Smart analyst. I've been saying this for weeks now. It won't be a revenue driver but Apple hopes it adds some stickiness to the ecosystem. Problem is that it isn't really hard for somebody to go to Android and enter their credit cards into another phone. How long does it take for you to enter even 10 cards just one time into a digital wallet? Not long.
This is just something they need to do because Android is doing it. It's a convenience feature for consumers and just one less reason apple hopes works to keep people inside apple ecosystem.
For those who understand the credit card business and how it works this was obvious but main stream media went nuts thinking apple was taking over all credit cards end to end. Beyond stupid.
Credit cards are run by banks. The rails that the transaction rides on is owned by Visa/Mastercard. The processors like Verifone running the terminals. Apple, as the analyst correctly points out, merely is a digital store for the credit card number. It eliminates the need to carry a card and/or swipe it. Not sure this is highly disruptive but even if 100% of apple users used this there is no needle moving for apple's revenue line.
What I meant (perhaps not clearly) is that Square charges 2.75%, of which something like 70-80% funnels back to the CC companies. Apple could essentially be the same. There isn't an additional fee from the consumer standpoint. For the convenience/security of a TouchID payment, Apple would retain x amount and funnel the rest back to the CC companies.
How is it more secure than a PIN? Simple. The card is stored on the phone itself in the secure enclave, and only accessible via TouchID. You don't need a physical card nor a PIN.
With a chip and PIN system, only the person who knows the PIN can use the card. The purpose of TouchID would be to authenticate the person in possession of the card, which is exactly what a PIN does. In fact TouchID is essentially a PIN that is forever tied to your phone's hardware and cannot be changed by the user. As iOS backs TouchID by a PIN and not the other way around, Apple seems to regard TouchID as a convenient method of authentication but subordinate to a traditional PIN.
This is perfect timing on Apple's part. The EMV liability shift kicks in here in the States a year from now. Issuers and merchants are already gearing up for the change. I've not received a chip card yet, but several of my friends and acquaintances have.
NFC - contactless - tap and pay hasn't really caught on here in the US. But outside the States, quite the opposite. Why? Because EMV supports mobile payment while Magstripe doesn't.
From what I've heard, android has had NFC in there higher end phones for some time now, but it hasn't made a dent here. Because there's not much use for it at the present time IMO.
I was at nordstrom yesterday - I don't go there often but last time I was there they had iPads and Square readers. They still have the iPads but I noted they now also have the EMV terminal, I would assume that includes contactless and tap & pay capabilities as well. More merchants are gearing up. Apple timed this perfectly - if they waited til next year just before the liability shift kicked in that would be too soon.
IMO well before 1 Oct 15 all but the smallest merchants will be EMV compliant. Actually with Square releasing it's chip reader, even the smallest merchants have no excuse. I just bought the 5S in December but if the mobile payment rumors are true, I'll be upgrading early.
By the by, Visa itself only charges a fraction of a percent for most transactions as an interchange fee. The acquirers and payment processors add on their bits, that's why it's higher. If Apple is planning to be the processor directly through visa/MC/Amex they could make some major $$$.
Apple will not be a bank but might well buy one. That way the bank gets regulated but Apple does not.
The important thing to remember is that banking is not Apple's business, and the banking business can be treacherous (you can ask GE about that). Apple would probably prefer not to do banking, but will do it if it's the only way to get where they want to be.
With regard to Apple getting a better deal but accepting part of the risk - my guess is that Apple would insist on this. Not because it wants to take on risk, but it know that the risk is slight because the system is secure. On the other hand, Samsung's "system" is not. Samsung will certainly try to do a similar deal and will have to accept the risk, or no deal. That could be expensive, very expensive. And that is precisely Apple's plan here -- you have copied our look-and-feel, well now put your money where your mouth is.
Smart analyst. I've been saying this for weeks now. It won't be a revenue driver but Apple hopes it adds some stickiness to the ecosystem. Problem is that it isn't really hard for somebody to go to Android and enter their credit cards into another phone. How long does it take for you to enter even 10 cards just one time into a digital wallet? Not long.
This is just something they need to do because Android is doing it. It's a convenience feature for consumers and just one less reason apple hopes works to keep people inside apple ecosystem.
For those who understand the credit card business and how it works this was obvious but main stream media went nuts thinking apple was taking over all credit cards end to end. Beyond stupid.
