Apple Pay. Will it transform in-store and in-app payments in the UK? Will it transform in-store & in-app payments in the UK?

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1 Will it transform in-store & in-app payments in the UK? 1

2 OVERVIEW Apple Pay is a payment method that works via NFC enabled Apple devices both in bricks and mortar stores and in apps. In stores it uses NFC payment points and Touch ID to make and authenticate payments, while in apps Touch ID is used to authenticate payments without having to enter any card details. Apple Pay was launched in the US on the 20 th of October, 2014 and in its rst 72 hours of availability signed up more than 1 million credit cards. This move marks the tech giant s rst foray into the complicated world of mobile payments. The idea of simpli ed in-store and in-app mobile payments is not a new one numerous companies including PayPal, Google, Square and Softcard have already staked their claim. However, for years retailers have been hesitant to embrace these technologies in-store for several reasons: security concerns, lack of a clear leader in mobile payments and customers being slow to adopt the technology. Furthermore, the valuable consumer data retailers collect from traditional POS and in-app systems would no longer be accessible. There has been no o cial announcement on when Apple Pay will be available in the UK, but it is expected to cross the Atlantic in HOW DOES IT WORK? Users can either select to use their existing itunes credit card details or take a picture of their bank card to add it to their Passbook. They can then make payments in any compatible shop simply by holding an Apple Pay-enabled device up to a contactless payment point and scanning their nger print on the Touch D button. To pay for in-app purchases, users simply select Apple Pay on the payments page and scan their nger print to authenticate the purchase. The in-store service requires an Apple device with an NFC chip, meaning that users need an iphone 6 or 6 Plus or an Apple Watch to take advantage of the payment option. Apple Pay can also be used on the ipad Mini 3 and ipad Air 2, but only for in-app purchases as they lack NFC capability. WHAT S DIFFERENT ABOUT APPLE PAY? Apple claims that its new payment method is distinct from other solutions in that it is completely secure. The security of Apple Pay eliminates the concern of many retailers that customer data will be hacked. Unlike Google Wallet, which requires a user to enter a P N code, Apple Pay requires an authorised nger print before a transaction can begin, which is a pretty strong fraud deterrent. Credit card details aren t stored on the iphone or on Apple s servers, which makes payment details far harder to steal. 1

3 The issuing bank hides your card details behind an arbitrary code known as a token. This code, which is only used once, is used to authorise the payment. Every transaction will also come with a unique encoded passcode that will help determine whether a transaction is legitimate. When a transaction is made Apple is not aware of what was bought, how much it cost or where it was purchased - that information passes directly to a user s bank. The participating shop does not get to see any payment details. Apple claims that this makes its service much more secure. In addition, if a user s devices are lost or stolen there is the option to log on to icloud and remove the payment details from the device. WHAT ABOUT IN-APP TRANSACTIONS? Apple Pay has the potential to transform the checkout journey of app-using customers. Until recently, without access to PayPal Express Checkout, purchasing goods or services on an app required guest or new users to go through the longwinded process of creating an account and registering a credit card. Using Apple Pay, customers will be able to simply tap their nger on the Touch D ngerprint sensor to complete a purchase for an item or service in an app. No more frustrating credit card detail screens. In terms of costs of using Apple Pay in your app, Apple has said that it will generate fees from banks, and not from merchants. This whole process is based on this little piece of plastic, whether it s a credit or debit card. We re totally reliant on the exposed numbers, and the outdated and vulnerable magnetic interface, which by the way is ive decades old, and the security codes which all of us know aren t so secure. - Tim Cook 2

4 Eddy Cue, Apple s Senior Vice President of Internet Software and Services, stated that he anticipates that the majority of early Apple Pay transactions will be through in-app purchases. PSP INTEGRATION & IMPLEMENTATION The use of Apple Pay in your app requires integration with your payment service provider (PSP). You can nd a list of payment providers who support Apple Pay with their SDKs on developer.apple.com/apple-pay/. Using one of these SDKs is highly recommended. Contact your payment provider for more information. The alternative is to provide your own server-side solution to receive payments from your app, decrypt payment tokens and interface with the payment provider. Handling credit and debit card payments can be complicated and unless you already have the expertise and systems in place, an SDK from a payment provider is the quickest and most reliable way to support Apple Pay in your app. From the information we have at present, once integration with your PSP occurs, implementation of Apple Pay in-app will be very simple. HOW WOULD APPLE PAY AFFECT IN-STORE TRANSACTIONS? Retailers aren t all delighted with the level of data security that comes with Apple Pay. Retailers want each transaction to generate useful customer information that can be used in predictive analytics and other crucial business intelligence functions. Apple Pay would hinder retailers ability to use the data from credit cards to create customer pro les. n fact, a signi cant number of merchants, including leaders like CVS, Walmart, Kmart, 7-Eleven and Best Buy, are in outright competition with Apple Pay. The retailers, through a consortium formed in 2012, are building their own mobile payment app called CurrentC that cuts out credit card companies and gives them control over all transactional data. It s expected to launch this year. In the interim, these retailers have no intention to adopt Apple Pay. 3

