What Amazon, iTunes, and Uber teach us about Apple Pay

Truly disruptive services don’t just digitize the familiar. They do away with it.

Pay_Steve_Snodgrass_FlickrSomething’s been nagging at me about Apple Pay, and the hype about it.

The Apple-Pay web page gushes: “Gone are the days of searching for your wallet. The wasted moments finding the right card. The swiping and waiting. Now payments happen with a single touch.”

What’s wrong with this picture?

It’s describing the digital facsimile of a process that is already on its way to becoming obsolete. But truly disruptive new services don’t just digitize the familiar. They do away with it.

I never search for my wallet when I take an Uber. I never search for my wallet when I walk out of a restaurant that accepts Cover. I never search for my wallet when I buy something from Amazon. I don’t even search for my wallet when buying a song from iTunes — or, for that matter, an iPhone from an Apple Store.

In each of these cases, my payment information is simply a stored credential that is already associated with my identity. And that identity is increasingly recognized by means other than an explicit payment process.

In the case of Uber, I summoned the car. The driver already knows my name and my face, and our phones are traveling in tandem. Uber knows what I owe based on GPS, not by presenting me with a bill. And it charges me automatically. I “pay” simply by getting out of the car. That is the future of payment, not “hold[ing] your iPhone near the contactless reader with your finger on Touch ID.”

So, in a sense, Apple Pay is payments for everyone who hasn’t caught up with the fact that truly disruptive services have already done away with the old payment model.

If you don’t shoot ahead of a fast moving target, you will almost certainly miss.Now, obviously, a lot of merchants still rely on wallets and explicit payment. But one thing I’ve learned is that if you don’t shoot ahead of a fast moving target, you will almost certainly miss. And it seems to me that in the coming world of sensor-driven applications and devices, an increasing number of services will automatically infer sufficient context to take actions like payment on our behalf.

There’s a further problem with Apple Pay. In order for it to work, we need these “contactless readers” to be widely deployed. Maybe the Apple hype machine will get those into every store, but it will take some time. In the meantime, I can imagine more Uber and Cover-like services cropping up, which simply take the mechanics of payment out of the equation.

There’s a more general principle here, which was summed up in a Tweet from Aaron Levie of Box, who wrote: “Uber is a $3.5 billion lesson in building for how the world *should* work instead of optimizing for how the world *does* work.”

Apple Pay optimizes for how the world does work. The real winner in payments will build for how the world should work.

Disclosure: O’Reilly AlphaTech Ventures is an investor in Cover.

Image on article and category pages by Steve Snodgrass on Flickr, used under a Creative Commons license.

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  • Mikael Fransson

    Aren’t you missing the point a bit? With Apple Pay the Target credit card leak would have generated a whole lot of nothing as no credit card is stored with them if Apple Pay was used. Home Depot, same thing. No credit card info stored with the vendor. No information about me is part of the transaction. Isn’t that disruptive? It is to me…having to have my cards replaced and update all the vendors where it was stored and used, missing payments in the process…

    /Mikael

    • Yeah, I hear you. But the point of my article wasn’t about the security or lack thereof of Apple Pay. It was with the “argument for convenience” that appears as the first brand promise on the Apple website. Even after all this great debate, I believe that the real UI win is with interfaces that make payment part of the act of consumption, a la Uber (or even Amazon, where the “order” implicitly includes payment rather than treating it as a separate step.)

      I do get that if there are enough credit card security breaches that the improved security will be a trump feature, but I suspect that (especially in the US, where individuals aren’t responsible for fraud on their cards) that the convenience of “I recognize you by what you did” interfaces will become increasingly common.

      And because these approaches rely on stored data, the improved per-transaction security of Apple Pay may not matter. E.g. even if, as someone suggested, Uber supports Apple Pay, I suspect that, for repeat customers, given the choice between “complete this transaction by touching your phone” each time you went to get out of the car, or trusting Uber with a stored credit card, people will choose the latter.

      The entire tech economy is built on the premise that convenience trumps privacy and security. That’s why people routinely give up information to advertisers in exchange for free services.

      • Mikael Fransson

        I have a new credit card in the mail since I shopped at Home Depot. That is seriously inconvenient. I think most people would do the sacrifice of verify a payment with a finger print is it protects them and their identity. I actually never though cash was very inconvenient. It will still be the faster checkout in most stores compared to swiping cards and signing papers or worse, writing a check. I think you’re wrong.

