Critics are fond of saying Apple doesn’t innovate any more. But Apple’s new electronic payment system, Apple Pay, is innovation of the highest order. After a relatively smooth rollout this week, I honestly believe Apple Pay is the future of payments.
Even so, Apple Pay must clear some big hurdles if it’s to become the universal standard. For now, it’s limited to Apple’s latest iPhones and a relatively small number of retail partners, but the basic system — using your fingerprint to validate a purchase on your mobile phone — is the way we will pay for goods and services in the future.
Once again, Apple has shown the world how things should be done.
The big difference between Apple Pay and other systems is that it’s user-centric. It’s not designed for the credit card companies or retailers (though it helps them too). It’s designed to make it easier for us, ordinary consumers, to pay for things.
Apple Pay is truly a better way to pay. It’s better than cash; better than cards; and better than competing tap-to-pay systems like Google Wallet.
Current card-based payment systems are pretty simple to use, but they aren’t as easy as Apple Pay — we’ve just gotten used to them. It sounds trivial, I know, but paying with plastic can be a pain. It often requires multiple steps. You swipe and type. Some terminals still require you to hit multiple checkboxes on multiple screens with a tethered electronic pen. It’s a pain, and there’s nothing more frustrating than waiting for some numbskull in front of you struggling to complete a transaction.
With Apple Pay, you touch your iPhone to the terminal, brush the Home button with your thumb, and you’re done. That’s it. When I tried it this week at Whole Foods, I was genuinely surprised at how quick and easy it was. It was truly a futuristic moment, and I was instantly converted. Touch and done.
Once again, Apple has set the bar.
Yeah, touch-to-pay is nothing new. For many Android users, Google Checkout — now called Google Wallet — debuted in 2011. RIM’s BlackBerry handsets enabled NFC payments before Apple.
And that’s just in the United States, which is late to the mobile. In Japan, mobile payments can be traced back more than a decade to 2004, when Japan’s mobile giant, NTT Docomo, debuted its Osaifu-Keitai system. It has become hugely popular and has morphed into Japan’s de facto standard, supporting a wide variety of e-money and e-ticketing functions, including ID and access cards, credit and store loyalty programs, and paying for public transit.
In Africa and other developing nations, paying by phone is also common. The popular M-Pesa system (“M” for “mobile,” and “Pesa” means “money” in Swahili), which launched in Kenya and Tanzania in 2007, has become one of the world’s most popular mobile payments system, with an estimated 17 million users in Kenya, or 70 percent of the country’s adult population.
While Apple Pay is better than what’s come before, it must become universal before it can replace your wallet or purse. It has to be accepted everywhere — and there’s the rub. This is the hardest problem facing Apple, but the company has some big advantages.
1. Infrastructure
At the moment, Apple Pay can be used in about 220,000 stores in the United States. Sounds like a lot, but it’s mostly big chains and a fraction of the estimated 3.8 million retail establishments, according to the National Retail Federation.
2. Timing
But Apple’s timing is impeccable. U.S. retail is about to undergo a huge upgrade. Unwilling to bear the costs of fraud any longer, the credit card industry is compelling merchants to switch to EMV terminals (the acronym stands for Europay, MasterCard and Visa). Already the standard in the rest of the world, EMV terminals utilize encryption chips embedded on credit cards to make transactions far more secure. Merchants must upgrade terminals to EMV by the end of 2015 or bear the cost of big increases in fraud liability.
“Apple’s timing here is an astute stroke of brilliance,” Norm Merritt, president of point-of-sale startup ShopKeep, told The New York Times. “People will already have to invest in new EMV-enabled machines. NFC is just a few bucks more.”
Indeed, one projection estimated that nearly 90 percent of retailers will have NFC capabilities by 2017. Apple’s timing couldn’t have been better. Or, more likely, Apple Pay was rolled out in anticipation of this huge change.
3. Partnerships
Earlier this week, Cult of Mac field-tested Google Wallet against Apple Pay. Both systems worked flawlessly; Google Wallet was just as easy as Apple Pay. But Google’s system has failed to get traction because of fumbled partnerships. When it first launched, Google Wallet was available only on one phone (Nexus S 4G), one network (Sprint) and one card (Citi MasterCard). While Google has subsequently expanded to more phones, carriers and cards, the system hasn’t gained critical mass.
Apple meanwhile signed up all of the big eight major credit cards and banks, and says 500 more banks are coming to Apple Pay.
