The proof of the Apple pudding - Can Apple Pay make mobile payments popular? (Part 1 of 2)

Amidst all the excess of reviews on the launch of Apple iPhone 6, its Plus version and the Apple Watch, my attention ofcourse has been focused on the Apple Pay mobile payments platform and what it can potentially mean for the mobile payment industry. Having never belonged to the die-hard Apple fan cult (I've only recently moved to an iPhone after years of Android based phones that I used extensively and satisfactorily), I am usually skeptical about all the media hype generated around an Apple launch. 

But given all the action and unmet potential until now in the mobile payments industry (covered in my previous blog), I was keen to take a deeper dive to check if there truly were any interesting enough elements adding the masala to the Apple Pay dish. So here goes my take through a two-part blog post.

To explain Apple Pay very simply, Apple Pay provides a platform for mobile payments both, in the brick & mortar (offline) retail stores, as well as for purchases made in the digital (online) world. 

It wasn't until I saw the demos for various payment scenarios that I was able to truly appreciate how simple and easy it would be for a user to pay using Apple Pay. As a user wanting to make a payment at a store, here's what you would do:

• Once you're done shopping, and are ready to pay, hold your phone near a contactless Point of Sale (POS) terminal. The payment amount from the POS shows up on your mobile device.

• The payment card you’ve set as a default is called up on your iPhone. (If you want to pay by another card, you can pull that up and select)

• Put your finger on the Touch ID on the phone device. And your payment is through (notified via a beep and vibration on your iPhone). 

You've completed all this in a matter of seconds, and without even opening a screen or an app. Contrast this to Google Wallet that requires you to wake up your screen and, in some cases, enter a PIN to complete the purchase. (The last time I remember being this fascinated was when Square had launched its own mobile payment service. Now, amidst news of Square's cash burn and a failed takeover attempt by Apple, it is interesting that Square too will be supporting Apple Pay instead of competing with it head-on).

For a user wanting to make a payment for an online purchase, the experience is similar to the offline one. You select your product / service online (or in-app) and put your finder on the Touch ID to pay. It may go unnoticed to some, but this by itself has the potential to blur the divide between payment for offline purchase (where you swipe your card), and online (where you type in your card details), thus potentially speeding up consumer adoption.

The Apple Watch is supposed to work for Apple Pay in a similar way as the iPhone (I could not view its demo though and there are fewer details available on this yet). You double-click the button next to the Digital Crown and hold the face of the Apple Watch near the contactless reader. However, Apple Watch does not require fingerprint authentication (no Touch ID). But what it does have are skin sensors (that also track your fitness, heart rate etc.) and will tell the watch every time the wearer takes it off. So if you remove your Apple Watch, you'll have to enter your Apple Pay PIN again before you can buy anything with your wrist. Also if you're not watchful enough and if someone does manage to steal your Watch, they won't be able to use it to pay. 

There's quite a bit of neat technology at work below the surface. But in what has become first nature to Apple, the wonder of it is that all of that technology really does not (as it should not) matter to the user. Here's a look at what lies beneath to bring better speed and security of transacting for the consumer - 

NFC (or Near Field Communication, this is present in a tiny radio antenna on your mobile device, and also ofcourse needs to be present in the merchant POS too, this is what makes the two devices "talk" to each other), 

Touch ID (the fingerprint reader that makes the single-touch unlock + identity authentication + transaction completion possible), 

Tokenization (to avoid credit card frauds, this makes sure your credit card information is not transmitted every time you transact. Instead a one-time unique code is generated for every instance of a payment transaction), 

Secure Element (again a measure to safeguard your payment card details, this involves a dedicated chip in your mobile device that ensures that instead of using your actual credit and debit card numbers when you add your card, a unique Device Account Number is assigned, encrypted and securely stored in the chip), 

Passbook (this is an existing Apple feature that already stores your boarding passes, tickets, coupons, etc. With Apple Pay, it now allows you to store your credit and debit cards too by simply entering the card security code), 

iSight (this is the inbuilt camera that instantly captures your card information each time you want to add a new payment card to Passbook).

But the true proof of this Apple pudding has bound to be beyond all that cool technology and even cooler user experience. And whether or not Apple Pay will really be the tipping point for large scale adoption of mobile payments, will require a lot more ingredients cooking in the overall payments ecosystem. 

The next blogpost will cover where the differentiators may lie for Apple Pay to play a determining role for the global payments landscape.

Mobile Payments - a moving goalpost, with lots of goals still to score

As a keen follower of trends in the mobile payments industry for several years, I have been eagerly waiting for the time when the sight of payments made via the mobile phone is as commonplace as the cash or card is used today to make payments (some of my blog posts on previous workplace sites have had gushing references to this). I imagined a world where riding on the promise of speed, convenience and efficiency, large sections of the population would:

• With a few simple taps on the mobile screen, pay utility bills or their children's school fees, make cash gifts...even settle IOUs between friends or split restaurant bills.  