        • I suspect that that won’t be compelling enough for a lot of people. Look at the history of online privacy. But let’s not argue about this. Time will tell. I am not trying to predict the future, just to share lines of thinking that may help to identify trends. I’m very Bayesian in my approach. I look at the future probabalistically. I truly believe that a lot of different futures *can* happen. But as events unfold, I update my priors, and some futures seem more or less likely. But being open to seeing alternate futures than the consensus reality seems like a useful skill. It’s served me well so far.

  • I’m not familiar with Cover, but both Amazon and Uber make payments via credit cards. Hence they are basically optimizing for how the world does work. Apple Pay is no different.

    As I understand it, Apple Pay centralizes payments via credit cards at the OS level. You no longer have to enter you credit card info separately into shopping apps or Uber-ish apps. Apple Pay takes care of that for you. NFC a is simply an extension of this for regular shops.

    For example, I would probably hesitate to entrust my credit card details to a little known startup like Cover. This wouldn’t be an issue if they used Apple Pay.

    Apple Pay is actually a system that will make Amazon or Uber-ish payments easier for apps and for shops. It is an enabler of the services that you are imagining.

    • Mikael Fransson

      It is very different…go to apple.com and read some more

      • I have. I’ve also read a bit of the developer stuff. The developer stuff explicitly mentions that you can use Apple Pay to make payments from your app, which is basically what Uber is doing I believe.

        Please elaborate on what you think is different.

        https://developer.apple.com/apple-pay/

        • Mikael Fransson

          Uber won’t know my name or my credit card number. Nothing they can lose and that will cause issues for me having to cancel cards etc.

          • Are you sure about that?

            Inside the Uber app, there is a section where you enter your credit card details. I’m not sure where they store that data on Uber’s servers or on a server somewhere else, but since you enter it through the app, I would expect that Uber stores it somewhere and can access it.

            Apple Pay would be different.

          • I don’t think it’s different. Apple is exactly equivalent to Uber, in that they took your credit card once, and then use that to provide an ongoing service. In the case of Uber, that service is letting you hire a car. In the case of Apple, that service is letting you make a variety of sales transactions. But in each case, there is a single party that holds your credit card info, and passes it to the bank for payment at the end of the transaction.

            See http://news.investors.com/technology/093014-719609-apple-pay-uses-itunes-pan-feature.htm#ixzz3EwIkEwmF

            “Users of the Apple iPhone and Watch can use the credit cards that they have on file in their iTunes accounts and add them to the Passbook app on their devices to activate Apple Pay.

            Apple Pay can then be used at any participating store.”

            So Apple has given you half of the Uber experience: that is, register the card once, use it many times. But it hasn’t given you the other half, because you still have to take an explicit payment step at the end of each transaction.

            The key to Uber is that they recognize YOU first, and then payment becomes incidental. There are people trying to do this more generally for retail payments, like Square, and Lucova (http://lucova.com/), which seems to provide a similar service on an OEM in-App basis.

            My point is that there are an increasing number of ways to recognize people with a great deal of fidelity that don’t require an explicit payment step. We will be discovering them in more and more apps, which will eventually render the style of payment Apple is pushing less important.

          • I get your point, and the way I said “Apple Pay would be different.” was a bit confusing.

            What I meant is that Apple does not store credit card info used for Apple Pay transactions (that is only stored on the phone), except when you are using the credit card that you already entrusted to iTunes.

            I generally agree with your concept. The only thing that I see as a problem is whether these automatic transactions will be treated as “card present” or not. If not, then there will be a tangible cost associated with this convenience, which may or may not put off customers/merchants.

          • Your “card present” point makes a lot of sense. If indeed it provides lower transaction costs, that could be a big advantage.

          • Mikael Fransson

            I think the key here is that a user CAN use an existing card in iTunes. They don’t have to. You can add as many cards as you wish to your phone and they will be stored there and only there.

            iTunes have no requirement to store a credit card.

          • Mikael Fransson
          • Just The Bank

            If you’re going to write article on this stuff, why don’t you educate yourself first?
            Right in the keynote (you watched that, right?) they explain that you can use a credit card other than that existing in iTunes, and all you have to do is photograph your card, then Apple will get you set up with your card’s issuing bank. But Apple will not store your number, nor will your phone. Just the issuing bank.

