The penny dropped

I’ve got to admit that I’ve seen some weird and wonderful ideas in my time in the payments industry, but when I first saw the spec for EMV tokenization (here) at the start of the year it was a genuine WTF? moment. It seemed to be a whole lot of fixing something that wasn’t broken – solving the problems of poor implementations rather than sorting them out. But of course with the recent announcement of Apple Pay (here), it all becomes a whole lot clearer – in fact watching the launch I had a real DUH! moment, the penny dropped with a loud clunk as the underlying intention for these specifications became clear – to allow cardless transactions proceed without the need for transmitting an insecure PAN at any point. This problem, not an issue in EMV face-to-face transactions with a card, pinged up when it became clear that the envisaged SIM-based Secure Element (SSE) model didn’t work from a business perspective (technically it’s excellent) as there are too many players scrabbling over a diminishing transactional revenue.

The Google-proposed alternative, Host Card Emulation (HCE) was always a no-go for retail transactions from day 1 as it was too reliant on both a good data connection and battery life. Speak to any major retailer and they’ll tell you about the lame duck stores that they have where there’s no mobile connection at all (deliberate in some cases) or where they have locations with solid construction that won’t even allow wi-fi to work, so they have to hardwire the tills to the back office – old school style. HCE was Google’s bid to get the mobile payments train going again after it nearly failed to climb out of the Trough of Disillusionment (here). It nearly worked – and got the payments world again talking about ‘the year of mobile payments’ being 2014.

And now we’re presented with a new model – and it’s a new model, not a new technology, but put together with typical Apple aplomb and a demonstration of a great understanding of how the payments world works. By using tokenization and a Handset-based Secure Element using NXP’s NFC chips, Apple Pay has overcome the reliance on telcos and avoided PCI compliance in one fell swoop. The model has clear revenue generating opportunities for the provider (Apple) as they are a token service provider and can consequently create a positive business case from that component alone.

It’s particularly hard for us in the payments industry to see just what happened last week at the Apple Pay launch. Technically this was no great shakes with the iphone now at last NFC enabled and using EMV tokenisation rather than classic EMV; handset SE; and essentially doing all the stuff that we’ve gotten used to in a secure and simple way. Sure the nonsense debate on terminalisation, cost to merchant and all the other junk rumbles on, but in the end Apple know that payments are a facilitator, not the be all and end all. And that’s where we, as payment professionals, generally get stuck. We’re so busy looking at the technology of it all that we failed to see what just happened to our cosy little industry.

Last week payments changed. And they changed dramatically because Apple showed that we have all of the bits needed for the debate over technology to end and the debate on business to begin. Apple realised that by putting together the stuff that we’ve all been working on for years in a new and clever way it can suddenly interact with its Apple devotees in a whole new way.

Apple (or so it says) will not collect data on what is bought through the payment channel. However, what they likely will do is use the NFC connectivity used to establish interaction during the payment transaction to trigger other connections with the handset/watch, and with Apple BLE-enabled POS in place begin to use Passbook to feed electronic coupons, loyalty and offers into the handset at the moment of purchase. And of course, they’re doing this with a user community of tech-hungry Apple fiends willing to try anything new served to them via the Apple platter.

Apple Pay won’t change the way that most of us pay itself, but it has opened a new door to future ubiquitous payment methods via the mobile, IoT or wearable devices. Apple has set the trend and fast followers will do just that. And as the originators of NFC first said, “Wouldn’t it be cool if you could pay with your watch!” (here).


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