For Apple, Payments is just the middle chapter

apple

Despite sharing much perspective over the last few years on NFC, HCE, Tokenization and rest – I had not been an ardent fan when it came to Apple and NFC – going back to iPhone5. Simply put – it was not a scenario that made sense if you were Apple, when in my view – success depended on re-alignment of business models that have skewed towards networks and issuers over decades. Evaluating what I knew then to be true – I arrived at the belief that traditional NFC payments will find no backers in Cupertino. And thus – in the first part of my two part Apple piece – I referenced to Apple’s likely (pragmatic) approach to NFC:

“Extending the tightly woven blanket of third party attachment support (via MFi) to now include NFC (it currently supports WiFi, Bluetooth and lightning cable) will not pause a problem for Apple. But it’s just another communication channel, just another end-point. Security is pervasive in Apple’s ecosystem – and certainly not just a derivative of the type of communication standard it may choose to use to transmit data.

Security as a derivative of the radio chosen was NFC’s swan song all along. The radio and the credential (along with its location) was joined at the hip and we saw Host Card Emulation putting an end to it. And now with rumors indicating NFC payments support in iPhone6 – this only strengthens my opinion that once again leading with payments would be a missed opportunity as support for competing radios and methods – alongside of initiatives such as tokenization is picking up steam. If NFC were to be part of it’s radio lineup, the traditional approach – that is, supporting card emulation (14443) and little else – will offer nothing new at this point. And NFC makes more sense for the iWatch accessory – more than the phone.

Another problem that vexed me was that for your shiny new NFC equipped iPhone6 to make an NFC payment, the merchant had to have a contact-less terminal, the right upgrades, and the contact-less capability itself had to be turned on (which not all merchants have done for various reasons). So will Apple risk its reputation of a control-freak and allow the success of a tap be determined by the above factors & players (some with a conflicting interest)? Or will it want to control it end-to-end, and if so – what radio is more amenable to that?

But more importantly – what could be Apple’s long game? I wrapped up my earlier post – positing that for Apple – Payments is a middle chapter that it will come to write.

“And then one must detach from the payments focus, and step back to view what Apple is building as a whole. And when you do – one cannot omit to admit that Payments is but one of the middle chapters that Apple will come to write. That, Identity is the problem it’s trying to solve – at a device level. It’s own deterministic ways of verifying authentication are inherently more valuable than anything else currently available – and though silent but pervasive – it hopes that the fruits of that labor will be evident in the simplicity derived through the third party apps and services that use it, and the consumer will be wise to the reasons why. And that they will resoundingly voice their confidence on the platform with their wallet.”

That is not to say that payments is any less important. But for the near-term, I think Apple will be hampered by working with existing credit rails or will find such a solution as overly redundant. If Apple is building an identity framework – that is more effective in resolving consumer identities, what advantage does it have to overlay a bank’s outdated Risk & ID&V requirements over it’s own quite advanced layered biometric solution, just for the sake of funding sources? If I were Coinbase – I would be running laps at the Infinity loop to find a way to swap out rails with my own. Again – Apple has a unique opportunity to bring these to scale and make their imperfections go away (Absence of a security or trust blanket covering both parties – but primarily the consumer, being one)

I expect that with a side-by-side launch of iPhone6 and it’s time keeping accessory – Apple will demonstrate how apps and experiences can extend from one to another, with adequate support from OS and H/W. And later in my Part 2 – I posited that Apple’s MFi program will be core to its approach to solve for pervasive end-to-end security and interoperability in the iOS ecosystem – especially when an iOS device is interacting with a non-Apple accessory – e.g. a point of sale terminal.

“With more iOS device types, and a heterogeneous accessory market – Infact, interest in Wearables, Home automation, Healthcare and Telematics are completely rewiring the rules of what it means to be an accessory anymore – Apple is entirely justified in its role as the ecosystem owner to be at the front of the curve, and ensure security is not an afterthought, and instead – mandate that data in transit or at rest is fully secured at all end-points.”