        • That does make this a lot better.

          • Although I do not much about online money transactions, my sense is that this could greatly benefit smaller online retailers (or even services like Cover maybe).

            Entering credit card information into a website or an app has always been a showstopper for me, especially if that company is small or not well known. It’s a hassle, but more than that, I have to blindly trust that company with sensitive data. That is why I often just go to Amazon because they are big and the already have my credit card info.

            If Apple Pay works like I think it does, and if this could also extend to the web, I see this as leveling the field to the benefit of smaller retailers.

          • I’ve also read that Uber is already in preparation to support Apple Pay.

            I hope this supports my thesis that Apple Pay is actually a platform that will make it easier to implement Uber-like payments.

          • I’m sure they will, for the one-time payment registration. It doesn’t change my point that ultimately, merchants and app developers should be aiming along the Uber curve of automatic payment triggered by use of the service itself. Wait and see. You will see many more apps that have no explicit payment step.

          • Yes. I agree that apps without an explicit payment step is a good goal.

            One issue that I can think of right now is the transaction fee that is paid to the credit card companies. As I understand it, Apple Pay is given “card present” status whereas an automatic online payment would probably be “card not present” status (due to higher probability of fraud). This might mean that an automatic payment will cost more for the merchant compared to a one-time Apple Pay payment. This is an issue that I understand only poorly, but the fact that security has a tangible financial benefit to merchants is what I find insightful.

          • NaturalEight

            > automatic payment triggered by use of the service itself.

            I agree with you Tim. Much as the Golden Gate Bridge toll now is automated. You just drive through, no stopping to pay toll. The bridge debits your FasTrak Account or grabs your license plate and sends you a bill. No toll takers needed. That’s the old way. The act of cars crossing the bridge is all that’s needed for the bridge to collect revenue electronically. This is the new way.

    • You make a good point, that Apple Pay could actually accelerate the trend that I am articulating, namely that payment will become an integrated part of the act of consumption or purchase, rather than a separate step.

      • I truly hope so.

        And as a programmer indebted to both O’Reilly books and the Safari BookStore, I’m honored to have been in a discussion with you.

    • Yes, but unless I’m misunderstanding things, Apple Pay might defeat the whole convenience appeal of Uber and Cover. Because there is no retained information, except in your phone, can the app automatically charge you at the conclusion of the consumption event? Or does it require the finger touch at the moment of purchase? (I guess if you authorize when you start the transaction – e.g. when you call the Uber or make the restaurant reservation – that might work.)

  • Mikael Fransson

    From the Apple website (and the keynote) “Every time you hand over your credit or debit card to pay, your card number and identity are visible. With Apple Pay, instead of using your actual credit and debit card numbers when you add your card to Passbook, a unique Device Account Number is assigned, encrypted, and securely stored in the Secure Element, a dedicated chip in iPhone. These numbers are never stored on Apple servers. And when you make a purchase, the Device Account Number, along with a transaction-specific dynamic security code, is used to process your payment. So your actual credit or debit card numbers are never shared by Apple with merchants or transmitted with payment.”

    This is disruptive and key to me. Either you share all your credit card info with all vendors or, worse, it’s stored with them. I have lost track of where I have stored my credit card and there is no way to find out either (other than going back and try to track accounts I created). I don’t even know if vendors where I just used my card actually destroys that info. I work in Enterprise IT and I know how bad data management can be…

    All security leaks and hacks are all about getting your credit card info and sell it or use it. Apple Pay completely disrupt this.

    /Mikael

    • Right. But:

      a) This assumes that everyone is using an iphone, and that every merchant installs the hardware required to take the payment. A lot of uphill network effects there.

      b) Apple itself holds the credit card info. So yes, this reduces the number of opportunities for intrusion. But this isn’t really different from Uber, say, telling us that the driver never sees your credit card info, or Cover saying that the restaurant never sees it. The point is that there are numerous opportunities to reduce the surface area of exposure at the app level, not just in special hardware.

      But the main point I’m making is not that Apple Pay is a bad idea. It’s a step forward. But it seems to me that examples like Uber highlight an alternate way of validating payment that uses context rather than some special hardware to avoid some of the inconveniences and security weaknesses of credit cards.

      • Mikael Fransson

        Paying via an IOS app doesn’t need any hardware. The payment will happen in the Uber/Target/other apps app without transferring any of my sensitive info. Just using my TouchID. I also doubt Apple Pay requires new NFC hardware in stores where that is used. Those terminals are already in place in numerous locations, I think they mentioned 200k already.

