Apple Pay is a strategic move that will
rival PayPal and other contenders in the mobile wallet market place.
The big question is whether consumers and businesses are ready to
ditch the plastic
DUBAI,
UAE, 21st
September, 2014:
On September 9, Apple
announced an exciting new feature, Apple
Pay, a mobile wallet payment system available on the new iPhone 6
and Apple Watch devices. A lot of initial reactions to the
announcement was "Not another mobile wallet option!"
Lucas
Zaichkowsky, Enterprise Defense Architect at AccessData
says that after researching implementation details, he found Apple
Pay was quite unique and intriguing. It
enables a safe and secure transaction between Apple devices and a
retailer’s contactless payment reader or online storefront. The
consumer avoids the tedious step of swiping or entering credit card
numbers or passwords since it's already stored in Passbook, an
application first introduced in iOS 6.
What’s
important is how Apple Pay transforms traditional theft-prone credit
cards into a unique Device Account Number stored securely on a
special chip in the device. It then, pairs that number with
transaction-specific dynamic security codes. This ensures that
intercepted transactions cannot be used to conduct fraud since each
security code is only good for the one transaction. This is the most
obvious benefit, similar to the protections in place with EMV: to
prevent the chips from being copied.
Another
less obvious security benefit Apple Pay has over EMV is that
sensitive card data is never handled by the merchant. EMV passes
plain text card data to point of sale systems which can later be
stolen by RAM scrapers and used to commit fraud. With Apple Pay, the
physical phone becomes the sole point for potential exploitation.
Hopefully, Apple has implemented significant and sophisticated
measures into protecting card data stored in the iPhones Passbook
from theft or unauthorized use. Regardless, removing sensitive
payment data from the merchants’ hands is a necessary step to solve
the increased breach epidemic retailers have been facing.
What’s
especially bold is Apple’s move to bypass the payment processors
that have been used for decades. Point of sale and online ordering
systems integrated to support Apple Pay can send the Device Account
Number and the dynamic transaction security code directly to the card
issuer for approval. In essence, they’re creating their own secure
payment network to facilitate their proprietary payment technology.
Unfortunately,
adoption will be a significant challenge. If you look at past
attempts to change consumer payment behavior, there’s a long list
of failures. For example, contactless payments were rolled out on a
limited basis by inserting a rice-sized RFID chip in credit cards to
which a purchaser waves in front of the terminal instead of swiping
the magnetic stripe. Adoption was abysmal. More recently, mobile
wallet offerings such as Visa payWave used NFC for contactless
payments in stores, but gained little traction beyond pilot
implementations.
Apple
Pay is a strategic move to expand further into the major mobile
wallet marketplace to rival PayPal and other contenders. The big
question is whether Apple can succeed in convincing consumers and
businesses to ditch the plastic. They both need compelling benefits
to justify the behavioral changes. For example, Starbucks
successfully leveraged its mobile application with payment
capabilities to enhance the customer experience and their loyalty
program.
One
way Apple could incentivize adoption is by providing loyalty points
for purchases made using Apple Pay, redeemable in the form of Apple
Store purchases. Consumers would get rewarded for making the switch
while driving increased traffic to the Apple stores. This in turn
would generate demand for merchants to support Apple Pay. Finally, by
eliminating the payment processors from the transaction flow,
retailers would reap greater benefits with lower processing fees and
increased cost savings that yield higher profits.
If
successful, Apple Pay would cement Apple’s dominance across the
user experience and extend its domain to mobile payments where the
biggest potential is in the rapid adoption of mCommerce, defined as
shopping online from handheld devices.
