Apple Makes Its Move in Mobile Payments

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Apple has officially unveiled Apple Pay, a new mobile payment system in its upcoming line of smartphones, using a model that involves legacy payment companies but adds a new spin.

The Apple Pay process will incorporate a Near Field Communication antenna across the top of the phone, as well as the TouchID fingerprint scanner, a secure element in the phone handset and an NFC sensor at the point of sale, said Apple vice president Eddy Cue.

"You will be able to see all of your credit cards on Apple Passbook," Cue said. To add cards to the Passbook for use in Apple Pay, consumers take a photo of the card, and Apple confirms through the issuing bank that the card belongs to phone's user, Cue added.

The card details are not stored on the phone. Instead, users are assigned a "device only" account number, which in turn produces a one-time number and code for a transaction, Cue said.

"If you lose your phone, you do not have to cancel your credit cards," Cue said. "You can use the Find My iPhone app and suspend all payments from that phone."

With Apple Pay, a merchant cashier never sees the cardholder's name, account number or security code, Cue added.

Payments are made by holding the iPhone near the NFC sensor at the merchant site and are completed instantly, of which Cook said, "That's it. It's so cool."

Cue said stores that will immediately accept Apple Pay include Macy's, Bloomingdale's, Walgreens, Duane Reade, Staples, Subway, McDonald's, Whole Foods and, of course, Apple retail stores.

Apple has established deals with major credit card brands American Express, MasterCard and Visa, and also with the six largest issuing banks, Cue said. He did not name those banks, though the presentation included images of JPMorgan Chase and Bank of America cards. More banks will continue to be added in the future, he said.

Apple's move will pump new life into NFC payments, said Randy Vanderhoof, executive director of the Smart Card Alliance.

"Consumers that have used NFC mobile payments have liked it, but haven't liked not being able to use any payment card they want in their mobile wallet," Vanderhoof said. "Apple's wallet overcomes this challenge by letting consumers' use the card of their choice through their iTunes account. It's a smart move and a big win for NFC," he added.

The timing of Apple's entry into payments is really good for merchants, Vanderhoof said. Many are already looking to install new point of sale terminals to accept EMV-chip cards, so they can also look at enabling NFC acceptance at the same time.

"No one can change consumer behavior like Apple," he added. "This move will make the market for mobile payment explode. And it is a great endorsement of NFC technology as the best way to secure mobile payments."

Companies providing payment gateway services for the wave of future payments in mobile, virtual and digital currency also view Apple's entry as a game-changer.

"Apple's new payment presentation method is an example of the dynamic change taking place in the payments space," said Apriva CEO Chris Spinella. "From a retail adoption perspective we see this as a chance to get large retailers on board with new payment technologies more quickly, driving forward innovation in payments."

Even though Apple's announcement has revved up supporters of NFC, some factors will continue to work against the technology, said Greg Boardman, senior vice president at Ingenico Group.

Consumer and merchant confidence in payment security measures remain tarnished and they likely won't automatically embrace NFC contactless payments, Boardman said.

"Apple having NFC is certainly the put-up or shut-up moment for NFC supporters who have long said the technology would take off if Apple were involved," Boardman said.

Ingenico's terminals are ready for any technology that merchants want to adopt, but those merchants are going to be cautious about any system that may come across as appearing potentially less safe than what EMV chip-based card technology brings, Boardman added.

The card brands' support for Apple will help in any transition, Boardman said.

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