      • Mikael Fransson

        Apple doesn’t actually hold your card info either. It’s stored on your iPhone in Passbook. You have the option of starting with a card you have stored in iTunes but iTunes have no requirement to add any payment info.

        • I will lay odds that most people will use the card info they already have stored. But we will see.

          In a lot of ways, what I wrote wasn’t really about Apple Pay. It was about what happens when you really ask yourself, “Why is payment a separate step here at all?” If more apps take the Uber approach, then payment as an act gets handled automatically in the background. It’s not offered at the time as part of the transaction. It’s part of what the app knows about you, and is processed on the back end.

          • Mikael Fransson

            Well, I’m actually concerned with the Target/Home Depot leaks. Who’s next? If/when I can remove any stored payment info. from vendors like Amazon, Uber, etc. etc. I will. Immediately.

          • Only Your Bank

            With Apple pay, the only one who will have your data is the issuing bank. Can’t get any more secure than that. This is huge.

          • Jack

            Because now you won’t have to manually enter you credit card into each app individually. Each app instead will be able to suck in Apple Pay instantly. Think of getting a new credit card number and having to re-enter it into the dozens of apps that use the Uber method. Now imagine changing it only once with Apple Pay and being done.

          • I think that’s a reasonable tradeoff, frankly. How many services do I set up that require a credit card once? A few dozen a year? How many transactions do I make in a year with a credit card today? A few dozen a week?

            Sure, Apple Pay might be nice for setting up a stored credential, and more secure than having it remembered by my browser, but I guarantee you paying every time is less convenient than setting up a stored credential that is charged, Uber-style, simply as a result of using the service, with no explicit payment step, or where (a la Amazon 1-click, or iTunes (which licensed 1-click), where the act of purchase (e.g. download or shipping request) and the act of payment are the same.

          • Jack

            I don’t mind a quick charge screen per usage. Using Uber it’s easy to forget it actually costs money. Luckily they do send a receipt afterward with the amount you paid. But it’d be nice sometimes to know that immediately at the end of the trip because you would know if you were overcharged. It’s easy to spend tons of money when there is nothing implicitly telling you that it costs something. That’s not always a good thing.

          • Go Apple Pay!

            Apple Pay will be even better than Amazon one-click. For with Amazon, you’re still having to log in, with a password that is hopefully quick complex (one is an idiot not to, given that one’s credit card is stored in there). Yet when using Apple Pay to check out online–with ANY participating retailer, all you’ll have to do is put your finger on the iPhone sensor for a second…without having to log on to anything, and without remembering that “strong” password. On top of that, you won’t have to have your credit card stored wtih boatloads of vaarious businesses. Only the issuing bank will have that, not even Apple. That is huge.

          • Michael Schubert

            Sir,
            Use ApplePay just once. You will be an instant fan. Super easy. You don’t even have to open an app, the ApplePay screen popped up on my phone automatically, and then I had to put my finger on the button. Then that’s it. But you are *still* missing the main draw of ApplePay….. No one, not even Apple, stores your credit card number. The system is genius. And in 2015 when RFID cc swipers are mandatory, it will be available everywhere. No specialized Apple equipment necessary, except for iPhone.

          • Dedren

            Convenience is not the major ‘innovation’ here, Apple and, in my experience, most other users are mostly concerned about giving their data over to more merchants, which increases their odds of being part of the next Target, Home Depot, newstoreoftheweek, hack. Uber is nice and all, but what if they get hacked? Apple still has some additional work to do, but for me a more complete solution is Google Wallet because you can tap to pay in stores that support or you can use the Google Wallet credit card every other place on earth. This way if it gets compromised, you don’t even have to worry about not being liable for fraud since your data was never compromised.

            Oh and what Jack said :)

          • Todd

            So I will need a separate app for every store I go to?

          • UberUser

            Interesting you mention Uber, because the Apple Pay API is being adopted by Uber so that you can call for Uber, without even having an Uber account setup; you just pay in-app using Apple Pay, which you might have already setup for retail use.

      • Mikael Fransson

        The everyone argument makes no sense either:-) It’s a choice I can make as consumer, right? Not everyone will use an iPhone. Some might even use cash:-) People still writes checks in front of me in the stores…happens several times a week. Coming from Sweden this is like a time travel experience back to the 70’s.

