It Took An Apple

Players in the payments space for years have talked about when the right moment will come when mobile payments finally will take off. And most people said when Apple entered the game, it will, given Apple’s tendency not to jump into willy-nilly notions of what might succeed only to disappoint its loyal following of tech-savvy consumers.

But while Apple finally made the move into payments on Tuesday (Sept. 9), it still will take time for the progress to be made. But, the pace may just be quicker now, executives from Chase and Chase Paymentech noted during a podcast interview this week with MPD CEO Karen Webster.

“We believe this is a triggering event,” said Russ Mahy, said Chase Executive Director of Technology. “We think the trajectory is going to change a little here, and mobile payments and wallets are going to accelerate.”

Indeed, one of the issues that has caused concern about adopting a new payment method was how it would work with legacy payment systems. After all, both issuers and merchants have invested a lot of time and effort in technology that essentially works pretty well in getting transactions processed quickly and efficiently.

During the interview, Marc Massar, Chase Paymentech Senior Vice President and Group Manager for Enterprise Product, noted that one of the things Chase discussed with Apple and the other partners was the burden of legacy. When the partners started discussing Apple Pay implementation and how it would work, Chase wanted to ensure existing rails were used as much as possible, yet the legacy reputation didn’t get in the way of making progress, quickly. And that’s why the data will flow using existing messaging formats, he said as an example.

That being said, Massar  said, the reality is that retail merchants and others in payments all work slowly, but he agreed with Mahy that the pace will change now that Apple’s made its payments move.

“The trajectory has changed on using consumer electronics, both as acceptance and presentment,” he said. “Couple that with all the barriers we’ve tried to bring down for adoption, we’re going to see pretty broad-scale use and adoption in the next couple of years here.” (Listen to Massar explain his trajectory thoughts.)

Apple’s decision to jump into payments, and the technology it is introducing, including tokenization of card credentials within the iPhone 6 and iPhone 6 Plus, represent a more significant move than any wallets introduced earlier. Perhaps the biggest part of that, Massar said, is the in-app payment experience Apple introduced with Apple Pay, which also supports Near Field Communication transactions at the point of sale.

“I don’t think we can overestimate the value of this new experience,” he said. “All of a sudden I can pay with my thumbprint essentially on the latest and greatest apps from my favorite merchants.” (Listen to Massar argue why this change is so critical.)

Though the choice of the Apple Pay brand signified Apple wants its brand out from in the payments experience, neither Massar nor Mahy seemed concerned, as the Chase brand also will play out significantly when Chase customers use the payment method.

With NFC, the notion among many expects and analysts has been that payments won’t be able to support the technology exclusively. The fact that Apple Pay doesn’t also support loyalty programs, coupons exchanges and other functions seems to run counter to that notion. However, Massar noted, there are subtle differences between what Apple’s offering and what other open wallets of the past have. It’s “cleaner, faster and smoother,” he said.

Moreover, while “we don’t know what the future holds” regarding the engagement with merchants and consumers, it’s an open field, Massar said.

NFC supports two-way communication between similar chips in mobile devices and payment terminals. And as more functionality is added, the technology will put stickiness in and help enhance the relationship between consumers and merchants, he noted.

For Apple, the timing also is good, as merchants now are deploying EMV payment terminals ahead of the October 2015 deadline when merchants assume responsibility for fraud associated with transactions occurring when they cannot read an EMV chip card presented to them. In many cases, those same EMV card readers can read NFC transmissions as well.

Massar said many merchants right now are looking at what they need to do to comply. “From the merchant perspective, this is kind of a normal upgrade path,” he said. “The barrier here to entry and use of NFC is relatively low at this point. A lot of merchants have readers even though they don’t use them often. For the most part, those implementations will work with NFC tap, whether that’s Apple Pay or some other solution.”

Asked whether Apple’s limited number of iPhone users capable of supporting Apple Pay is enough to drive merchants to move on NFC acceptance, Mahy noted that it’s a bit too soon to know for sure.

“Our bet is, yes,” he said. “We think of almost as a trigger point. This is the type of thing that would be a triggering event, in my opinion.”  As a merchant, Mahy noted, “I obviously want to have the ability when I have a customer walk in my store and they want to buy something and they choose to use their phone. Am I going to turn them away? Most of our merchants would say that’s a bad idea.” (Hear Mahy elaborate on this thought.)

For the full podcast with Massar and Mahy, click here.