Apple Pay makes NFC mainstream

Apple’s adoption of Near Field Communications (NFC) within Apple Pay is likely to help make the contactless technology mainstream, which may help boost adoption of mobile payment solutions.

NFC the Apple way

MasterCard SVP James Anderson says, “I expect NFC will be the predominant technology for point-of-sale payments between a smart device and a merchant terminal.”

Approximately 550 million devices will feature NFC chips this year, according to Gartner while NFC chip shipments should reach 1.64 billion by 2018, says IHS iSuppli.

Huge investments in mobile payments are taking place:

• GFT claims over one trillion US dollars will have been invested in mobile payment solutions by 2015.
• Forrester Research estimates Americans will spend $90 billion through mobile payments by 2017.

taking a token

Apple Pay seems to use tokens from Visa and MasterCard – the Visa Token Service and MasterCard’s Digital Enablement Service (MDES), which are being trialed in the US for international deployment starting in 2015.

Tokens replace the sensitive payment account information on credit and debit cards with a digital account number or “token” that is stored securely on mobile devices and used when making purchases.  

Token benefits include:

• Consumer Protection: Tokens replace the 16-digit account information on cards with a digital account number.
• Defined limits: Tokens can be limited to specific merchants, devices or types of purchase.
• Security: Tokens linked to lost or stolen mobile devices can be reissued without changing account numbers or reissuing cards.
• Standards: Tokens are based on existing International Organization for Standardization (ISO) standards.

biometric security

Apple Pay adds extra security, the Secure Element and Touch ID print recognition. Transactions are authorized using the token and a one-time dynamic security code, so no personal information is shared.

Despite the incredible complexity of the technology behind Apple Pay, its users will find making payments as easy as touching the Touch ID button. They don’t even need to cancel their card if they lose the device, just remotely de-authorize it.

The system supports online and high street shopping, though physical retailers must upgrade their point of sales systems to accept contactless payments using NFC. Larger US retailers are already doing so but smaller shops must be convinced for mobile wallets to become universal.

Deployment is already more advanced in many countries outside the US, so it is interesting Apple chose to trial its system in the US before launching in those more established markets.

Apple Pay Europe 2015

"We are working closely with Apple and with our member banks to bring this new service to market in Europe," said Visa Europe’s Steve Perry.

Retailers may also use supplemental POS systems from firms such as Stripe, Braintree and Square, who intend adding support for Apple Pay to their merchant systems.

Apple’s move to use NFC will accelerate adoption of these systems, widening the opportunity for the mobile payment industry: "I think it's really a tipping point,” Paula Hunter, NFC Forum told CNBC.

It may be a tipping point, but success isn’t guaranteed. “Apple will have to convince consumers that Apple Pay is reliable, convenient and, most importantly, secure,” said Marketing Science analyst Richard Snoxell. “Take up will likely be accelerated by use of the retail partner loyalty schemes."

With this in mind it is interesting to note how closely some retailers (for example, Eat) are linking loyalty systems with NFC POS systems.

There’s little doubt that Apple’s move to support NFC means it’s make or break for the standard – opening up some of the possibilities we explained in this February 2012 infographic.