Apples Apple Pay announcement has created a lot of discussion for its contactless payment technology in the iPhone 6 and iPhone 6 Plus, which will allow consumers to buy products in-store with just a tap of their iPhone.
For retailers, there's a likely loss of actionable data because of the technology Apple is using.But there will also be a vast opportunity to improve security and point of sale flexibility.
Apple Pay leverages a combination of iPhone hardware including NFC technology, Touch ID, and Secure Element a dedicated chip that stores encrypted payment information to process payments and ensure the security and privacy of personal data. In fact, both Apple and the retailer wont know what shoppers are buying because a one-time payment number and a dynamic security code will be used to complete the transaction.
This comes at a time when Chip-and-PIN systems are becoming standard security. The Chip-and-PIN system experienced a fragmented roll-out and low user adoption in the U.S. due to high hardware costs and slow credit/debit card transition to chips, but it has been widely adopted in Europe over the years. But now both strips and PINs are showing their insecure vulnerabilities. Recently, a video went viral that shows how easy it is to steal a PIN with cheap and easily accessible infrared cameras (that attach to iPhones no less!).
In typical Apple fashion, Apple Pay puts consumer needs first, so anonymity of purchase data was touted as a major feature. With Apples understanding of refined user-interaction, the secure finger scan and NFC swipe is positively frictionless compared to typing in a PIN number, which is the security mechanism used by Google Wallet and other digital wallet platforms.
And now with Apple leading the market into NFC acceptance, NFC reader penetration at point-of-sale should be much higher. It may also accelerate the killing off of retailer-specific apps by moving the Uber model of payment from a specific app into the Apple ecosystem. All of this may be the perfect salve for jittery consumers who are frightened after the Target and Home Depot data breaches.
But is also means that retailers will lose a tremendous amount of value and customer insight found in credit card purchase data. While the loss of transaction data may seem like a huge hit to retailers and their omni-channel efforts, Apple Pay does present some great opportunities for them:
It allows retailers to offload security concerns to the consumer (rather than holding a treasure trove of credit card numbers and names). Apple Pay also provides opportunities for much more flexible mobile POS options and pop-up shops.
Also, the no card present fees that Apple negotiated are way lower than standard retailers were able to get from financial institutions. This really moves the needle for retailers by reducing a major hard cost.
Apple Pay additionally provides motivation for the rest of the digital wallet marketplace to follow Apples lead. This should eventually lead to greater and faster consumer adoption.
And retailers can still use a combination of loyalty programs and proximity sensors to respond to their customers.
Jonathan Spooner is a retail strategist at Control Group.
