Apple Pay


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Jun 16, 2010
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Posting a bunch of stuff from another forum I go on where a poster linked to this Reddit thread, which in turn linked to a Crackberry thread where an employee of one of the big banks involved in their AP implementation talked at length about why Apple Pay is awesome and why every big bank and eventually most retailers will adopt it (and why it will force Google to fix Wallet).

It also explains why Apple Pay isn't just 'Apple coming several years late to the party' but rather Apple yet again not being the first to do something, but being the first to do it right.

Pretty cool.

Reddit Thread

The gist of it is that:

Banks are very interested in protecting their bank-client relationship. With Apple Pay, transactional information and credit/debit card numbers are only known by the card-issuing bank and Visa/MC/Amex. For banks, they dislike unnecessary parties being involved. With the way Apple Pay is set up, Apple will not be able to track transactions or know card numbers as a unique token is generated for each card that is added. Only recent transaction information is stored only on the phone, although I'm unsure of the duration. Merchants know there was a transaction, but don't know the actual credit/debit numbers used or even the name of the person.

The current implementation of Google Wallet is only beneficial to Google. He made sure to bring up Google's ability to track transactions as well as their storage of credit/debit card numbers as to why banks dislike Google Wallet. For banks, it's the choice of paying either a certain percentage (I read 0.15%) of all transactions or giving up valuable information about their clients. Not a hard choice to make at all.

Softcard/Isis is a terrible solution as they involve mobile carriers. As history has taught us, they are terrible at providing updates. Their implementations tend to be problematic and against the best interest of consumers such as their app stores and the junk they have placed on phones.

Banks have a massive incentive for customers to use Apple Pay. It looks they were very involved in the Apple Pay design process and worked overtime to make sure they were ready for rollout. They may actually offer rewards or promotions in the future to encourage its use.

Apple Pay required massive infrastructure changes as well as new encryption methods from banks and credit card networks due to the use of tokens. Bank and Visa/MC/Amex employees involved with Apple Pay worked under constant overtime and the utmost security for a year just to prepare. In the US, Apple Pay is a massive change for NFC and anyone who says NFC has already been done is ignorant in assuming it's the same.

Below I've compiled some of the posts from the CB forum that go into this in more detail. This is the long bit.

Apple Pay using NFC was started before iBeacon. It's been in the works for a very long time.
The POS (point of sale) terminal can't return the transaction data to the phone. It's not physically possible.

Then on the other side of the terminal, the transaction is not processed through Apple. It goes directly through Visa and MasterCard, and the banks and normal processors.

This is why banks are willing to pay for this service. If Apple were part of the process, banks would not have agreed to the fees.
But seriously, this system eliminates a major risk that you have with normal credit cards.

In Apple Pay, the merchant has no idea what your credit card number is. So they can't lose it the way Target and other have lost other customers' card info.

It also reduces a very significant skimming problem in Isis and Google Wallet.

The actual NFC mechanics between the watch or phone and terminal happens the same way. That was so that it works with existing POS hardware.

Everything else is very different. The security of the provisioning process is much better. The integration with banks is much tighter and more powerful. Processing and authorization is much faster and more scalable than the older systems. All of that stuff is new and much more secure than before.

Eventually I think you'll see Google do something similar with the banks to improve Google Wallet and make it more successful. The problem there is that Google doesn't care about the fees, they want the data. Totally different business model.

So maybe this won't be Apple exclusive, but we can at least give Apple credit for moving the industry forward on this.
We can't say anything more than what Apple has said already. Maybe after the launch in October. There is also something else coming that Apple still hasn't announced. I know we are producing some information for our own card members and customer associates. For now, Apple's keynote was accurate and they went through the flow in their presentation. You can see they aren't in the payment flow.

You can read some also at MasterCard site where they talk about paypass. You can at least see that the NFC hop itself is one way.

You mentioned the banks. Banks already know what you buy, where you buy it, and when. This isn't new information to us, whether you use your phone, your watch, your plastic, your PayPal, or your checkbook. But with this new scheme, merchants will not have your credit card info. They never see it, and so they cannot lose or abuse something they never see in the first place.