I have recently been asked whether Apple will become a Point-of-Sale manufacturer. I believe they are already one today. Apple’s approach here has to be to reduce merchant concerns around terminal security and upgradability by building both a device and a platform that allows fettered and authorized access while keeping out the undesirables. MFi serves as an anchor in that framework.

And finally – look at this TechCrunch post positing how a two-factor auth for Payments could be the Killer feature for the iWatch?

And there within lies the solipsism pervasive in the payments space. It is becoming harder than ever for us to reconcile with the fact that payments is rarely a must-have use-case for every shiny new object to have utility for the consumer. And when device or ecosystem owners approach payments – it turns out to be unnecessarily complex as it requires a long line of hungry mouths to be well-fed in the process of moving money or liability. And thus any attempt to extend that paradigm in to new devices or services is an incremental effort at best – which is why those attempts almost always distill down to a negotiation of rates, reshuffling of stakeholders and never a change in the status quo.

But heck..let’s roll with it. If there are multiple device launches – iPhone6 and a watch – will the payments experience extend to both? Will they be linked in some manner? For example – similar to the Coin card where Bluetooth keeps alive the connection between the card and the phone, will these two have a handshake prior to authorizing payment? And in cases where they are indeed apart (as I find myself in stores with a full cart and neither my wallet nor phone) maybe the watch could authorize a one-time payment supported by a customer-input pin? Will both devices support NFC or just the one you are most likely to have in proximity to the things you want to interact with – albeit naturally? Tapping your phone on things looked to always be a forced vs natural gesture. Maybe the watch can do it more elegantly?

Comments?


You can connect with me on LinkedIn here.

Board of Advisors at SimplyTapp - creators of Host Card Emulation driving democratization and open access to NFC in Android. Mobile Commerce & Payments Lead at Experian Global Consulting, serving Experian's clients in Banking, Retail, Consumer Credit & Payments. A strategic adviser w/ over 17 years of international Tech & Business Strategy consulting, advising firms in banking, retail & asset mgmt that seek clarity & insight in to the myriad business models around payments, fraud & commerce. Founded DROP Labs, a mobile payments/commerce strategy & advisory practice. Tweets here. I'm on LinkedIn here.
Cherian Abraham
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  • Yaniv Tal

    I do think the watch is the ideal device for authorizing payments. The convenience factor is very strong. The argument against the watch and for the phone is that it has TouchID and it seems Apple wants to use that as the cornerstone of identity. I wouldn’t think the watch would have that so we’ll see if they sacrifice TouchID security for watch convenience (not convinced about the TechCrunch phone + watch proximity conjecture).

    It does seem like NFC makes sense for many retail applications where there may be many people standing next to a terminal. You never want to send a payment confirmation to the wrong phone/watch. The big question for me is if they require NFC or if they’ll be channel agnostic (ie allow bluetooth only). We will want to support Apple payments on our hardware so I’ll be very curious to see what updates they make to the MFi program. Hopefully they release the details on Tuesday.

    • droplabs

      The issue Apple has working with NFC is that it has no end-to-end control. For an NFC payment from your shiny new iPhone6 to complete – it has to work with a decade old contactless terminal that may or may not have the latest upgrade, a merchant that may have switched off the contactless capability, and thus leading to a poor experience. Would Apple put its reputation behind something that it does not have total control over? IMO Apple would prefer a hardware solution (either built by Apple or via the MFi program) controlling both ends of that experience.

      • Yaniv Tal

        Yeah hard to imagine they’ll be backwards compatible with PayPass/PayWave systems. They’re not going to be on the hook for security and then pass track information in the clear. The head scratcher is why choose NFC in the first place? The wide availability of existing terminals seems like an obvious factor. You’re probably right that even if they could push out software updates to support a proprietary protocol over NFC, it would be too confusing for consumers. Here’s hoping Apple works with 3rd party vendors on the merchant side and doesn’t try to own that market as well.