Credit cards are run by banks. The rails that the transaction rides on is owned by Visa/Mastercard. The processors like Verifone running the terminals. Apple, as the analyst correctly points out, merely is a digital store for the credit card number. It eliminates the need to carry a card and/or swipe it. Not sure this is highly disruptive but even if 100% of apple users used this there is no needle moving for apple's revenue line.
However, it improves Apple's long game of disintermediating the credit cards at some point.
What is Apple going to do that warrants anyone giving them money in exchange?
The CC companies and Paypal don't need Apple. They are not going to forego billions in income and hand it over to Apple just because Apple are offering a different conduit for transactions.
Providing security and reducing fraud, that's what. Banks and FIs aren't going to pay for a different conduit - that's true. But they will pay for reduction in fraud, and increased security.
One very visible example of this is that new cards have chips, and virtually all POS terminals will be replaced by this time next year. Very expensive. So why? Just 'cos chips look cool? No - because they reduce card-cloning which is much of the fraud today. Banks and FIs are paying to do this - because they get something in return. Same with Apple - banks and FIs will pay (forego revenue) if they get a greater reduction in fraud loss etc.
Providing security and reducing fraud, that's what. Banks and FIs aren't going to pay for a different conduit - that's true. But they will pay for reduction in fraud, and increased security.
One very visible example of this is that new cards have chips, and virtually all POS terminals will be replaced by this time next year. Very expensive. So why? Just 'cos chips look cool? No - because they reduce card-cloning which is much of the fraud today. Banks and FIs are paying to do this - because they get something in return. Same with Apple - banks and FIs will pay (forego revenue) if they get a greater reduction in fraud loss etc.
They are not going to pay Apple billions to duplicate security they themselves are already paying to introduce. Only a small fraction of CC transactions would be via iPhones because worldwide, they are not the dominant platform, so only a minority of transactions would ever be likely to be done via an iPhone. And all that is leaving aside the probability that most CC transactions these days are probably done online, where an iPhone would by irrelevant. I am struggling to remember the last time I used my actual CC in person. I think it was to buy petrol, one, maybe two years ago. But as I said, I don't see how an iPhone is any more secure than a PIN, which is what my Visa Debit cards use. They already have NFC tap to pay chips as well.
Maybe Apple have worked out an angle, I guess we will soon see, but I very strongly doubt banks or CC companies are going to hand over billions of their revenue to Apple. I think the real angle is to provide a convenient feature to the iPhone platform to make it more attractive for people to buy an iPhone.
I have to laugh really. Banks in Ireland have become so mercenary and charge so much for card transactions that I and many others have gone back in time to using cash, so the whole card/NFC payment scenario is rather moot for me personally.
They are not going to pay Apple billions to duplicate security they themselves are already paying to introduce. Only a small fraction of CC transactions would be via iPhones because worldwide, they are not the dominant platform, so only a minority of transactions would ever be likely to be done via an iPhone. And all that is leaving aside the probability that most CC transactions these days are probably done online, where an iPhone would by irrelevant. I am struggling to remember the last time I used my actual CC in person. I think it was to buy petrol, one, maybe two years ago. But as I said, I don't see how an iPhone is any more secure than a PIN, which is what my Visa Debit cards use. They already have NFC tap to pay chips as well.
Maybe Apple have worked out an angle, I guess we will soon see, but I very strongly doubt banks or CC companies are going to hand over billions of their revenue to Apple. I think the real angle is to provide a convenient feature to the iPhone platform to make it more attractive for people to buy an iPhone.
I have to laugh really. Banks in Ireland have become so mercenary and charge so much for card transactions that I and many others have gone back in time to using cash, so the whole card/NFC payment scenario is rather moot for me personally.
You're right - banks and FIs will not pay twice. But it does seem that Apple has a deal, if this is to be believed ...
For the sake of discussion, let's assume it's accurate. This might be incorrect and we'll find out on Tuesday. For this discussion I'm accepting it.
The number of CC transactions to be done by iPhone may be a minority but it'll be non-trivial. Reducing fraud even for these is a good thing (depending upon the cost of doing that - agreed).
You mention that iPhone would be irrelevant for online transactions. I strongly disagree, and believe that banks would love people to use iPhone for online activity. Card-not-present fraud is higher than that for card-present which is why different fees apply. But Apple's deal sets fees for CNP to be the same as CP. We don't know the details, until Tuesday, but I believe that Apple's mechanism does the authentication using credentials stored in the secure enclave. No-one has access to that, as far as we know, other than to store credential "things" into it, and request certain operations using the credentials. This is a lot more secure than a PIN which, as we've seen years ago, can be captured (Shell petrol stations had compromised terminals). With iPhone it's all done (if my theory is right) on the phone and is authenticated and encrypted end-to-end. No PIN. The merchant gets partial transaction data, but not the whole thing, and certainly nothing that could be reused. So the scraping attacks (Target, HomeDepot) are useless.