Also remember that with the iPhone, this also extends to purchases in apps. So when the apps are updated, you can buy something on target using their app and still Target won't see your credit card info. This is much safer than what people do now, which is type in their actual credit card number into a web form.
On PayPal:
Yes, we of course work with them also. They do things totally differently.

Do you know that PayPal has to keep your credit card number on file? Do you know if your PayPal account becomes compromised we would have to reissue your card? Do you know that PayPal necessarily has to keep track of every purchase you make?

Do you know how difficult PayPal's business model is for banks and merchants?
Because, as I've been trying to explain at length in this thread, the technology is NOT the same. Only one small part of it is, and that's the NFC mechanism itself. The data which goes over that NFC connection is very different

And everything else around that is different, including the business model. That's why this is more interesting to us than anything before it.

Also Apple cut out the phone companies and their annoying special SIMs and all the control they used to have over the SE's and payments. Banks hated that.
If you read my response earlier to this, there are some thing that Apple hasn't yet announced and so I would please refer you to their keynote where they explained as much as they want to explain for now.

I can summarize it like this:

- The phone companies are completely cut out of the process. We don't need to get their approval for anything. If your credit card company supports Apple Pay, then your phone will work regardless if you're on AT&T or Orange or Rogers or whatever. If we or Apple want to change something in Apple Pay, we don't have to wait for the stupid phone companies to approve the changes (which takes months or years). That is a huge improvement for banks and our customers.

- Apple will not store your actual credit card number anywhere. Not on the phone, not in the cloud. Merchants will never see your actual credit card number. The transactions go directly to Visa, MasterCard, Amex and not through Apple.

- Banks and issuers pay Apple with money rather than paying Google with our customers data. We would rather give Apple money than give Google our customers data.

- There are significant improvements in security which make it much more difficult for bad guys to hack this system and steal our customers credit cards. Or build skimmers to steal our customers cards at point of sale.

Isis and Google do use tokens, but they are generated and managed differently. Apple's process is much more secure because there are fewer parties that you have to trust with your PAN. Apple also works closely with us to ensure that someone can't borrow your card and add it your her phone without your permission.

Google's approach is a major privacy issue and undermines the bank/customer relationship.

So it's not that tokens are new, it's that the process around them is much more sophisticated and secure than it was in those other earlier attempts.

The issuer will pay Apple for each transaction. It is a certain percentage of the interchange and it may actually vary by issuer. It should become a very significant revenue source for Apple over time.

Banks either pay Apple money or hand over private information to Google. Most seem to prefer the former.
Because you have to look at the alternatives.

One is Softcard, which is controlled by phone companies. Phone companies are terrible partners because they move so slowly. Look at how much good Apple did by cutting phone companies out of the app stores (remember years ago when developers had to get their apps approved by each phone carrier?! It was a nightmare)

Another alternative is Google, which wants no money but their system is designed so they see every single transaction. That is much more costly than paying a fee to Apple.

Another alternative is for each bank to make an app for each OS and negotiate that with each carrier. That is what BlackBerry has always offered us, but that is even more costly and doesn't scale very well.

Combine this with the fact that Apple's system is safer, and more secure than all of these. Our highest income, highest spending customers are on iPhone. And Apple came with a better complete technology vision than we've seen from others so far.
Apple Pay wasn't designed for the US market. The security and anti-fraud measures in it are more useful in China and other markets. US users are the beta testers here.
One cool thing about Apple Pay is I will no longer worry about Target or Home Depot type breaches. That's one source of headache gone. There's no reason for Amazon or Target or Home Depot to ever see my credit card number.

A nice benefit of Apple Pay is that it works online as well and is much, much smarter than entering your credit card numbers in an online checkout.
My guess is that the reason you are finding it hard to fathom the logic is because you are ignoring the impacts of reducing risk and not having to share the transaction stream with a 3rd party. Here again you are talking about convenience and ignoring the other features of Apple Pay.

You can't understand why so many banks support this because you keep insisting that Apple has brought nothing new to the table. All I can say is that banks certainly disagree with you. Our leadership, including our board, decided more than a year ago to invest with Apple in this implementation.