Mobile Payments is already a crowded marketplace, with several competing systems from big tech companies, telecom providers and consortiums of merchants.
Perhaps Apple’s biggest competitor is the Merchant Customer Exchange, or MCX, a mobile payments system from major retailers like Target, Walmart, Lowe’s, Best Buy, 7-Eleven and CVS. It works via the free CurrentC mobile wallet, which allows users to pay at participating outlets and earn loyalty rewards and get deals. MCX members Best Buy and Walmart have said they will not support Apple Pay.
But whereas the MCX system seems to want to replace credit cards altogether, Apple has partnered with the most powerful group in payments — the credit card companies and banks.
The clever part of Apple Pay is that it doesn’t take the credit cards out of the picture — it just replaces the plastic part. It replaces the weakest part of their system — the card and its easily-stolen number — with a secure alternative that people take with them everywhere.
4. Security
As Tim Cook has pointed out, credit cards are decades old and increasingly open to fraud, as huge recent data breaches at Target and Home Depot have shown.
Like Google Wallet, Apple Pay doesn’t actually transmit any credit card details. Instead it generates and sends a “Device Account Number” and a single-use code, which is good for one transaction and one transaction only.
The code and Device Account Number are generated by iPhone’s Secure Element, a special chip that stores the user’s credit card details. This information is “walled off from iOS, is never stored on Apple Pay servers, and is never backed up to iCloud,” according to Apple.
This so-called “tokenization” system wasn’t developed by Apple, and is in fact part of the NFC specification. It’s considered the gold standard in electronic payments. Even if hackers get their hands on troves of codes, as they have done with credit card numbers, the codes have already expired.
Apple Pay goes one step beyond Google Pay by combining tokenization with biometrics. So far, only Apple’s latest iPhones have the Touch ID fingerprint scanner necessary to validate payments.
The credit card industry has called it the strongest system so far. “ApplePay is the best, most secure payments mechanism ever released,” wrote Tom Noyes, a mobile payments expert and entrepreneur.
5. Privacy
Another big advantage for Apple is its systems built-in privacy controls. Apple Pay is anonymous, transmitting only a one-time code instead of details about the customer. This is good for consumers, but not so good for stores, which like to build profiles of their customers to offer deals and get them to spend more money.
One of the loudest criticisms against Apple Pay is its lack of support for loyalty programs. Cupertino might have a solution up its sleeve, though. Apple is rumored to be preparing a loyalty program based on iBeacon technology. When visiting a participating merchant, iBeacons and Bluetooth LE could push targeted ads to the consumer’s phone, offering deals or rewards for making a tap-to-buy purchase using Apple PAy.
The system was rumored to roll out next year, but one report says Apple may be rushing it out in advance of the holidays. If so, it seems like a big incentive to use Apple Pay.
Conclusion
Most of the criticism of Apple Pay this week is based upon the failure of previous mobile payment systems. Google Wallet failed — ergo Apple will too.
But previous mobile payment systems failed because they tried to replace one or more parts of the existing system. Apple has cleverly partnered with the credit card companies — and appears to have solutions for merchants up its sleeve — making Apple Pay a value-add, not a replacement.
Just as with the MP3 player, the tablet and the smartphone, Apple is not the first to the mobile payments scene. But it has the right combination of technology, marketing and commercial muscle to bring mobile payments to the mainstream.
The Merriam-Webster dictionary defines innovation, especially in technology, as “an improvement to something already existing.”
That’s exactly what Apple has done in combining a mobile phone with NFC, biometrics with tokenization, and partnerships with banks and merchants. In the process, it’s created a payment system that’s incredibly easy and convenient.
Apple knows it’s not necessarily about who does something first when it comes to emerging technology. It’s about who does it right.
That’s what Apple’s latest innovation is. Apple Pay is mobile payments done right.
Leander Kahney is the editor and publisher of Cult of Mac.
Leander is a longtime technology reporter and the author of six acclaimed books about Apple, including two New York Times bestsellers: Jony Ive: The Genius Behind Apple’s Greatest Products and Inside Steve’s Brain, a biography of Steve Jobs.
He’s also written a top-selling biography of Apple CEO Tim Cook and authored Cult of Mac and Cult of iPod, which both won prestigious design awards. Most recently, he was co-author of Cult of Mac, 2nd Edition.
Leander has been reporting about Apple and technology for nearly 30 years.
