(3 minutes reading time)
When electronic wallets are discussed between people within the payments industry there always seems to be one big white elephant in the room: Apple. Intuitively many expect them to not only start offering a wallet in the near future but also that it will be the wallet that will get sufficient adoption levels to really change the equilibrium in the (retail) payments landscape.
Lately the signals have become stronger that Apple will offer an electronic wallet. Now even Tim Cook openly acknowledged in the Q4 earning call 27 Jan 2014 that iTouch was introduced with payments in mind.
The mobile payments area in general is one that we’ve been intrigued with. It was one of the thoughts behind Touch ID.
Considering the building blocks they have been building up there is no reason to hide or deny this ambition any longer. Just for a second think about: iBeacon, iTouch, Passcode, their non fragmented and relatively secure OS platform completely tied to the hardware, customers that have again and again proven to (on average) spend more, use more then people on other platforms and their incredible amount of Apple Store and iTunes accounts tied in to credit cards.
What will Apple bring to the table that will be disruptive enough to get mass adoption while leveraging their strengths? To me it boils down to:
Today electronic payments are based on the payer authenticating himself with a token to the payments infrastructure which resides at the payee’s Point of Sale either physical or on-line (merchant or directly to the bank or card processor). If you take a traditional card scheme as a reference the payer is not connected to the payments infrastructure the merchant is. I think Apple is going to turn around this topology so that the payer is connected to the network via the smartphone “terminal” (only Apple of course!) and the payee is authenticating himself while presenting the bill information via iBeacon like technology.
Rolling out IBeacons to merchants and hooking them up to the payments will be easy and cheap for the merchant. App-builders will take care of hooking up the merchants POS with his back end automation.
Turning around the payments chain technically – the payer will still pay the payee – will have a massively disruptive effect for all involved in the current electronic payments topology. If I am right Apple’s wallet is going to be a true paradigm shift. Just to give you a hint of the effects of this change:
- In yesterdays post on Coin I uttered my disbelieve on the use of swipe in the USA for debit and credit cards. Reversing the technical payments chain where the smartphone acts as the terminal and using iBeacon technology would eradicate the use of swipe,
- It will also eradicate the need to store the payments information hackers are after at the merchant making payments potentially much safer
- We would become very dependent on one company who do not have any rival coming close to offering the same, not even Google.
NB The “smartphone as the terminal” reversal will have many more people suffering from FOEB (i.e. Fear of Empty Battery, yes you heard it hear first!) with today’s battery life.
UPDATE 9 feb 2014: Not only the payments chain will be reversed but the checkout terminal – integrated in ordering and reservations app – will move from the merchant to the smartphone of the customer, via Techcrunch: OpenTable Now Piloting Mobile Payments In San Francisco Restaurants.
Update26 feb 2014:
via Samsung And PayPal Move Against Apple With Galaxy S5 Finger Swipe Payments – Forbes:
In the world of electronic payments, this openness has been mischaracterized as less secure than proprietary alternatives and it is this misperception that Apple has so far successfully played upon with Touch ID.
The FIDO Alliance is based on the simple idea that a user can authenticate to their own device and then use public key encryption to authenticate to the network. PKE is very strong encryption (though NSA shenanigans have raised concern about back doors) and, like Apple’s scheme, does not involve biometric data itself residing in the cloud. The great advantage of using a public standard is that it opens up an entire world of authentication options for users. The FIDO standard is one standard for all of the existing methods of authentication and new ones as they emerge. … In effect, each device has an inventory of authentication capabilities, from passwords to biometrics to crazy new things like inaudible sound waves, and each network, site or app has authentication requirements. That can be mediated by the FIDO protocols.
“In the market, you can have a lot of standards, but deployment wins,”
Update 4 februari 2015: As much as I had expected – or hoped out of intellectual vanity? – Apple to reverse the payment chain what they actually introduced as Apple-pay is a very clever approach in line with existing methodologies, infrastructures while adding additional elements to the mix like privacy and the latest in tokenization based security.