Apple Pay in 2015

Apple Pay in 2015

IntroductionApple Pay was launched last October for the US market.  This can have far reaching significance in the way we live and transact.  In particular, the travel  and hospitality industry presents very interesting opportunities.  Particularly, along with Apple Watch this unfolds very interesting use cases for Travel and Hospitality.

Executive Summary

• Works with iPhone 6 and 6+
• iOS 8.1+
• NFC radio antenna built across the top  provides  contactless payment
• TouchID  provides security
• Secure Element Chip  stores device-specific card numbers
• Passbook stores digital credit cards
• 800M Credit Cards already on file in iTunes + any new card
• Backed by 3 Credit cards,  500+ FIs, 220K+ merchants 
• Should work with Apple Watch

Apple Pay Story
Current Pain

• Pain to manage a bunch of cards
• Cards are not secure

The Balm

• Scan all debit and credit cards into iPhone
• In any of the  220K stores, wave phone near terminal to pay
• Transaction is SECURE, and PRIVATE
• No need to deal with cards, just carry phone or watch!

SetupConsumers scan credit & debit cards with a camera, manually enter  or reuse the existing iTunes card on file.  Read  GigaOm Article for details.

Financial InstitutionsApple Pay is supported by 3 credit cards: Visa, MasterCard and Amex - these cover more than 90% of the market, 2012 data from CardHub.  Also,  whoever issues the card — typically the bank — has to support Apple Pay as well.  Apple added 500+banks since September 2014.   All of the major payment processors — like Stripe, Square, and Braintree — are committed to support it.

MerchantsKey merchants to participate: Macy’s, Duane Reade, McDonald’s, and Whole Foods (all which already support NFC payments).

Note:  220K merchants is still only 5.5% of the whole market

SecurityApple Pay assigns a randomized code to a credit card and then encrypts and secures that number in the phone. During a purchase, Apple Pay issues a one-time secure transaction code, making it very difficult to track credit card number. Adding  biometric touch security makes a very secure transaction.

A year ago, 110 million credit cards  were stolen from Target.  In Apple Pay system credit card numbers will not sit in a merchant’s DB; rather, a device-specific number is tied to credit card number as well as to device.  In other words,  the credit card scanned by Apple Pay is not used in transactions. Instead, issuer generates a different, device-specific number that is stored in the iPhone's chip (secure element). Issuer receives that number for transactions and connects it to the card number on file.  So, even if someone hacked Target and collected these numbers, they would be of no use, since new numbers are tied to specific iPhones.

Security Summary

• 2-factor authentication with TouchID
• Card number is not stored or shared with merchants
• Instead a UNIQUE encrypted number is created, assigned and stored on phone.
• Each transaction generates a 1-time dynamic payment number
• If phone is stolen user can SUSPEND using Find-My-Phone

Privacy at a Glance

• Apple does not collect consumer Purchase data
• 3rd parties cannot snoop on your credit card number

MomentumApple has around 800 million accounts. PayPal has 152 million active online accounts, according to Statista.

Apple WatchApple Watch is compatible with Apple Pay even without a paired iPhone nearby. No more stuffing cash into undergarments just in case one needed money during a long run!  Being able to pay for things with a wearable device will be a very compelling reason for Apple Pay adoption.

Who is paying for the system ?

1. No charge for merchants and users for Apple Pay.
2. Payment gateways will pay Apple per transaction but investments for fraud handling will be reduced as Apple Pay has better security built in.

CompetitionGoogle Wallet had issues with major carriers, who said that the application was harmful to their networks because it required integration with a proprietary piece of hardware called the “secure element.”

Apple Pay and Google Wallet share features, like hardware-level security and ability to hold multiple credit cards. However, Google Wallet currently has no fingerprint recognition integration. Google requires a PIN that you can share with someone else using your smartphone to complete transactions.  But Apple Pay won’t work unless user is holding the phone and touching the Touch ID pad with a registered finger.

Sample Applications
Passmarket    Opentable 

Apple Pay in Travel and Hospitality

Restaurants including McDonald’s, Starbucks, Chipotle, and Panera have announced Apple Pay integration. Panera announced integration with Apple Pay. Utilizing the Panera Bread iOS App, guests will be able to place an order from their iPhone 6 or iPhone 6 Plus and check out with Apple Pay using Touch ID, allowing them to more quickly order ahead and have their order ready for pickup or delivery. 

Rubio announced  Apple Pay function where can pay for their order directly from their iPhone 6s or Apple Watch devices. 

iBeacons and location proximity will make contextual offers and smart marketers will get those offers to the guests closer to location and at those moments of need. And Apple Pay will make accepting those offers even more convenient.   Apple Pay will provide interesting opportunities to promote and convert last minute impulse ancillary offers.

One-touch payments should be way simpler than a written signature. With OpenTable supporting Apple Pay, restaurants  should witness a higher adoption.

ConclusionOver the years we have witnessed several attempts to replace the consumer’s wallet with a mobile phone.  There are three key facets to   this:   ease of use,  adoption  and most importantly security and fraud prevention.  Apple will get good scores on ease of use.  Also, unlike others, Apple did not try to disenfranchise the other members of the ecosystem.  Their central approach is not to break up the pie, but to expand the pie and keep a share of the enhanced piece.  Finally with Security, it seems with Secure Element, tokenization and TouchID Apple has a solid chance.     Apple pay does present very unique opportunities in the travel and hospitality space and potentially closes the gap of the last mile between viewing a contextual offer and consummating the transaction.