opportunity to overcome this obstacle.
[do action=”citation”]Banks believe that Apple is not a threat to them.[/do]
It is certainly not self-evident that banks and other institutions will have access to their carefully built and guarded profits and will also share it with Apple, which enters their sector as a rookie. For the banks, the revenues from the transactions represent huge sums, but suddenly they have no problem reducing fees or paying a tithe to Apple. One reason is that banks believe that Apple is not a threat to them. The Californian company will not interfere in their business, but will only become an intermediary. This may change in the future, but at the moment it is 100% true. Apple does not stand for the end of credit payments as such, it wants to destroy plastic cards as much as possible.
Financial institutions also hope for maximum expansion of this service from Apple Pay. If anyone has what it takes to pull off a service of this scale, it's Apple. It has both hardware and software under control, which is absolutely essential. Google had no such advantage. Apple knows that when a customer picks up their phone and finds the appropriate terminal, they will never have a problem paying. Google was limited by operators and the absence of the necessary technologies in some phones.
If Apple manages to massively expand the new service, it will also mean higher profits for banks. More transactions made means more money. At the same time, Apple Pay with Touch ID has the potential to significantly reduce fraud, which causes banks to spend a lot of money. Security is also something that not only financial institutions could hear about, but that can also interest customers. Few things are as protective as money, and trusting Apple with your credit card information may not be a question with a clear answer for everyone. But Apple made sure to be completely transparent and no one could question this side of things.
Safety first
The best way to understand the security and the entire functioning of Apple Pay is through a practical example. Already during the introduction of the service, Eddy Cue emphasized how important security is to Apple and that it is definitely not going to collect any data about users, their cards, accounts or the transactions themselves.
When you buy an iPhone 6 or iPhone 6 Plus, so far the only two models that support mobile payments thanks to the NFC chip, you need to load a payment card into them. Here you either take a picture, the iPhone processes the data and you just have the authenticity of the card verified with your identity at your bank, or you can upload an existing card from iTunes. This is a step that no alternative service offers yet, and Apple has quite possibly agreed on this with payment card providers.
However, from a security point of view, it is important that when the iPhone scans a payment card, no data is stored either locally or on Apple's servers. Apple will mediate the connection with the payment card issuer or the bank that issued the card, and they will deliver Device Account Number (token). It is the so-called tokenization, which means that sensitive data (payment card numbers) are replaced by random data usually with the same structure and formatting. Tokenization is usually handled by the card issuer, who, when you use the card, encrypts its number, creates a token for it, and passes it on to the merchant. Then when his system is hacked, the attacker doesn't get any real data. The merchant can then work with the token, for example when returning money, but he will never get access to the real data.
In Apple Pay, each card and each iPhone gets its own unique token. This means that the only person who will have your card data is only the bank or the issuing company. Apple will never get access to it. This is a big difference compared to Google, which stores Wallet data on its servers. But the security doesn't end there. As soon as the iPhone receives said token, it is automatically stored in the so-called secure element, which is a completely independent component on the NFC chip itself and is required by card issuers for any wireless payment.
Until now, various services used another password to "unlock" this secure part, Apple gets into it with Touch ID. This means both a greater degree of security and a faster payment execution, when you just hold your phone to the terminal, place your finger and the token mediates the payment.
The power of Apple
It must be said that this is not a revolutionary solution designed by Apple. We are not witnessing a revolution in the field of mobile payments. Apple just cleverly put together all the pieces of the puzzle and came up with a solution that addressed all the stakeholders on the one side (banks, card issuers, merchants) and now at launch will target the other side, the customers.
Apple Pay will not use any special terminals that will be able to communicate with iPhones. Instead, Apple has implemented NFC technology in its devices, with which contactless terminals no longer have a problem. Likewise, the tokenization process is not something the Cupertino engineers came up with.