Before founding Cult of Mac as an independent publication, Leander was news editor at Wired.com, where he was responsible for the day-to-day running of the Wired.com website. He headed up a team of six section editors, a dozen reporters and a large pool of freelancers. Together the team produced a daily digest of stories about the impact of science and technology, and won several awards, including several Webby Awards, 2X Knight-Batten Awards for Innovation in Journalism and the 2010 MIN (Magazine Industry Newsletter) award for best blog, among others.
Before being promoted to news editor, Leander was Wired.com’s senior reporter, primarily covering Apple. During that time, Leander published a ton of scoops, including the first in-depth report about the development of the iPod. Leander attended almost every keynote speech and special product launch presented by Steve Jobs, including the historic launches of the iPhone and iPad. He also reported from almost every Macworld Expo in the late ’90s and early ‘2000s, including, sadly, the last shows in Boston, San Francisco and Tokyo. His reporting for Wired.com formed the basis of the first Cult of Mac book, and subsequently this website.
Before joining Wired, Leander was a senior reporter at the legendary MacWeek, the storied and long-running weekly that documented Apple and its community in the 1980s and ’90s.
Leander has written for Wired magazine (including the Issue 16.04 cover story about Steve Jobs’ leadership at Apple, entitled Evil/Genius), Scientific American, The Guardian, The Observer, The San Francisco Chronicle and many other publications.
Leander is an expert on:
Apple and Apple history
Steve Jobs, Jony Ive, Tim Cook and Apple leadership
Apple community
iPhone and iOS
iPad and iPadOS
Mac and macOS
Apple Watch and watchOS
Apple TV and tvOS
AirPods
Leander has a postgrad diploma in artificial intelligence from the University of Aberdeen, and a BSc (Hons) in experimental psychology from the University of Sussex.
He has a diploma in journalism from the UK’s National Council for the Training of Journalists.
Leander lives in San Francisco, California, and is married with four children. He’s an avid biker and has ridden in many long-distance bike events, including California’s legendary Death Ride.
You can find out more about Leander on LinkedIn and Facebook. You can follow him on X at @lkahney or Instagram.
51 responses to “Why Apple Pay is the future”
Tim Cook’s strength has always been setting up supply chains. This sort of infrastructure is right up his alley.
I totally agree. Apple isn’t trying to replace CC, they just make it better.
Except you have to be an iPhone user. …. missing millions of those who aren’t going to switch just for this – like me.
Well duh. What do you want? Apple to set this up for its competition?
Apple didn’t set up anything, this has been in the works a long time.
Apple is just jumping into the game at the right moment and giving it a very slight push into adoption by finally adding NFC to their phones.
Just because they scored the last point, doesn’t mean they won the whole game by themselves. Duh.
No one said they set up the NFC system. What they have done is made it user-centric and easy to use. Whether they win ‘the whole game’ remains to be seen.
Um, it’s been pretty easy on google wallet for the past 2 years. I don’t really see the difference. I look at my phone then hold it up to the reader, you put your thumb on your phone and hold it up to the reader.
You’ve been able to take photos of cards to add them for a while now. Your card number doesn’t get sent to the merchant.
The worst thing about Apple Pay is that now CVS won’t accept Google Wallet.
The difference is Google is collecting data on your activities. It’s how they make money. Apple Pay is not.
They don’t know what you bought. They don’t have SKU level access.
Google Wallet lacks partners so no it’s not that easy for people to use. If you happen to one of the few people who have just the right credit card, bank, and/or just the right carrier then yes, I guess you could say Google Wallet is easy. There’s a reason why Google Wallet is not considered a serious competitor. They brought up the issue at Google’s last quarterly report. Google was like, “Uh, we’re still working on it.” They are a complete joke. Google has had years to build their system and they’ve done nothing.
You can use any major credit or debit card. Don’t talk about what you don’t know about. Go eat a dick.
Paypal should do it for everyone
This is not exclusive to Apple, most Android phones already have NFC and Google Wallet will be able to be used anywhere Apple Pay would be once all the stores have upgraded their processing terminals.
As it states in the article, other countries have been using tap to pay successfully for many years now without the additional Apple hardware.
Though innovative the TouchID on Apple phones pay system is more for Apple’s benefit than the consumer. They have worked out deals with the banks which give them a slightly better processing rate because technically it is more secure requiring fingerprint identification at purchase.
Tap to pay is the future and its not exclusive to Apple in any way.
Uhh….Touch ID is COMPLETELY for the consumer’s benefit! It provides the easiest and most secure way to authenticate the transaction.