      • Dave Birch

        “This assumes that everyone is using an iphone, and that every merchant installs the hardware required to take the payment”

        I think you are wrong here Tim. Even in-store, payments will become in-app. Will blog.

        • I think you miss my point. In app – but what does the app do, and should payment be a separate step?

          • Dave Birch

            When I pay in Walmart, it will be with a Walmart app. I don’t see payment as a separate step, but I’m not an expert on retailing. Maybe the retailers want you to come to a POS to buy gum and tabloids?

          • Guest

            You could pay at each POS with that vendor’s app, you still have to proliferate your credentials to every vendor. There is an advantage to letting your bank hold your credentials and merely assign a transaction GUID to your purchase. Privacy I feel is the real win. Regardless of who does it. Uber, Amazon, etc. there has to be limited exposure of our financial information.

      • Bank Man

        Apple only holds the credit card info they already have in your iTunes account; it will not keep all the new cards you might choose to use with Apple Pay, nor will any actual card info be kept on the phone. Only a token card number, sent by your card issuer will be kept on the phone.

      • Status Quo for Long Time

        These alternative payment paradigms, such as with Uber, are no doubt important. But it is ludicrous to think that any time remotely soon that a majority of “money” that “changes hands” will not be via the traditional paradigm. So the fundamental premise of your article fails. (But good job attracting the clicks)

      • RandomJerk

        Even with Uber the point still holds. I can store my credit card number in Uber’s database and hope that they don’t get hacked, or I can use Apple Pay where my info remains secure on my phone and no credit card info is transmitted to Uber at all.

        Seems like the latter is pretty disruptive to an existing online payments scheme which has resulted in so many billions of dollars in losses to merchants, consumers, and banks.

  • Jon Bruner

    The kicker to me with Apple Pay (and, FWIW, Google Pay, which I’ve tried with mixed success a few times) is that, after going through a set of motions that are just like paying with a credit card but slightly more complicated, your charge ends up on your credit card anyway! Nothing really inventive is going on with the payment process itself—just Apple extracting a fee from the merchants and banks for layering itself into the existing system.

    And the consumer gets surprisingly little out of the arrangement aside from non-convenience. We’re already indemnified against fraudulent purchases by the credit card issuers, so the fact that mobile payments are more secure doesn’t feel very compelling to me. It’s true that, if everyone switches, the overall cost of fraud will be decreased for everyone, but that’s so diffuse as to be an abstraction on the margin. The best-case scenario I’m hoping for is that these payment mechanisms somehow kick off a round of competition among banks to provide better benefits for consumers (e.g., get 1.25 points per dollar for spending through Apple Pay, since you’re spending more securely).

    • Mikael Fransson

      The fact that my information is not floating around everywhere (Target, Home Depot, etc.) is pretty compelling to me. I really don’t care about the overall cost of fraud. I’m more worried about my identity and credit score. Maybe that doesn’t matter to you but it does to me.

      • Jon Bruner

        I’m all for the elimination of personal data from vendors’ databases, but that’ll take an eternity (or maybe never happen at all). As you note in your other comment, data management can be terrible; I doubt retailers will race to securely delete the personal data they’ve already got once people start using encrypted transaction mechanisms.

        • Mikael Fransson

          I can at least take care of removing any stored card info and not sign up any new ones. Of course I can’t vouch for any vendors data retention policy but that will be their issue if I’ve done my part. See you in a class action lawsuit;-)

          My original point though was how the article completely missed the point of Apple Pay. The author really missed the mark if you ask me.

        • Dedren

          To agree with Mikael…keeping my personal information out of less than capable hands is THE main reason for this, everything else is marginal.

        • Easy Solution

          Easy solution: once Apple Pay is ubiquitous, cancel all your pre-existing credit cards…then it is irrelevant if the old numbers live on forever in some servers. Your new number will only be with the issuing bank and you.

    • P B

      My understanding is that Apple is not adding an extra fee to be paid by the merchants. Instead, it is collecting a percentage of the fee the merchant already pays the bank/card network/payment processor when a consumer uses a credit/debit card.

      In fact, because of the security they have shown, accepting Apple Pay will allow the merchants to continue to pay a lower “card present” fee amount vs. competing digital payment solutions where they have to pay a higher fee amount, comparable to mail order purchases.