• By just one wave of the mobile, get in and out of public buses and trains.

• By a swipe of the mobile, pay for groceries at the super market, or the hairdresser at the neighbourhood salon, or for the daily coffee dose at their favourite cafe. 

The latest news of Apple's partnership with Visa, MasterCard and Amex, and the expected rollout of its mobile payment platform on its new iPhone (and possibly the iWatch too) has brought the spotlight once again on the action. Here's a snapshot on where the action has been these past few years.

Today, we are seeing mobile phones (and smartphones) becoming mainstream, almost an integral part of daily life for much of the world's population. However, even after a significant amount of investment by several organizations - big and small - and an even larger hype from the media, we are still a far cry from mainstreaming payments on the mobile phones. True action is visible in only selected pockets in certain countries. And to set the right context, the often-cited mobile payments flagship story of M-Pesa is an outlier and exception that has not been successfully emulated in any country other than Kenya. 

The kind of organizations that have made a play for a slice of the mobile payment market is numerous and assorted. Almost every major bank in every country today offers mobile payments. Unfortunately, banks, which have otherwise been at the helm of the payments ecosystem, are grossly lagging behind on mobile payments. While payments can act as the gateway to much deeper financial relationships with their customers, most banks are limiting their mobile payments experience to little more than a view of accounts, transactions, and transfers between accounts.

In addition to banks, a massive potpourri of players have all been actively promoting their mobile payment service including mobile carriers, card companies (e.g. Visa with Visa payWave, Visa Checkout, MasterCard with MasterPass, Amex), P2P and P2B payment service providers (e.g. Paypal, Alipay), money service bureaus (e.g. Western Union, Moneygram), new payment innovators (e.g. Square, Monitize, etc.) and the "non-traditional payment players" such as Google (Google Wallet), Apple (Apple Passbook), Amazon (Amazon Wallet) and even Starbucks which quite successfully runs its own mobile payment service integrating various aspects of the knowledge of the consumer preferences and transaction history, location data, loyalty, etc.

The majority of the services revolve around the concept of the "mobile wallet" which in very simple terms is nothing but a digital version of your physical wallet. It thus is a software application on a mobile handset that functions as a "digital container" for your payment cards, tickets, loyalty cards, receipts, vouchers and other items - all of which may be found in a conventional wallet. Starting from SMS to USSD to WAP / XHTML / HTML5,  we've been seeing contactless mobile payment technologies such as NFC (Near Field Communication), QR Code, 2D barcode as some of the underlying technologies driving some of the services. NFC was touted as the biggest game-changer for contactless payments, but has not really seen an expected uptake. 

With so many players devising and implementing their own strategies, technologies and business models, the mobile payment ecosystem has become highly fragmented and crowded. On one hand, widespread merchant acceptance of any one technology is missing, and on the other, the absence of a distinctive value proposition for the mobile phone as a payment device itself is acting a common barrier to consumer adoption. While worldwide mobile payment transactions are estimated to have totalled $235.4 billion in 2013, a 44% increase from $163.1 billion in 2012, with a projected 38% jump to $325 billion in 2014, the blue-eyed baby of mobile payments - NFC based mobile payments are estimated to account for only 5% of total mobile transaction value. (source: Gartner).

Interestingly, among all the action and media buzz around mobile payments, we may be on the cusp of another digital payments wave. A wave brought on by "wearable technology". The kind of two-way communication with consumers that was made possible by the mobile phone technology is now being explored by the makers of wearable technology. Companies are investing into getting the increasingly "smart" wearables such as watches, glasses, bracelets, rings to also support "wearable payments". 

One of the various projects in this area, an early entrant has been Walt Disney Parks and Resorts' MagicBand, which is a contactless wristband Disney created for its park and hotel patrons to use as a room key, theme park ticket and payment account. In another project,  two students from the Massachusetts Institute of Technology created a ring embedded with an RFID chip commuters can use to pay their fare on the Boston area's bus and subway system. Aware of the drab, or worse outright ugly looks that some of the wearable technologies sport, firms are already sportingly investing to bring sleek and stylish wearables to the market!

Apple's launch of its mobile payments platform next week could be both on the iPhone and iWatch. Maybe it will succeed with consumers and the marketplace in a way that no previous service did. Regardless, while "mobile payments" itself may be a moving goalpost, it remains interesting to see the industry and technologies evolve over the next few years and a lot of goals scored for all entities involved, most importantly for the consumers.