Did you not read my comment? I thought it was pretty clear that Apple benefits from TouchID authentication, therefore its a wild exaggeration to say it is COMPLETELY for the consumers benefit. The people making money off this deal are the banks and the processors (Apple) All the consumer gets is they can finally make payments with their phone which Google Wallet has been doing for some time. What great benefit to the consumer am I missing? ease of use? have you even used google wallet? what is so hard with that? you touch it to the pay terminal and blammo, paid!
Google Wallet even does things that Apple Pay cannot, like more payment card options, gift cards, and online payments.
Eventually Apple will catch up, but this is nothing new that most of the world hasn’t seen already which you would know if you read the article above.
TouchID is hella cool, convenient, secure but doesn’t benefit the consumer pay transaction in any appreciable way.
Unless you can explain otherwise?
I did see that Wells Fargo? was giving $20 to people that will try Apple Pay, so there is that.
Uhh, Apple Pay does do online payments. It also has more payment options available than when Google Wallet first came out. Perhaps you should’ve paid attention during the keynote.
That whole comment makes it clear you have no idea what Touch ID is. It’s fingerprint authentication that can now be used by third-party apps (I use it with my bank’s app) and that Apple is using for the authentication of Apple Pay purchases. It is secured away from iOS and can’t be hacked. Touch ID is also COMPLETELY separate from Apple Pay, whose features you are projecting onto it. My previous comment stands.
If you go back to the original posters (Melody) concern at the start of this thread the point I was trying to make is that TouchID doesn’t make or break the ability to take advantage of card-less payments. Google Wallet on Android phones are just as effective as Apple Pay and will be able to be used in all the same stores, you don’t have to own an iPhone 6 to use it.
Touch ID makes Apple Pay a bit smoother and more secure than Google Wallet. That’s the advantage of being vertically integrated that Apple will always have over Google. You claimed that Touch ID wasn’t for consumers’ benefit and you’re absolutely wrong.
You need to brush up on your reading comprehension.
My direct quote…
“Though innovative the TouchID on Apple phones pay system is MORE for Apple’s benefit than the consumer.”
Keyword here is MORE, not ALL or ONLY. Your the one that deals in absolutes like “COMPLETELY”
I never said the consumer doesn’t benefit from having TouchID, in fact the opposite if you actually read and could comprehend my posts.
Seriously, get it together.
You mean your comment that’s filled with horrible grammar. Maybe brush up on that before telling others what to read.
And my point is that Touch ID is completely for consumers’ benefit. Apple sees NO benefit from us using it! Please tell me how Touch ID could possibly benefit Apple without telling me about Apple Pay (because they are unrelated).
Seems you’re the one who needs to learn how to read.
If you weren’t paying attention this whole article and thread is about ApplePay and for some reason you are fixated on TouchID.
Because of TouchID Apple has been able to negotiate better terms with the banks. While the consumer gets convenience Apple rakes in the millions. I’d consider that a considerable benefit for Apple one that would be considerably less without TouchID.
Ahh, I knew you wouldn’t do it. You’re fixated on Apple Pay, even though you brought up Touch ID and started making unfounded claims about it, which is what I’m calling out.
In case you haven’t been paying attention, Touch ID preceded Apple Pay by over a YEAR! No one but you is claiming that Apple benefits from Touch ID because there is no evidence supporting that. The Apple Pay terms with banks have no link to Touch ID. In fact, Apple is getting LESS than Google’s cut from Wallet transactions. Furthermore, Apple’s cut is taken directly from the bank while Google gets theirs ON TOP of the normal 2% transaction fees. This means Apple Pay doesn’t add any additional cost to the business accepting it, which means less overhead costs that get passed on to the customer.
So again, tell me how Touch ID benefits Apple.
As I stated already, I made no such unfounded claims, you just have poor reading comprehension.
I can’t explain it any more clearly in a way your mind would understand. You can deny it all you want but the truth is you are confused and apparently can’t handle being wrong.
Says the one denying and backtracking on everything he’s said. Look in the mirror, dude. While you’re at it, re-read your own comments. I’m not misinterpreting anything; you’re either delusional or just very poorly communicating your opinion. In the end, all you have is opinion and absolutely no facts to support them. But keep dodging my points if that’s all you got.