      Additionally, your credit card is never shared with the merchant; instead a one-time token number is given, thereby eliminating your card number being retained, or ever being able to be stolen. Even Apple doesn’t keep the actual card on the phone; only a token is kept in a secure element and this can be deleted if you ever lose your phone.

      • Jon Bruner

        You’re correct; a more accurate way to write that might have been that Apple is squeezing its fee out of the fee that merchants already pay to banks.

        Regardless of where your card number is stored (and I’m not suggesting it’s stored on your phone), any charge still ends up going through the old system and landing on your credit card statement, just as it’s always done.

  • 100% agree that ApplePay is taking credit cards from a 1 to a 7, when modern superior options are already shooting for the 10.

    But most of the world is at a 1, so it seems like a pretty damn good place to start.

    I think the foundation they have will definitely be able to take us to the next stage, which is more of a Cover/Uber like experience with payment.

    But first things first.

    • I totally agree. My point is to highlight the long term trend towards sensor data in context as a kind of unique authentication, rather than the hardware approach Apple has taken.

  • Smail Buzzby

    I don’t have to search for my wallet because it is in my back pocket or on the table where I always put it. Does Apple think I won’t need a Drivers License or any cash or any of the dozens of cards I keep in my wallet?
    When you can’t protect your cloud I don’t think you are secure enough to deserve to have peoples financial information stored.

    • Mikael Fransson

      It’s not stored in the cloud. Read before speak…

  • ApplePayBuddy

    “How much does it cost to accept Apple Pay?

    Apple does not charge
    users, merchants or developers to use Apple Pay for payments. Your
    credit and debit transactions will continue to be handled by the payment
    networks.”

    From Apple Developer Documents

    Here are the approved payment processors, so far:

    Authorize.Net
    Chase Paymentech
    CyberSource
    First Data
    Stripe
    TSYS

    Apple Pay has been primarily thought of as in terms of paying at retail via NFC tech. However, it is also an API that can be added to Apps to facilitate payments by all sorts of merchants: retailers, restaurants, online stores, hotels, etc. In other words, it is in one swoop and brand tackling the brick and mortar payments in two ways, along with purely digital solutions.

    The only downside is that it is Apple device only, but the upside for merchants is that there is no extra cost (other than retail NFC terminals, but they would work with competitor solutions as well). Instead, there might be a lower cost compared to other solutions (if they get to pay a card present percentage for all transactions).

  • Eric Scoles

    My one quibble: the real winner will build for how the world _will_ work. “Should” don’t enter into it.

  • Arne Fismen

    Do you want a world where you have to download an app for every merchant you want to purchase from?

    A general purpose solution for physical and internet payments that use our phones is a great step forward.

  • Mikael Fransson

    Chase just sent me an email saying new cards are in the mail since I used my card at Home Depot…. I have that card registered in a few places to automate payments. There goes another evening fixing this and potentially missing one. Can’t wait to get out of this mess.

  • You are bang on! It’s not JUST about digitizing the payment, it’s about streamlining the in-store shopping experience – they’re not called “payers” their called shoppers – and that’s why we developed SelfPay, an integrated shop+pay platform for in-store retail to let the shopper use their phone, iOS or Android to shop+pay in one smooth flow on their own device – today a shopper can use a saved CC or PayPal – but we plan to add other mobile wallet options including Apple Pay later this month and none of this requires a retailer have an NFC terminal – just a smart phone to verify the purchase by scanning the shopper digital receipt as they breeze out of the store purchase in hand.

    • Mikael Fransson

      A shameful plug in a forum. You know what that means, right? I will bad mouth you and your product whenever I get a chance…you’re welcome.

  • 乃亜 印場

    It’s disruptive if you ignore the huge infrastructure already built up in Japan for almost 15 years now with very good technology and hundreds of millions of users. Instead of license that, you develop something new and incompatible?

  • Lam Tran

    Quoting Tim : “Uber highlight an alternate way of validating payment that uses context rather than some special hardware to avoid some of the inconveniences and security weaknesses of credit cards.”

    1 ) iTunes kinda does already and for some years. Uber just does it on mobile since 2010. So the new way of charging simply is just not that innovative.