[do action=”citation”]The European market is significantly better prepared for Apple Pay.[/do]
However, no one has yet succeeded in putting these pieces of the mosaic together in such a way as to put the whole picture together. This has now been achieved by Apple, but at the moment only part of the work has been done. Now they have to convince everyone that a payment card in a phone is better than a payment card in a wallet. There is a question of safety, there is a question of speed. But mobile phone payments aren't new either, and Apple needs to find the right rhetoric to popularize Apple Pay.
Absolutely key to understanding what Apple Pay can mean is understanding the difference between the US and European markets. While for Europeans Apple Pay can only mean a logical evolution in financial transactions, in the United States Apple can cause a much bigger earthquake with its service.
A ready Europe must wait
It is paradoxical, but the European market is significantly better prepared for Apple Pay. In most countries, including the Czech Republic, we normally come across terminals accepting NFC payments in shops, whether people pay with contactless cards or even directly by phone. In particular, contactless cards are becoming the standard, and today almost everyone has a payment card with its own NFC chip. Of course, the extension varies from country to country, but at least in the Czech Republic, cards are usually only attached to the terminals (and in the case of lower amounts, the PIN is not even inserted) instead of inserting and reading the card for a longer time.
As contactless terminals work on the basis of NFC, they will have no problem with Apple Pay either. In this respect, nothing would prevent Apple from launching its service on the old continent as well, but there is another obstacle – the necessity of concluded contracts with local banks and other financial institutions. While the same card issuers, especially MasterCard and Visa, also operate on a large scale in Europe, Apple always needs to agree with specific banks in each country. However, he first threw all his energies into the domestic market, so he will only sit down at the negotiating table with European banks.
But back to the US market. This, like the entire industry with payment transactions, remained significantly backward. Therefore, it is a common practice that cards only have a magnetic stripe, which requires the card to be "swiped" through a terminal at the merchant. Subsequently, everything is verified with a signature, which worked for us many years ago. So compared to local standards, there is often very weak security overseas. On the one hand, there is the absence of a password, and on the other hand, the fact that you have to hand over your card. In the case of Apple Pay, everything is protected by your own fingerprint and you always have your phone with you.
In the ossified American market, contactless payments were still a rarity, which is incomprehensible from a European perspective, but at the same time it explains why there is such a buzz around Apple Pay. What the United States, unlike most European countries, has not managed to do, Apple can now arrange with its initiative - the transition to more modern and wireless payment transactions. The aforementioned business partners are important to Apple because it is not common in America for every store to have a terminal that supports wireless payments. Those with whom Apple has already agreed, however, will ensure that its service will work from day one in at least several hundred thousand branches.
It's hard to guess today where Apple would have an easier time gaining ground. Whether on the American market, where the technology is not completely ready, but it will be a big step forward from the current solution, or on European soil, where, on the contrary, everything is ready, but customers are already used to paying in a similar form. Apple logically started with the domestic market, and in Europe we can only hope that it will conclude agreements with local institutions as soon as possible. Apple Pay does not only have to be used for ordinary transactions in brick-and-mortar stores, but also on the web. Paying with an iPhone online very easily and with the maximum possible security is something that can be very attractive to Europe, but of course not only Europe.
Great article, thanks
Hats off to such a quality article! Really thanks, supr!
Very nice article, keep it up.
Excellent article!
I'm really looking forward to it BUT I think it will take years for it to reach us and spread...
Well, according to Visi, it should be in Slovakia around February 2015. What I read in the article was that we are the second country in Europe that uses contactless payments the most. And I don't think that there will be a problem with the Czech Republic once it's up to the Slovak Republic.
How many iPhone 6 and 6 PLUS will there be in Slovakia in half a year? I highly doubt more than 10 thousand. There is no need to rush it in Slovakia.
Thanks for the great article. :)
If the banks want Pay to spread to the "Old Continent" (as they do), they will try to resolve the contracts as soon as possible.
So I think next year we could see the first steps of Apple Pay into Europe and within 2-3 years it could become the standard.
