Article: A Week with Apple Pay
I’ve been using Apple Pay for about a week, and apart from the general attitude that it “isn’t any easier than swiping a physical card” that most of the dismissive folks have said, I think it shows great promise. Although he footprint of retailers that I visit who accept it quite small (at least as far as I’m concerned), the ones that do, and its use of the relative non-proprietary technology has me excited.
The very first place I tried it was at Meijer (a grocery/general merchandise chain based out of Grand Rapids, Michigan, if you live beyond its Midwestern presence). They have had NFC (near-field communication) readers on their point-of-sale terminals for years, often sitting unused and ignored. A few years ago, I once saw someone paying with Google Wallet (I think) and it seemed a bit odd, but worked. That being said, I went through self-checkout at an off-peak time to see if it would work. At that point, Apple hadn’t updated their Apple Pay page to reflect that Meijer was “officially” supported, but I had heard of people having success. It worked no differently than a normal credit card transaction—I had to select “card” on the self-checkout machine and then used the terminal as I would’ve with a magnetic card, except I simply held my phone near the reader, it woke up, and I authorized the transaction.
Later on, I also tried it on Meijer’s gas pumps (this is a pretty rare feature), both with my previously-used American Express card and a few days later with my Citi Visa card. Both times I had the requisite interactions with a credit card purchase at the pump: enter zip code, there’s a preauthorization of a set amount, and a few days later it posts the correct amount. Once again, no drama, but I think it will be awhile before most chains have NFC-capable pumps.
Not to document every purchase, but I did use it at a McDonald’s and a Home Depot (not a launch partner, but their payment terminals at the location near me NFC-capable and turned on). Apart from feeling weird waving my phone in front of a payment system on the chance it didn’t work, I didn’t have any awkward issues—it didn’t take any more than if I was using traditional plastic. I think that’s the point—other than the instances where it fails miserably, Apple Pay works well enough that it doesn’t feel like something only those who love technology would fiddle with. In the past, the first few times of using my phone and Passbook in other situations, I felt super-geeky, but now nobody seems to fuss about paying for a coffee or even using it as a ticket to a basketball game.
On a semi-related note, I tried Apple Pay with the Target and Groupon apps this weekend—it worked flawlessly and allowed me to remove my credit card information from each—one less place to update and manage card information.
This Isn’t About My Phone
Getting back to the original concern of doubters, I don’t choose to use Apple Pay at retailers who accept it because I want some excuse to get out my phone and show how quickly Touch ID reads a fingerprint. I’m more thrilled about the anonymity of my transactions and information, where the frustration and hassle caused by hacking and leaks will just require a new Device Account Number pushed to Passbook. Unfortunately, places like Home Depot and Target are either not supporting NFC payments chain-wide or have their NFC readers turned off, but this may alleviate potential future issues with retailers and customers who do use Apple Pay.
Citi offered temporary card numbers for online purchases through their web site for years, but it was often cumbersome to use and they’d expire, eliminating the ability to have one on file with a merchant. Plus, it seems that most recent breaches were through physical stores and their point-of-sale systems, as opposed to their online counterparts.
During the first week of Apple Pay, I saw a lot of discussion and confusion over a few key points. Retailers don’t have to “sign up” to take Apple Pay—they just need NFC-capable readers and NFC turned on. This is fairly easy to spot, as they’ll have the contactless-payment symbol (it looks like a hand holding a card near a sideways Wi-Fi symbol). As long as they take the card types that you have in Apple Pay, you should be fine.
Secondly, the reason why some cards work and others don’t in Apple Pay is because there are always two entities behind each credit card: the actual card processor and the bank that issues the card. Sometimes they’re one in the same, but different divisions, such as American Express and Discover. Other times, the processor may be Visa or MasterCard and
the bank may be someone like Citi, Chase, or your a local credit union. At this point only American Express, Visa, and MasterCard cards are capable, and out of them, only those issued by American Express (the banking side), Chase, Citi, Wells Fargo, Bank of America, and Capital One. To further complicate things, some banks are not allowing some individual cards, or some card types, but not others. For example, Chase is not allowing MasterCards, but they are allowing Visa cards. Regardless, many more banks are in the process of being added, so if you have another card, it might be available in the future—part of this is adding the ability to translate the generated “card” numbers to your actual account.
Additionally, there is the idea that merchants must pay Apple for each transaction. Actually, the 0.15% cut Apple gets from a purchase comes from the credit card issuing bank, which is a very small amount for them. I suspect Chase, Citi, and the others see it as a way to beef up security for a very low price. Merchants may, however, have to pay for new NFC-capable terminals, or the cost to utilize this feature, depending on how they lease/purchase their terminals.
While Apple’s portfolio of Apple Pay launch partners is quite varied, including at least a store from each genre of retailers, there are still quite a few who aren’t participating. Some, like Target, Best Buy, Rite Aid (on Friday), and CVS (over the weekend) have disabled NFC-based payments, despite having compatible hardware. Finally, a few Walmarts allow NFC-based payments, but the company itself is not supporting it and likely not to go out of their way to add it anytime soon.
The reason for this is that a number of retailers have joined forces to use a proprietary system, known as Merchant Customer Exchange (MCX), that bypasses credit card payments completely, instead scanning a barcode on your phone’s screen that links payments directly with a checking account, thus avoiding the credit card middlemen and their fees. MCX also reportedly requiring a social security number during the sign-up process, which I’m sure will set really well with customers and be completely secure on their servers. Also, I’m not sure how Meijer is able to be on both categories, since MCX is rumored to not allow merchants to take NFC payments if they are a member. Furthermore, Target is part of MCX, but allows Apple Pay in their app, further adding to the uncertainty of MCX and Apple Pay usage among merchants.
The other big promise for MCX is the ability to create profiles of customers, much as merchants have already, based on credit card numbers. As Apple Pay anonymizes card information, they can’t track, but MCX makes it even easier than before. It’s one of those convenience products that seem great to customers, but the real benefit is for retailers. Although MCX-vs.-Apple Pay won’t entirely affect my choice of shopping destination, I certainly have no plans to sign up for MCX, and will be more inclined to take advantage of the added security measures with Apple Pay.
A Bright Future?
Right now, Apple Pay is limited to a pretty small slice of the population—those in the United States with an iPhone 6 or 6 Plus and a particular credit card type issued by a particular bank. This will grow, but it is sort of like lining up items on a slot machine. It should improve especially since more banks are looking to get on board in the coming weeks, along with Discover planning to bring their customers on board. Throw in the credit card liability shift next year, and more merchants may be installing compatible terminals. If MCX turns out to be a huge flop (here’s hoping it is), there may be even more who offer NFC payments.
Personally, I’m excited about the prospect of more retailers taking advantage of this mostly-capable solution, especially since it will work just as well with Apple Pay as it would with other competing services like Google Wallet or Softcard. If customers have more secure choices that work easily, that’s a win for everyone.