    2 ) What Apple Pay does is dealing with offline retail shopping ( and in a way online as well but i’ll deal with offline here ). Using Uber to compare Apple Pay is not quite fair.

    a ) Uber is a mobile app that just charges for every ride you make. It’s a mobile app with a single purpose. It automates some aspects and just calculates a bill based on a distance + time. Apple does not deal with that.

    b ) Apple Pay deals with offline retail, which means you add a third party in the equation. The retailer is actually charging the customer not Apple Pay, that’s why they define themselves more like the “new wallet”

    3 ) Now I got your point though by asking a way to pay like Uber charges for everything we pay for so we don’t use any wallet or devices. That’s something we can think of maybe in a few years, maybe? :)

    • A couple of points:

      Offline payment by phone is great – if the terminals are there to read it. But I believe that of the 16 million point of sale credit card readers in the US, only 280,000 or so are NFC-enabled. That’s less than 2%.

      My fundamental point remains: that there are more and more kinds of transactions in which payment by stored memory of your credentials will trump payment by an explicit act of payment.

      It has been the gold standard in online payments for some time. It will become the gold standard in offline payments as well.

      I do hear all of those who are making the point that Apple Pay is intrinsically more secure. But at least in the US, where your credit card losses are limited, I suspect that security will never be a key driver of adoption.

  • There’s a foundational building block here that may be worth noting. Whether its Uber or Amazon – the integration of the payment step into user intent and its transparency to the end-user is conditional on Uber and Amazon as service providers having confidence that it is the legitimate user who is expressing the intent.

    That confidence is established through either (A) explicit authentication (Amazon relies on a entered or cached credential like a password or cookie) and/or (B) implicit authentication (Amazon relies on a risk calculation over real-time signals from your device, your transaction history and the nature of the transaction undertaken). Uber, as Tim notes relies on face, GPS, co-location etc. and its risk of being duped at scale is limited and therefore it can rely on these implicit signals.

    While service providers could certainly lean entirely on implicit authentication and eliminate all user-friction, there are cases where explicit user consent is required and that requires explicit authentication. Also, while implicit authentication using predictive-risk-analytics is pretty good, its not perfect and often results in false positives that generate customer friction and so occasionally you need to explicitly authenticate the user (and then may cache that guarantee). Finally, predictive risk-analytics isn’t a skill set most service providers possess today forcing them to rely solely on explicit authentication.

    In that light, Apple Pay with TouchID and its less celebrated predecessor (PayPal’s launch of FIDO based Fingerprint Sensor based payments on the Samsung Galaxy S5 in April 2014) both strive to reduce friction for that “explicit” authentication step and provide a strong security foundation underneath. They don’t preclude using implicit authentication to reduce/eliminate/make-inline the explicit step.

    Service providers, depending the nature and risk profile of their business, could invoke that strong (but simple) explicit step once and cache the guarantee for future transactions or re-invoke the authentication inline with the user-intent step (and ask the user to touch/swipe to authenticate).

    As authentication mechanisms, their security foundations and frameworks evolve, service providers should be able to blend explicit and implicit authentication on the fly and make authentication stronger, simpler and non-intrusive (perhaps even invisible) as they gain confidence that it is a legitimate user.

    HTH your thinking about Apple Pay and TouchID.

    -Rajiv Dholakia

  • Michael Schubert

    Sir,
    1). These “contactless readers” will be law in 2015. They will be rolled out everywhere, like it or not.
    2). The services you use that store your card to make payments easier for you do just that, they store your are info and have your account numbers. With Applepay, the store never receives your card number, making those massive data breeches you see weekly on the news obsolete. Apple doesn’t even *store* your card#, unless you keep it in iTunes.

    So…. Since you failed to do even basic researching for your article, maybe you should rewrite it. I’m sure your conclusions will change.

  • Mary Freeman

    I can see how this works for services, but how would it work where there is a physical item involved and yet still remove the risk of shop theft? Would it be the act of dropping an item into your basket?

    For cheap stuff, you can’t RFID tag everything (yet) as far as I’m aware – and thieves already know how to hide the tags from sensors – so “walking out of the shop with it” probably isn’t a fraud-free model.

    What about clothes, where you might pick up 5 items, try them on and then pick one in the right size?. Would it require an “un-drop” transaction (generating useful data about stuff people tried, but didn’t like)?

  • My understanding is that Apple does not add additional fees Cell Phones for Seniors paid by merchants. Instead, it is to collect a percentage of the fee already paid the merchant bank processor / network / consumer payment card when using credit / debit card.