Breon Nagy is ready for the pay-by-phone revolution — but
it’s not quite ready for him.
Nagy, a local software developer, recently wandered the Twin
Cities with his Android smartphone in search of stores offering
“tap-to-pay” terminals. These allow customers to make purchases with a
quick tap of their smartphones, instead of having to pull out and swipe
their credit cards.
This is sometimes dubbed “contactless payment” — despite
the physical taps — because the phone and terminal interact via a
wireless connection and not a physical apparatus such as a card swiper.
Conceivably, the payments also could be more secure than the card
swiper, possibly neutralizing the vulnerability to cybertheft.
But while Nagy’s local Subway shop and a few other
commercial establishments had the terminals, he mostly struck out. He
made a note of each such failure on his
Tumblr blog: “No contactless payment option. #TapPay.”
If Nagy repeats his experiment in a year or so, however, he
might have a different result. Excitement about tap-to-pay technology
is building now that Apple has joined the party.
Last month, the Cupertino, Calif., tech titan announced Apple
Pay, its version of contactless payments. It’s set to kick
off this month. Credit card giants American Express, Visa and
MasterCard, several big retail chains, and several banks, including
Minnesota’s biggest two, Wells Fargo and U.S. Bank, are on board.
Despite gadgets such as the wearable Apple Watch and new
iPhones that Apple rolled out at the same time, it was Apple Pay
that got the attention of analysts.
Because it can change the world.
Earlier tap-to-pay efforts from the likes of Google and
Samsung never made much headway. Now, longtime supporters of the
technology are looking for Apple to bring it into the mainstream, in
the same way Apple changed the world in the last decade by popularizing
music downloads via the iTunes Store.
“Everybody in the mobile-payment space has been waiting to see
what Apple’s move will be,” said Ryan Carlson, co-president and tech
evangelist at the Nerdery in Minneapolis.
“I have long advocated a wait-and-see policy (in terms of)
investing in this technology,” he said. “This came with the caveat that
once Apple formally supported the technology, all the gloves would come
off. Period.”
‘DURABLE MOMENTUM’
Now that Apple has thrown its support behind tap-to-pay
transactions, made possible with a wireless technology called “near field communication,” or NFC,
the contactless-payment revolution can begin, Carlson said.
“I believe Apple Pay will find widespread adoption among
existing iPhone users,” said Barry Randall, a St. Paul-based
technology-portfolio manager at Covestar investment advisers. “Apple’s
brand name, and the initial cohort of participating merchants, are
likely to create a durable momentum for Apple Pay.”
But the real winners with Apple Pay, added Randall, “are
likely to be the card-payment players MasterCard, Visa and American
Express, which will do more business, enabled by Apple Pay, than might
previously have been done (with people) using cash.”
It is no wonder the credit-card companies and their
banking-institution partners have been falling all over themselves to
praise Apple Pay and how that technology will bring other NFC-based
payment services along for the ride.
“What we have now is a common standard … and it is NFC,”
said Brad Greene, the vice president of mobile payments at Visa Inc.
CHALLENGES AND RIVAL PLATFORMS
But Apple Pay does face significant barriers, some believe.
“The future of Apple Pay is less than certain,” wrote Perry
Kramer and Joe Lawlor in a Boston Retail Partners report titled, “How will Apple Pay Impact Retail.”
Only about 3 to 7 percent of U.S. and European consumers
currently use their phones for in-store purchases, the authors note,
and this involves a learning curve for average consumers.
What’s more, only 220,000 retail locations are set up to take
payments via Apple Pay, they said, which represents just 2.4 percent of
the 7 to 9 million merchants that accept credit cards in the United
States.
Also, only the freshly released iPhone 6 and 6 Plus models
have NFC chips for use with Apple Pay. Older iPhone models won’t work.
But users of the new Apple Watch will be able to make NFC payments by
holding the gizmo up to an NFC terminal.
At the same time, Apple faces significant competition.
Twin Cities-based retailers Best Buy and Target have joined
Walmart in a rival effort, Merchant Customer Exchange, that
is due to offer a store-payment service called CurrentC next year.
Notably, this service does not rely on NFC. Instead, it makes use of
scannable two-dimensional codes that are made at the time of a payment.
Target is backing Apple Pay, but only via the retailer’s
iPhone app for online purchases, not in-store transactions.
Wireless carriers AT&T, T-Mobile and Verizon,
meanwhile, have coalesced around the service currently known as Softcard (formerly
called Isis before a frantic distancing from the widely publicized name
of the extremist Middle East Islamic group).
Softcard is notable in requiring users to have a special SIM
card in their phones.
A similar service called Google
Wallet has no such SIM-related requirement. Google Wallet,
backed by the Silicon Valley tech giant, has been available for use on
a broad variety of Android-based phones for a while, but with limited
success.
The NFC-based Google Wallet and Softcard services don’t
currently work on the iPhone because Apple has restricted use of its
NFC chip to Apple Pay for the foreseeable future.
MORE SECURITY
Still, other industry observers think Apple Pay is coming on
the scene at just the right time. Credit-card services have been
pushing retailers to adopt more-secure payment methods amid
much-publicized retail-chain security breaches — notably at Target and
Home Depot, where the payment data of tens of millions of debit- and
credit-card users were compromised, much of that ending up for sale on
the black market.
These data breaches, in turn, are causing brick-and-mortar
stores to replace card-processing terminals. The stations, in addition
to supporting “chip-and-pin” technology being
incorporated into the coming generation of U.S. credit cards, will
often incorporate NFC capability.
For instance, the Minnetonka-based digital-payments and
e-commerce company Digital River has announced next-generation
point-of-sale hardware incorporating NFC and supporting Apple Pay. The Digital
River World Payments mPOS (short for mobile point-of-sale) hardware,
designed for small- and mid-sized businesses, also is equipped to take
traditional card swipes and chip-and-pin card payments.
Apple Pay is more secure than chip-and-pin (officially known
as EMV,
short for Europay, MasterCard and Visa), Kramer and Lawlor of Boston
Retail Partners think. This is because Apple Pay and similar NFC
services keep credit- and debit-card numbers obscured while using
one-time-only transaction information that is of little use to hackers.
Apple Pay also incorporates use of an individual iPhone’s Touch
ID fingerprint sensor for authentication while making a store
purchase. If the user’s iPhone is stolen, it can be remotely disabled,
making it useless as a payment method for the thieves.
But Apple Pay and rival tap-to-pay services face yet another
uphill battle, Kramer and Lawlor argue.
“The current system of swiping isn’t broken” in the functional
sense, they wrote. “It’s a tad old-fashioned, but it’s no slower than
tapping one’s phone, and from the consumer perspective feels more
secure.”