That's my guess. :)
All the necessary information I wanted to know about this service summarized in one clear article, thanks! :)
I don't understand why everyone is always negative about MobileMe. I used it all the time, including their galleries in connection with iWeb, shared content from iDisk, etc. What's up with PhotoStream ap. it bothers me
How do I pay if my battery runs out?
By card? Cash?
Where is the big advantage if I still have to carry the card or cash with me?
How often does your phone run out of power? If often, then Apple Pay is not for you.
A dead phone is like a car without fuel. An empty tank means stop.
Well, he is right (Macropus) the chairman :-)
Moreover, if your phone doesn't last even 1 day without charging today.
These situations will occur quite often, I would say.
Fortunately, we have been here for x years following the monkeys, so you need to always have cash with you.
The solution, of course, is to have a charger in every other cafe (restaurant) (with the appropriate connector, of course :-) ).
Like if it's just somewhere, it's not too much (rather nothing than too much). If it's everywhere, great - then I'll applaud.
You're fine. If I pay by card, I have to take out my wallet and card from my pocket and then enter my PIN. If I had the option to pay with an iPhone, I would take the iPhone out of my other pocket, attach it to the terminal and confirm with a fingerprint. For me, it would be more convenient to pay with an iPhone, but whoever wants to can choose a card.
And the iPhone 6 and 6 plus have a longer battery life than the older ones.
Do we know how NFC works? It should work so that you confirm with a PIN on a discharged phone.
If that's the case, that's ok.
That's the same question as asking: "And how do I make a call with this mobile phone when the battery runs out?" The answer: "From a phone booth" And what is the use of a mobile phone if I can make a phone call from a phone booth?
That's exactly how it is with Apple PAY. I'm assuming you don't have a cell phone and rely only on a landline.
Someone makes distinctions in importance between paying and calling. How about trying to answer matter-of-factly like, for example, Mr. Horák.
The bottom line for me is that if I go ahead it drains the phone by charging it every night. If I accept that the phone can still run out of power and it will not be possible to make calls, I also accept the same when paying.
If I were to think the same way as you, until now I buy tickets for the subway in a machine, what if my cell phone dies and I am unable to show the ticket, until now I carry maps and a camera on my walks, until now I write my tasks in a notebook, events to a paper calendar....what if my cell phone died and I didn't know what to do?
I note that the article states the need to verify the payment with a fingerprint, so paying with a switched off mobile phone will definitely not work.
I understand. If it were not possible to pay with a dead mobile phone, I would still carry the card with me, but then I don't care which pocket I reach for my mobile phone or my wallet. Otherwise, I wouldn't dare to rely 100% on my mobile, except for paying tickets and the calendar, and that's why I carry maps and a camera on my trips (the navigation is not enough even for a one-day trip) and I always have important documents in printed form.
I also did it there sometime in the late nineties. I used to carry maps, a camera and a hiking GPS, but today I take a phone and an external battery on my hikes.
In the article, the author forgot one important thing. Apple will also offer an API for online stores so that you can choose the option to pay via Apple Pay and there is no need to enter the card number into a virtual POS terminal or pay by bank transfer or enter a password to paypal or pay cash on delivery. More comfort and higher security.
I simply select the product, select Apple pay and the iPhone shows me a message asking if I want to confirm the payment for the store and the amount. I put my fingerprint and it is confirmed. If I also link it with the address entered in iTunes, I won't even have to write the address.
Excellent article describing the fact. The problem with launching this service on our market is that Apple Pay must be launched in the "big" already announced markets and there is currently no capacity to integrate more into the system. Another difference why, for example, Apple Pay will not work in the Czech Republic and with banks that are both in the USA and the Czech Republic (eg Citibank) is the fact that the card issuer in Europe and America is different. Hope to see you next year...
From both providers, you can find statements on our websites that they see the future in Apple Pay and that they are preparing it. I don't think card issuers would be an obstacle for us. the question is what does it mean on the bank's side. any SW support? Administrative? Process change? .. hard to say. Anyway, I believe that as soon as the first bank has it, it will take advantage of it in terms of marketing..