I think that there are a few pieces to Apple's strategy here. One, as you say, is to make iPhone more attractive and thereby sell more iPhones. A second may be to generate a revenue stream from transactions. The article shows just a toe-in-the-water and who knows where it will lead. However, Apple has for years been mentioning the huge number of iTunes accounts, with credit cards, so I have to believe that there's a pony in there. Somewhere.
The third piece is a classic competitive advantage. Apple has negotiated deals with the banks and FIs for better rates and has agreed, in exchange, to accept some of the liability for fraud. This is a real "put your money where your mouth is" challenge to Samsung, which does not have security systems that are anywhere close to TouchID + secure enclave. Apple is saying - you have copied our look-and-feel, now copy this.
Samsung can decline the challenge and suffer the prestige-loss in the marketplace, or take it on and indemnify the banks and FIs as Apple has done. That could be expensive. Very expensive. Tuesday will be an interesting day.
Comments
This is just something they need to do because Android is doing it. It's a convenience feature for consumers and just one less reason apple hopes works to keep people inside apple ecosystem.
For those who understand the credit card business and how it works this was obvious but main stream media went nuts thinking apple was taking over all credit cards end to end. Beyond stupid.
Credit cards are run by banks. The rails that the transaction rides on is owned by Visa/Mastercard. The processors like Verifone running the terminals. Apple, as the analyst correctly points out, merely is a digital store for the credit card number. It eliminates the need to carry a card and/or swipe it. Not sure this is highly disruptive but even if 100% of apple users used this there is no needle moving for apple's revenue line.
With a chip and PIN system, only the person who knows the PIN can use the card. The purpose of TouchID would be to authenticate the person in possession of the card, which is exactly what a PIN does. In fact TouchID is essentially a PIN that is forever tied to your phone's hardware and cannot be changed by the user. As iOS backs TouchID by a PIN and not the other way around, Apple seems to regard TouchID as a convenient method of authentication but subordinate to a traditional PIN.
NFC - contactless - tap and pay hasn't really caught on here in the US. But outside the States, quite the opposite. Why? Because EMV supports mobile payment while Magstripe doesn't.
From what I've heard, android has had NFC in there higher end phones for some time now, but it hasn't made a dent here. Because there's not much use for it at the present time IMO.
I was at nordstrom yesterday - I don't go there often but last time I was there they had iPads and Square readers. They still have the iPads but I noted they now also have the EMV terminal, I would assume that includes contactless and tap & pay capabilities as well. More merchants are gearing up. Apple timed this perfectly - if they waited til next year just before the liability shift kicked in that would be too soon.
IMO well before 1 Oct 15 all but the smallest merchants will be EMV compliant. Actually with Square releasing it's chip reader, even the smallest merchants have no excuse. I just bought the 5S in December but if the mobile payment rumors are true, I'll be upgrading early.
By the by, Visa itself only charges a fraction of a percent for most transactions as an interchange fee. The acquirers and payment processors add on their bits, that's why it's higher. If Apple is planning to be the processor directly through visa/MC/Amex they could make some major $$$.
Apple will buy the Bank of Ireland.
However, it improves Apple's long game of disintermediating the credit cards at some point.
What is Apple going to do that warrants anyone giving them money in exchange?
The CC companies and Paypal don't need Apple. They are not going to forego billions in income and hand it over to Apple just because Apple are offering a different conduit for transactions.
Providing security and reducing fraud, that's what. Banks and FIs aren't going to pay for a different conduit - that's true. But they will pay for reduction in fraud, and increased security.
One very visible example of this is that new cards have chips, and virtually all POS terminals will be replaced by this time next year. Very expensive. So why? Just 'cos chips look cool? No - because they reduce card-cloning which is much of the fraud today. Banks and FIs are paying to do this - because they get something in return. Same with Apple - banks and FIs will pay (forego revenue) if they get a greater reduction in fraud loss etc.
Providing security and reducing fraud, that's what. Banks and FIs aren't going to pay for a different conduit - that's true. But they will pay for reduction in fraud, and increased security.
One very visible example of this is that new cards have chips, and virtually all POS terminals will be replaced by this time next year. Very expensive. So why? Just 'cos chips look cool? No - because they reduce card-cloning which is much of the fraud today. Banks and FIs are paying to do this - because they get something in return. Same with Apple - banks and FIs will pay (forego revenue) if they get a greater reduction in fraud loss etc.
