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Apple speculation

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Even if Apple does put NFC in the iPhone 6, I do not see why they will use it to implement the existing industry model for contactless mobile payments.

(Corrected 30th August 2014: I wrote “SE model favoured by banks” when I meant, of course, “HCE model favoured by banks”/.)

Oh well, I suppose I’d better make the obligatory highly speculative post about Apple and payments in the run-up to the new iPhone announcement in a couple of weeks. So here goes.

Apple CEO Tim Cook says his company is intrigued by the mobile payments space, and that its interest there is one of the reasons for creating Touch ID

[From Tim Cook says mobile payments was ‘one of the thoughts behind Touch ID’ | The Verge]

As in the case of Google Wallet, this really isn’t about payments. It is about the “recognition” layer in business, the combination of transaction-appropriate identification and authentication that is needed to enable transactions. I doubt that Apple care whether they make any money on the payment transaction at all, because it really isn’t the point.

The business case for Apple is not making 10-30bps in payments, it is about making 500bps in advertising and retailer services.

[From Apple payment plans – 2014]

Quite. I suppose it is possible that Apple has cut a deal with the schemes to ask for preferential rates and rights on transactions where they have the card on file and they use the device identification and TouchID authentication to enable a payment (if they had to do it under the “normal” card-not-present rates and rights then there would be very little margin available) and they can take this customer card pool and the reduced costs to the merchant base in order to capture the transaction information that they will use for marketing purposes.

Apple already has the pieces in place to build a mobile payment empire. iTunes has an archive of credit card numbers on file. (TechCrunch puts the number close to an astonishing 600 million.) The iPhone 5 requires your fingerprint — a built in security system more fool-proof than a PIN number — and the iBeacon service can verify whether or not you’re physically in a store when a purchase happens.

[From Apple Wants to Replace Your Wallet Now, Too – The Wire]

The mention of the fingerprint is important because of the reference to it as a “security system”. It really isn’t: it’s much more important than that.

The Apple TouchID isn’t really about security, it’s about convenience… something at which Apple excel.

[From The focus on biometrics in the mass market – Tomorrow’s Transactions]

Phone plus PIN is more secure than card plus PIN which is why Apple will be able to muscle a better deal for merchants if they were to accept iTunes in payment. In time, the payment schemes will have to introduce some kind of “cardholder present” transaction since neither card-present nor card-not-present rules and rates are really appropriate. In fact, as I’ve mentioned before, I’m sure the cardholder-present transaction will end up as the de facto standard since trying to buy something using a card in a shop or by typing in card details on a web page will mark you out as a eccentric and quite possibly a menace to the community as a magnet for fraud and deception.

Incidentally, talking about payments, I note that amongst today’s round up of speculative blog posts, there has been a swing towards NFC again. I’m happy to be proved wrong on this but I remain sceptical about EMV NFC in the iPhone. Even if Apple does include NFC in the iPhone 6, I can’t see why they would use it to support the SIM-based NFC model favoured by the operators or the handset HCE model favoured by the banks. It see it more likely to be a means to trigger TEE-based secure transactions, and I’m not the only one.

Bluetooth pairing is the only use case where I believe that Apple may feel there is utility for NFC,

[From Apple in payments: Bluetooth edition | Mobile Payments Today]

Later in this, Cherian goes on to say that

if Apple uses NFC, its role will be to facilitate an out-of-band key exchange to secure the subsequent Bluetooth communication

[From Apple in payments: Bluetooth edition | Mobile Payments Today]

If I were forced to rate the plausibility of the Apple NFC rumours I’ve heard in the past few days, I put this at the top. At Consult Hyperion, we already have a fully-functional working prototype app that uses BLE for standard EMV transactions on both Apple and Android devices and it works fine. In fact, it works great. And since we already know that Apple, iBeacons, BLE, marketing and so forth are all more profitable than payments, I think it wholly plausible that an “NFC lite” strategy as described by Cherian would be popular with Apple, retailers and banks that have EMV tokenisation on their roadmaps. It would be unpopular with mobile operators, but you have to wonder if Apple cares.

Look, I have no more idea than anyone else what Apple will do. But I think it prudent to plan scenarios around their options (as we have done to make sure that our clients will hit the ground running on September 7th) and I’m genuinely curious to hear about yours.

P.S. If my next iPhone has NFC, I’ll turn it off anyway, since the battery life is already so poor as to be on the margins of toleration.

One thought on “Apple speculation”

  1. slgurley@pyrim.com' Steve Gurley says:

    First, let me begin by saying I’m a marketer and not a payments technologist. I look at things in terms of their value, their story and their propensity for eliciting consumer demand. Frankly, I can tell a great story about NFC as a proximity-based content acquisition enabler (e.g. a complement to BLE beacons), but I have a hard time articulating a value proposition for NFC-based mobile payments — a least a value prop that the average consumer will buy.

    Millions of dollars are being spent by very smart people at very large companies to create a solution that few find valuable. This perplexes me. The bottom line is I think Apple is smart enough to ask the real question, which is: Will people want to use this? (BTW, please don’t use security as a value prop. More identities are being stolen off corporate servers than are being stolen directly at the point-of-sale.)

    I just had to post this because few are raising the specter of end-user value.

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