Will Ap­ple’s ru­moured dig­i­tal wal­let work where oth­ers have failed?

Financial Mirror (Cyprus) - - FRONT PAGE -

Re­ports hit the web on Sun­day that Ap­ple Inc. had signed an agree­ment with Amer­i­can Ex­press Co. to work on an iPhone pay­ment sys­tem that will al­low iPhone 6 own­ers to use their mo­bile phones just as if it were a credit card. Well, sort of.

Elec­tronic mo­bile wal­let schemes are a dime a dozen and they all have one thing in common - they didn’t at­tract mer­chants, banks, credit card com­pa­nies or users in suf­fi­cient num­bers to be de­clared a suc­cess. Google’s Wal­let has been less than a smash hit, and Ap­ple’s own Pass­book dig­i­tal wall has done lit­tle bet­ter. The only truly suc­cess­ful dig­i­tal pay­ment scheme is eBay’s PayPal, which has been around for nearly two decades and ac­counts for about 80% of all dig­i­tal wallets cur­rently in use.

For con­sumers the prin­ci­pal draw­back to dig­i­tal wallets is se­cu­rity. The sec­ond big prob­lem is use­ful­ness when com­pared with credit cards or cash. The third prob­lem is vis­i­bil­ity — lots of peo­ple don’t even know that dig­i­tal wallets ex­ist, let alone how they work.

So, how does Ap­ple solve the prob­lems? It at­tacks all three prob­lems at once with its brand recog­ni­tion and its deep pock­ets. Ev­ery­thing Ap­ple does at­tracts no­tice, so the third prob­lem noted above is solved. Vis­i­bil­ity is not a prob­lem Ap­ple has to deal with. Plus, Ap­ple al­ready has col­lected credit card num­bers for about 800 mln iTunes cus­tomers. That’s a big head start.

The re­ported deal with Amer­i­can Ex­press, plus sim­i­lar ru­moured deals with Visa Inc. and MasterCard solve part of the use­ful­ness prob­lem. The other part of the prob­lem is get­ting mer­chants at brick-and-mor­tar stores to sign up. Many chain stores al­ready have the ter­mi­nal equip­ment — for ex­am­ple, Star­bucks - but lo­cal mom-and-pop shops have been slow to adopt the tech­nol­ogy.

It also re­mains to be seen how the chip-and-PIN tran­si­tion goes in the United States. Both Visa and MasterCard have said they will in­tro­duce the more ro­bust tech­nol­ogy by Oc­to­ber of next year. The new cards will work the same way that the iPhone works, plus the mag­netic stripe will still be there for use in stores that don’t have the new ter­mi­nals. How much more con­ve­nient is a card than a phone? Or vicev­ersa? We’re about to find out.

The re­ported in­clu­sion of an NFC (near-field com­mu­ni­ca­tions) chip in the iPhone 6 is cru­cial. NFC al­lows the iPhone to be waved at (or touched to) a pay­ment ter­mi­nal in much the same fash­ion that a credit or debit card is now swiped. The iPhone wire­lessly com­mu­ni­cates pay­ment in­for­ma­tion to the store. Get­ting the tech­nol­ogy into the hands of lo­cal mer­chants is both more costly and trick­ier and is a longer term project. The new chip-and-PIN cards have an ad­van­tage here.

Ap­ple ad­dresses the se­cu­rity is­sue with its finger­print recog­ni­tion sys­tem, but whether that’s enough re­mains to be seen. So far the company has been able to pro­tect its vast col­lec­tion of credit card in­for­ma­tion, but the new tech­nol­ogy will be a tempt­ing tar­get for crim­i­nals, and the more widely the sys­tem is spread the eas­ier it be­comes to find a hole. Can Ap­ple con­vince con­sumers that the sys­tem is se­cure and safe? If it can­not, then no company can and the whole grand ex­per­i­ment will be over.

Near-field com­mu­ni­ca­tions (NFC) tech­nol­ogy

is al­ready built into An­droid de­vices like the Sam­sung Galaxy S3, en­abling mo­bile pay­ment

at par­tic­i­pat­ing re­tail­ers

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