They are not going to pay Apple billions to duplicate security they themselves are already paying to introduce. Only a small fraction of CC transactions would be via iPhones because worldwide, they are not the dominant platform, so only a minority of transactions would ever be likely to be done via an iPhone. And all that is leaving aside the probability that most CC transactions these days are probably done online, where an iPhone would by irrelevant. I am struggling to remember the last time I used my actual CC in person. I think it was to buy petrol, one, maybe two years ago. But as I said, I don't see how an iPhone is any more secure than a PIN, which is what my Visa Debit cards use. They already have NFC tap to pay chips as well.
Maybe Apple have worked out an angle, I guess we will soon see, but I very strongly doubt banks or CC companies are going to hand over billions of their revenue to Apple. I think the real angle is to provide a convenient feature to the iPhone platform to make it more attractive for people to buy an iPhone.
I have to laugh really. Banks in Ireland have become so mercenary and charge so much for card transactions that I and many others have gone back in time to using cash, so the whole card/NFC payment scenario is rather moot for me personally.
They are not going to pay Apple billions to duplicate security they themselves are already paying to introduce. Only a small fraction of CC transactions would be via iPhones because worldwide, they are not the dominant platform, so only a minority of transactions would ever be likely to be done via an iPhone. And all that is leaving aside the probability that most CC transactions these days are probably done online, where an iPhone would by irrelevant. I am struggling to remember the last time I used my actual CC in person. I think it was to buy petrol, one, maybe two years ago. But as I said, I don't see how an iPhone is any more secure than a PIN, which is what my Visa Debit cards use. They already have NFC tap to pay chips as well.
Maybe Apple have worked out an angle, I guess we will soon see, but I very strongly doubt banks or CC companies are going to hand over billions of their revenue to Apple. I think the real angle is to provide a convenient feature to the iPhone platform to make it more attractive for people to buy an iPhone.
I have to laugh really. Banks in Ireland have become so mercenary and charge so much for card transactions that I and many others have gone back in time to using cash, so the whole card/NFC payment scenario is rather moot for me personally.
You're right - banks and FIs will not pay twice. But it does seem that Apple has a deal, if this is to be believed ...
<http://bankinnovation.net/2014/09/apple-said-to-negotiate-deep-payments-discounts-from-big-banks/>;
For the sake of discussion, let's assume it's accurate. This might be incorrect and we'll find out on Tuesday. For this discussion I'm accepting it.
The number of CC transactions to be done by iPhone may be a minority but it'll be non-trivial. Reducing fraud even for these is a good thing (depending upon the cost of doing that - agreed).
You mention that iPhone would be irrelevant for online transactions. I strongly disagree, and believe that banks would love people to use iPhone for online activity. Card-not-present fraud is higher than that for card-present which is why different fees apply. But Apple's deal sets fees for CNP to be the same as CP. We don't know the details, until Tuesday, but I believe that Apple's mechanism does the authentication using credentials stored in the secure enclave. No-one has access to that, as far as we know, other than to store credential "things" into it, and request certain operations using the credentials. This is a lot more secure than a PIN which, as we've seen years ago, can be captured (Shell petrol stations had compromised terminals). With iPhone it's all done (if my theory is right) on the phone and is authenticated and encrypted end-to-end. No PIN. The merchant gets partial transaction data, but not the whole thing, and certainly nothing that could be reused. So the scraping attacks (Target, HomeDepot) are useless.
I think that there are a few pieces to Apple's strategy here. One, as you say, is to make iPhone more attractive and thereby sell more iPhones. A second may be to generate a revenue stream from transactions. The article shows just a toe-in-the-water and who knows where it will lead. However, Apple has for years been mentioning the huge number of iTunes accounts, with credit cards, so I have to believe that there's a pony in there. Somewhere.
The third piece is a classic competitive advantage. Apple has negotiated deals with the banks and FIs for better rates and has agreed, in exchange, to accept some of the liability for fraud. This is a real "put your money where your mouth is" challenge to Samsung, which does not have security systems that are anywhere close to TouchID + secure enclave. Apple is saying - you have copied our look-and-feel, now copy this.
Samsung can decline the challenge and suffer the prestige-loss in the marketplace, or take it on and indemnify the banks and FIs as Apple has done. That could be expensive. Very expensive. Tuesday will be an interesting day.
If you're interested, check it out here:
http://seekingalpha.com/article/2478695-credit-cards-could-make-apple-essential