If you read my posts and had the ability to comprehend them you could see that I actually agree with your points but somehow that eludes you because it appears your mind only deals in absolutes. You sound like a loon and are only embarrassing yourself. Like saying I have ABSOLUTELY NO facts even though anyone but you has the capacity to understand the bigger picture. Apple stands to make millions with ApplePay by LEVERAGING Touch ID, it boggles my mind you can’t comprehend that. All the facts are out there, many articles written about it.
What got you so bent out of shape? Would it make you feel better if I said that TouchId was innovative , cool, conveinient and secure? I DID SAY THAT!
Any normal person would read that and can infer that I agree that the consumer benefits by those features but not you.
You neglected to read where I said TouchID as dealing with Apple Pay, not the TouchID as a stand alone feature, of course that a benefit.
Aaaaaaaand now we’ve come full circle. Work on your debating skills so you don’t sound like a rambling idiot next time.
OK, you win.
Your making me feel like I am beating up on the witless or feeding a troll.
Ladies: Don’t fight each other
Ladies: Don’t fight ….
Please point out the exact words from my posts you disagree with and how you are interpreting them.
PMB01: Just put your Skype/phone/other information and Michael Smith should call you. You (probably will) have a long conversation …
Well yeah Apple is iPhone/iPad. They don’t right stuff for Android or Windows.
But this might encourage those two companies to try to develop their own similar system. And Apple might be willing to license any needed patents to them.
Yea. You do know androids have had Google wallet with tap to pay which is the same thing as Apple pay running on 3 years now right? It’s not those companies developing it. It’s Apple who just developed it 3 years later.
That’s good, Melody! Perhaps your current ecosystem (maybe Android or Windows or RIM) will come up with a similar (or a better) solution to Apple’s ApplePay. It is always good to have some competition which encourages more innovation. And all will benefit from it!
From an apple observer, Amir
Hey you get off of my iCloud. There’s goes my personal information again.
..
Current card-based payment systems are pretty simple to use, but they aren’t as
easy as Apple Pay — we’ve just gotten used to them. It sounds trivial, I know, but paying with plastic can be a pain. It often requires multiple steps. You swipe and type. Some terminals still require you to hit multiple checkboxes on multiple screens with a tethered electronic pen. It’s a pain, and there’s nothing more frustrating than waiting for some
numbskull in front of you struggling to complete a transaction.”
Wtf, you vain piece of shit. I stopped reading at this paragraph. wow…
Good. We don’t need you simpletons holding us back.
Something that seems to have been missed here is that Apple Pay actually works with any NFC system. There is no adjustment that has to be made by the retailers other than perhaps to auto detect that a paying device has entered the NFC field. But until then, the cashier hits the credit/debit button on the register and it works. The device card alias goes to the credit processor and then to the bank which pairs it with the account, verifies the payment can be made and issues an authorization code. More or less exactly how a swiped card works
if it was the future…why are there resistants from many major companies..ahem…cvs…
Because other companies are dumb.
i agree
I’ve been using Google Wallet on my S5 for months. So this has fingerprint verification…big deal.
It is for a LOT of people.
This is an excellent post, Mr. Kahney. You’ve nailed it! And I definitely enjoyed reading it – thank you so much!
I hope to read your other posts on Johnny Ives & Inside Steve’s Brain.
Hoping you will write some more,
Amir
prophecy is true — using fingerprints.. you cant buy if you dont have the fingerprint .. whats next? if you dont have a chip in your thumb or forehead, you can no longer buy!
Used Apple Pay with my iPhone 6 Plus twice this weekend. The first time was at a Walgreens. All it takes is once to get that this is the way it should be.
That’s what the executives at CVS and Rite Aid fear.
Paid for our dinner with a credit card last night …like a caveman.
Its unfortunate that we will still have to carry around cards for quite a bit longer until they can figure out the protocol for paying a dinner check with tap to pay.
I have yet to see wait staff with a phone or tablet on them so you can pay them directly. I imagine it will soon become common place though.
Apple Pay = Apple Pie?
“NTT Docomo, debuted its Osaifu-Keitai system. It has become hugely popular and has morphed into Japan’s de facto standard, supporting a wide variety of e-money and e-ticketing functions, including ID and access cards, credit and store loyalty programs, and paying for public transit.”
I was in Japan in January and most people I saw had iPhones. Many transactions in Japan are still largely done in cash, especially the ubiquitous vending machines. As far as public transit goes: SUICA and PASMO cards were the most common currency used that I could see. I did occasionally see someone tapping payment with a smart phone but that was rare. I also saw people using SUICA to pay for stuff at convenience store like 7-11 or Watson.