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Apple iPhone 6 launch set to impact payments but real uptake could be years away

Matthew Finnegan | Sept. 12, 2014
With the launch of Apple Pay and the near field communication (NFC) enabled iPhone 6, CEO Time Cook has promised to replace "antiquated" credit card transactions with the ability to make purchase with the swipe of a smartphone.

"Retailers should be looking to boost investment in new payment readers when it's clear customers are ready to use them en masse. "

Addressing mobile security concerns

Gartner analyst Avivah Litah said that while there is little information on Apple Pay security features so far, it appears that the company is working with Visa, MasterCard, the other card brands and the major issuing banks to "use a payment card tokenisation scheme that these financial services companies endorse and recognise".

"That means that consumers don't have to store their payment card data in their mobile wallets," she said, adding that they would set up their Apple Pay system with a credit card and, when the consumer is ready to pay, their financial service provider would issue them a one-time token number that would initiate the payment process.

The use of tokenisation is likely to benefit security, particularly in the US, following hacks of high profile retailers such as Target and Home Depot

"This is very exciting news and has the potential to change the payment landscape, at least in the US where merchants are being breached every other day and are up to their eyeballs in security issues and expenses," Litah said.

Mark Bower VP product management at Voltage Security, agreed that Apple's 'data-centric' transaction security approach would result in improvements over current payments methods involving static credit card numbers.

"Through the use of this data-centric security strategy, Apple Pay reduces risk of data breaches and credit card theft where it is supported," he said.

Industry collaboration is key

TBR principal analyst Ezra Gottheil, Principal Analyst said that while Apple's Cook had been correct to address security and privacy concerns during the Apple Pay launch, the collaboration between payment providers and merchants could be key to spurring adoption.

"More important was the network of partners which will allow this system to reach critical mass, solving the chicken-egg problem that has held back mobile payments so far," he said.

"Most major credit card companies and many major retailers are committed to this payment system. Other companies will soon follow, and mobile payments will be broadly adopted.

However, Ovum's Ubaghs highlighted potential sticking points around the financial relationships between Apple and its provider partners.

"The big question still at this point, is how exactly does the revenue model work," he said.

"The transaction rebate Apple is rumoured to have negotiated with the schemes are closer to 0.15-0.25 percent, a far cry from the 30 percent they are used to, and its not quite clear how that works out with existing payment providers, or if it will be sharing this by offering cheaper payment acceptance rates to merchants."


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