5 Additionally, Apple Pay does not yet support loyalty cards, although there are rumours that this capability will be introduced very soon. At the heart of Apple Pay is Apple s Passbook app, which is already compatible with dozens of retail apps with loyalty programmes. If Apple adds loyalty cards to its Apple Pay, it would give retailers another reason to get involved with Apple Pay. In addition to the bene t of increasing loyalty card use, Apple Pay loyalty card integration would also boost retailer app downloads. HOW SUCCESSFUL IS IT IN THE US? In the months since the company released Apple Pay, some major retailers have seen a wave of customers keen to pay with their iphones. More than 200,000 stores in the US accept Apple Pay, including heavyweights such as Macys, Staples, McDonalds, Subway, Toys R US, Walgreens and Whole Foods. On the banking and credit card side, Apple has won over Visa, Mastercard and American Express as well as the major US banks including Chase, Wells Fargo and Bank of America. Smaller banks and credit unions have yet to take part, though Apple claims that 500 more banks are scheduled for addition by early The success of Apple Pay has had knock-on e ects for other mobile payment systems. According to ARS Technica, the number of Google Wallet users has doubled since Apple announced its own payment service. McDonald s said the payment system accounted for 50% of its contactless transactions, while Whole Foods states that in the rst three weeks of Apple Pay availability, it had processed more than 150,000 Apple Pay transactions. Additionally, Walgreens said its tap-to-pay purchases had doubled since the launch of the service. Apple Pay has a long way to go before it becomes a mainstream payment system. However, retailers numbers are the rst signs of widespread desire to move away from cash and cards. Quite frankly, a lot of it has to do with the strength of the Apple brand and how much merchants and customers love how easy the experience is. I m not saying it s changing the landscape overnight. But this has never happened with other mobile wallets. - Denee Carrington, Consumer Product Strategy and Innovation, Forrester Research 4

6 WILL IT WORK IN THE UK? Visa has recently let slip that Apple Pay will launch in Europe in 2015 but a speci c date remains vague. When it does come to Europe we expect the UK will be one of the rst countries with access to the technology. In the UK, the 40 million contactless NFC payment cards currently in use already address the desire to make small in-store payments quickly. It may well be the case that a mobile device manufacturer could take a big slice of the NFC payment market, but gaining the trust of consumers to handle payments securely will be a critical factor. - David Blackwell, Telecoms Partner, Deloitte Contactless payments are already up and running at places like Pret a Manger and on the London transport network, while EE has its own contactless payment app for NFC phones. Most large banks in the UK already issue contactless cards and more shops are starting to accept these payments. Visa Europe recently announced that contactless transactions have increased by 189% since May 2013, and more than 37.8 million contactless cards have been issued by banks in the UK alone. However, on this side of the Atlantic there is an app in development similar to CurrentC. It goes by Zapp and promises to cut credit card companies out of transactions, saving retailers a small percentage on every transaction. It works by taking money straight out of customers debit card accounts through a bank s mobile app and passing it instantly to the retailer. Zapp, which is expected to launch in 2015, already has a range of partners signed up, including Sainsbury s, WH Smith, McDonalds, House of Fraser and ASDA. t also has HSBC, Santander, First Direct, Nationwide and several other banks on board, which will give 18 million customers across the UK access to the service. Unlike CurrentC though, Zapp has con rmed that it s not looking to block Apple Pay. A Zapp spokesperson claims that the two technologies can easily run together. n terms of in-app payments, the adoption rate may be a lot more successful. The only current way to avoid inputting credit card details or using stored information is through PayPal. Although this service o ers substantial bene ts, it does not allow users to clock up rewards on their credit cards. This is where Apple Pay is di erent. 5

7 As discussed earlier, many retailers have been hesitant to sign onto Apple Pay because they want to maintain control over customer data and because the user-focused service does not o er retailers su cient compelling bene ts. However, Apple s previous achievements in the consumer market could tip the scale towards widespread adoption. If Apple is putting its brand and reputation behind its new payment system, then customers are likely to fall in line. If consumers demand something in large enough numbers, companies must comply or risk falling pro ts. CONCLUSION t may not be easy for Apple to persuade millions of Britons to switch from a familiar and relatively simple in-store payment system to a new one. Convincing enough banks and retailers to sign on to new payment options to make a signi cant impact in another country is a gargantuan task. However, if anyone can do it, Apple can. 6