Banks see the economic and strategic advantages that you keep refusing to accept even exist. So in order words, people who run huge banks, including technology leadership, looked at the options and chose to commit billions of dollars to this plan. And it wasn't just one or two banks, Apple is getting consistent agreement on this from our industry.

In fact, we all had experience with Google Wallet and Isis and advised Apple on how to make their system better for us and our customers.

It's possible all of us are just foolish and none of us understand our own business or the options we have available to us. I find that somewhat unlikely.
No, there will no additional cost to the customer ever. That is not allowed by our agreements or by the law in several jurisdictions.

It is not possible to charge the customer extra for this feature, nor would we need to because we already get plenty of value against the fees we pay Apple. We would not want to give our users any disincentive to use Apple Pay.

In fact, I would expect some banks to even give extra benefits to users who use Apple Pay. Maybe some additional rewards points or other promotions. You'll hear more on that later from a few banks probably.

I'm saying people who have used Apple Pay in testing absolutely love it. It is a very nice implementation and you can use the same convenient way to pay at CVS and then hail an Uber. The interface is easier to understand and use with multiple accounts than anything else I've seen. And it works online which is easier AND safer than having Uber or Groupon hold your credit card number in their databases.
The basic standard does nothing to manage/provision the cards and authorization flow. NFC is just one part of the total flow from card provisioning all the way through to a successful transaction. Everyone has NFC in their head, which is making it hard for people to focus on all the rest of Apple Pay. In fact for online Apple Pay purchases, there is no NFC in the flow at all!

Apple is a huge company that has a history of hiring experts in a field and then putting them on a secret project for years. You don't hear about them unless their product works and is launched. It is completely and utterly false that Apple has no experts in mobile payments. They have been hiring and collecting those people for years.

They also own their own chipset design. So we weren't limited by the standard SE's. We could add whatever we needed to tighten security at the hardware level and they could do it themselves in months rather than years. It all went into their custom SoC.

In addition, there is the issue of customer service. This doesn't work if we're counting on tech addicts to use NFC. As an international card issuer, we know how few people actually use NFC worldwide. It's popular among certain early adopters, but not at all among mainstream users. A big part of this is poor customer service in other solutions.

If your payment doesn't work, do you call the phone manufacturer, the phone company, or your bank? Most people don't know and get this wrong. Apple built very robust backend integrations with the banks' customer service system so this will absolutely seamless. Our card members expect concierge level service; Apple customers are used to high levels of service. With the integrated customer service systems we can handle this without bouncing customers from us to them (or them to us).

Adoption of tap to pay has been inconsistent because most people try it out a few times and then forget about it. Apple, as is typical of them, worked with us on every single pixel of the experience and every last bit of the customer service flow to make sure people love the experience enough that they use it all the time. Not just tech addicts.

So, yeah, Apple brought a lot to this. Fans of other platform love to hate them, but really they have some great talent and a culture of attention to detail that matters. Hate them or not, you have to admit their success is not accidental.

It wouldn't have mattered because the security standard wasn't agreed yet and didn't get finalized until the A8.

So either way earlier devices could not have participated because the encryption hardware was different. They started work some time ago, but work with the banks and payment networks wasn't completed until this year

That'll do!

Pity it's not coming out here straight away, but I can see a future where I can pay for 90% of stuff IRL/online without having to physically write my card details down or have some 3rd party storing them somewhere.

Also for the non-Apple crowd, at least it gives competing companies a kick up the butt to implement their versions properly too, so win-win for everyone eventually.

I bolded some of the stuff that might be interesting as well. I reckon when the new iPads come out, they'll have the capacity to work as POS (points of sale) via Apple Pay, so smaller retailers who use iPads this way can have customers use Apple Pay on their phones to make purchases.
Lots to digest there! It seems to validate what I've heard elsewhere on Horace Dedieu's Critical Path podcast and the Andreessen Horowitz a16z podcast. Quite a dry subject matter but if you're 'in technology' it's something you need to pay attention to.

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