It's a pleasure to read something like this again after all the bubbles..
great article, finally no nonsense is written about Apple payment terminals, etc.
Have you seen how an apple is made in the cinema? :-) Do a YouTube search for "Foxconn: An Exclusive Inside Look" It's true that the working environment etc. is one of the best even when they work 6 days a week 10-12 hours a day...
For the sake of interest, this factory in one place in the Shenzhen area reportedly employs up to 500 people.
If only we had a high-quality app, it would be possible to create a perfect overview of expenses and control losses... I'm looking forward to it...
I don't understand why banks would want to vehemently support a closed system that will have a maximum of 15% of smartphone users. And the first 2-3 years even significantly less, because iPhone 6 and higher.
I understand that Apple can enforce it by force, but I think it will end up like the "famous advertising system" of Apple, after which the earth collapsed and everyone expressed support for it from the beginning and saw a future in it.
After all, the famous advertising system works. You download an application that supports ads, and when you use it, you see an ad. And the developer receives a share of the advertising for each view.
However, it cannot be said that it was a bomb that was supposed to completely change the world of advertising (according to Jobs).
I block advertising on the Internet, but I don't know how to do it on iOS. And when I download an app with advertising for free, at least the developer gets some money. Or I can buy the same app without ads for a few bucks.
So I end up seeing the ad only on iOS.
youtube, facebook, zive, sme, ... I can keep the advertisement to myself. At least it doesn't bother me.
I just thought about it now and hope I didn't miss it somewhere in the article. Does the phone have to be connected to the internet to make a payment? It would probably make sense to me because of the tokenization, but I don't understand that much.
Hello,
thanks for your article, but please allow me a few comments on this topic.
At least it is contradictory how and to whom APPL gave a discount, thanks to apple pay transactions. Or because he has his own solutions for "securitization and verification", he removed from the existing "transaction system" the still present intermediary element PAYMENT PROCESSOR, which are companies that are responsible for the implementation (security, transfer, verification) of payments. with the card they take up to 35 points from each transaction. APPL will take the minimum part of these fees, but the final paying client will pay much less than now = DISCOUNT.
However, most of the transaction fees are taken by the banks, and APPL has certainly "negotiated" something with them. Again, it is not clear what and how. However, it is logical that for banks it will be new clients, new transactions, which can bring them economies of scale (the cost of one mobile transaction is the cheapest).
As for Touch ID, it is certainly a revolution, but something similar is also planned for Visa with Mastercard=HCE, i.e. verifying the client outside the system without "transferring" his identification between merchants and banks, and it is a pure software solution.
As for payments. cards in the USA, where there are no EMV cards (according to Goldman Sachs, there are only 1% of chip cards in the USA!!), so mobile payments are certainly opportunities and "market = speculators" :-) believe me, switching to EMV cards from the USA is a straight jump. But the reason for non-chip cards in the US is also who pays to "abuse" now and who will be when everyone switches to a chip (merchant vs. banks). Now they are all insured, and the cost of upgrading the POS (terminal/reader) is certainly higher than the current paid insurance against abuse. That's why APPL had to offer an API to make the POS upgrade (POS will be de facto IPONE/IPAD) as cheap as possible, and I consider that very important.
I see the step of Apple pay as very positive, but in order for it all to "take off" there will be a need for the coordination of many other entities in the system (banks, payment processors, card issuers, merchants).
Personally, I assume that even MSFT or FB and many other big players on the market will not miss something this big, so we have a lot to look forward to.
Apple pay is great, but I don't think the revolution will happen by chance. But the important thing is that "it has already started"... :-)
By the way, look at some examples from Africa, where they immediately "jumped" from cash to mobile payments (Kenya, Nigeria). They started there a long time ago :-)
I'm looking forward to the fact that it will happen to us too... :-)
Good luck, Ales Vavra