Omlis Analysis: Can the Apple Pay mobile wallet succeed where others have failed?
This piece provides deeper analysis of Apple’s Apple Pay service and raises key questions about whether their new service has the global impact necessary to be a true catalyst for the increased adoption of mobile payments globally.
Americans now have a new way to pay for things - another new mobile wallet (Apple Pay) on the iPhone 6 and, from next year, the Apple Watch.
The fact that Apple have made any move into mobile payments, albeit in just one particular region, is highly influential. Apple's tech launches get significant coverage, even in the mainstream media, and consumer interest in mobile payments will likely have increased following last Tuesday's launch.
Where Apple leads others generally follow so smartphone manufacturers and retailers now, more than ever, need a strong argument not to invest in some form of mobile payment solution which can only be good news for the growth and development of mobile payments overall.
Apple aren't the first company to launch a mobile wallet - many have tried and failed, many others have tried and stalled. Even big names like Google or Softcard (formerly ISIS Wallet, a solution backed by major telecommunications networks) haven't yet broken through to the mainstream. Apple are hoping that by bringing some big names to the table they can succeed where others haven't.
Payment networks like Visa and MasterCard and the five largest US card issuers – American Express, JPMorgan Chase, Citigroup, Capital One and Bank of America have signed up to facilitate Apple Pay. That list, as initially impressive as it sounds, is by no means exhaustive. The same can be said for the list of supporting retailers - McDonald's, Whole Foods, Walgreens, Duane Reade, Staples, Target, Subway, Disney, Bloomingdale's and Apple's retail stores. The big question is will others, particularly independent retailers, be prepared to stump up the cash to follow suit?
There's also little hint as to when (or if) Apple will roll the service out beyond the US and there may be significant logistical and technological hurdles to overcome to launch elsewhere.
The Technology
It's Apple's inclusion of NFC chips in their latest devices coupled with fingerprint scanning (TouchID) for bio-authentication that underpins the Apple Pay service and facilitates mobile payments. This means users need an iPhone 6, iPhone 6 Plus or Apple Watch to take advantage of the service.
The iPhone 5s (despite its TouchID sensor and the fact it remains on sale) has no NFC chip so won't be compatible with the service without the Watch and there's no chance of seeing the Apple Pay service on other devices. This is a service for those who buy a very specific high-end phone (or watch).
US retailers are already under pressure to move away from magnetic strip cards and towards NFC technology. MasterCard recently announced that all new POS terminals must accept NFC payments from January 2016, with all existing terminals needing replacement to deliver NFC before 2020. This mandate, and the fact that merchants will benefit from transaction fees of 0.15% of purchase price when customers use Apple Pay (compared to the typical 2% levy on traditional cards) could help spur the investment in the necessary hardware to process enabled mobile transactions.
The Convenience
Apple's solution undoubtedly has a head start when it comes to convenience - iOS is, for the most part, polished and well thought-out and familiarity among existing Apple users, renowned for their brand loyalty, could ease consumers into the habit of paying by phone, providing they have an existing credit or debit card to take advantage of the service.
Payment details already stored in an AppleID account can be used or an image of a physical card taken. This image is translated to text via OCR and then transmitted and verified by the card issuer. Though Apple claim the process is secure, how quickly, easily and securely this happens remains to be seen.
The Security
At Omlis we have long known that security is a major inhibitor to the growth and adoption of mobile payment solutions. Apple is at pains to stress that no card details are kept in hardware. After initial authentication a device-only account number is generated which is in turn stored in a “Secure Element” on the iPhone. Users can turn off the feature remotely if they lose their phone, but it also remains to be seen how quick and effective this is. As the iOS software needs to interface with the "Secure Element" to retrieve data this may also introduce vulnerabilities.
Though touted as simple and secure, TouchID, innovative as it is, is no panacea. Setting up fingerprint identification can be burdensome. Getting the reader to accurately read a fingerprint can also be tricky. There's even examples online showing how a third party can lift an oily fingerprint from a phone and use the imprint to access a device. How well the oleophobic coating used on the latest devices combats this problem will need to be tested.
When it comes to making payment, all data is sent over NFC but Apple may have missed an opportunity to add an additional layer of security. A plastic bank card will display user name and number and could even have some other form of identification (such as a photograph). Under Apple's system someone can take a stolen phone and use it at point of sale with no eyebrows raised - payment by obscurity, even.
Apple Pay - The Initial Analysis
Markus Milsted, Omlis CEO, a mobile payments solution provider said: "The fact that Apple have launched a mobile wallet is bound to be hugely influential, simply because it's Apple but I'm not alone in having significant reservations about the company's approach to mobile payments and whether there is enough true innovation.
"Placing a potentially limitless amount of financial information in an, as yet, undisclosed place (whether on the device or in the cloud), acting as a central access point, would appear to be a risky move. Recent security breaches in the financial sector, and even Apple's own iCloud, have shown the flaws in this approach.
"At Omlis our vision is of a future where everyone, not just the owners of the latest high-end smartphones, can take advantage of the benefits of totally secure mobile payments. Restricting Apple Pay to the iPhone 6 or 6 Plus (or iPhone 5s teamed with an Apple Watch) leaves the company with a significant battle to achieve volume and the universal acceptance among merchants that customers crave. On first analysis, Apple still has a significant way to go to deliver the true benefit of mobile payments for financial institutions, merchants and users."
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About Omlis – Omlis is a global mobile payment solutions provider bringing market proven, highly powerful, differentiated and most effective solutions to all mobile commerce security. Providing completely secure, unique and uncompromised technology with 100% fault-tolerant tracking of all payments in real-time for full transaction accountability.
