BLOG | Linkpay, the cloud-built payment solutions platform based in the US, announced last Friday their integration with Apple Pay, the new mobile payment system by Apple. Linkpay, together with Adyen and Braintree, is amongst the first Payment Service Providers announcing the support of Apple Pay payments for merchants. What is Apple Pay and what does it entail for merchants?
What is Apple Pay?
The new mobile payments service by Apple was announced last week when the new Apple iPhone 6, 6 plus and Watch were presented to the world. The Apple Pay payment service allows consumers to pay contactless and in-app, as frictionless and secure a payment can be. iPhone 6 (October) or Apple Watch (beginning 2015) are required to be able to pay with Apple Pay.
MasterCard, Visa and American Express are the card brands that have joined forces with Apple to set the future of payments. In October last year, it were these 3 global card brands that proposed a new worldwide standard to increase card payment security by using 'tokenization'. Using tokens for the exchange of card details is now one of the cornerstones of the new Apple Pay payment service.
Apple Pay uses the current credit card processing infrastructure, both for in store payments (contactless terminals) and in-app payments (in app checkouts powered by payment service providers). Unfortunately, but understandable, it currently does not support for regular ecommerce purchases on desktop or mobile webshops. Apple Pay payments are namely confirmed by Touch ID, by using the shoppers fingerprint in combination with the iPhone device 'acting as the credit card'. Simple, secure and pain-free.
Apple Pay: transforming the iPhone into a secure payment card
iPhone 6 users are able to securely store their credit card(s) details onto their iPhone in order for them to make purchases. They can add their card details by sourcing the information from their iTunes linked credit card or add credit cards by simply scanning them with the iSight camera.
The iPhone instantly creates a unique number, encrypts the card data and securely stores the information in a so-called Secure Element (a tamper-resistant chip). The cards automatically show up in Apple Passbook, and the shopper can set a default card or select their card upon payment.
Apple emphasises the fact that the numbers are never stored on Apple servers, and, equally important, are never processed, shared with merchants or transmitted with the payment. By using tokenization - substituting the sensitive card data with a non-sensitive equivalent - allows for card payments to be processed without the need to share these sensitive and fraud-prone data.
Payment Service Providers supporting Apple Pay
Brick-and-mortar and online merchants accepting card payments traditionally rely on the payment hard- and software provided by their terminal vendors, payment service providers (PSPs) and banks (or merchant acquirers). All parties in the payment chain need to become lined up with Apple Pay.
Deriving from the Apple Pay website, Bank of America, CapitalOne, Chase, Citi, Wells Fargo and American Express in the US are amongst the first banks to support Apple payments for consumers and merchants. Unfortunately there is currently no list available that tells us which Payment Service Providers or Payment Gateways have embraced the Apple Pay service (were picked by Apple) for online or in-app merchants.
However, Apple's website makes clear that they have chosen strategic merchant partners in both the physical and online world to ensure coverage and immediate traction of their Apple Pay service. Based upon the press release by Adyen, Braintree and Linkpay, we know for sure they are on board and among the first Payment Service Providers to support Apple Pay. In the coming weeks and months we will definitely get more announcements from payment providers and banks as Apple will continue to drive the Apple Pay adoption and usage across its markets. It will need other strategic Apple Pay enablers to enlarge its footprint and to allow its buyers across the globe to use the phone's features to its full capability.
What Apple Pay means for online merchants
Despite the fact that the Apple Pay service currently doesn't support regular desktop ecommerce checkouts (it requires the iPhone), app merchants - and probably mobile etailers on short term - will greatly benefit from Apple Pay checkouts. As Apple Pay is assumed to solve some of the great challenges faced by merchants, it is without a doubt that Apple Pay will also be embraced by the merchant community.
More Conversion with Apple Pay
For starters, Apple Pay seems to deliver one of the best-in-class payment experiences for in-app shoppers (they can also submit their stored shipping and billing information with the one touch fingerprint confirmation). Especially with mobile and in-app shopping on the rise globally, consumers prefer a pain-free payment experience (currently that is not always the case due to need to enter card numbers, expiry dates, CVC2's and 3D secure codes).
At the same, Apple Pay allows consumers to pay without the need to share their sensitive card information. Many consumers are reluctant or hesitant to process card data online. Apple Pay ensures there is no longer the need to share this information, not for in-app payments nor for in-store (contactless) payments. A simplified checkout, trusted by the shopper, will mean more conversion, more sales. And at the same time the whole 'Appleness' payment experience will give a more positive brand experience, which might result in more sales in future.
Less Data Security (PCI DSS) Burden with Apple Pay
By promising no card data is shared, stored or transmitted with the merchant, the obligation to safeguard this data under the current PCI Data Security Standard (PCI DSS) will not be applicable to those Apple Pay payments. The risk of card data being stolen and the costs for safeguarding data will reduce over time when more and more in-app Apple Pay payments will be processed. Nevertheless, merchants will need to adhere to the current data security rules for the part of card transactions processed in the traditional manner.
Card Processing Routes remain the same
From what we now can derive, it is the current card processing rails that is used to facilitate for Apple Pay payments. Rumours say Apple would gain 15 basis points of every transaction processed (15 cents of every 100 euro), confirming the fact that the existing processing AND settlement of card payments remains intact. In other words, Apple Pay payments are processed through the existing Payment Service Provider / Gateway and Merchant Acquiring connection of the merchant. What it entails in terms of pricing (will these Apple Pay payments get higher fees?) is to be seen and will be determined by the Payment Service Provider and Merchant Acquirer.
Apple Pay for Ecommerce Merchants
When and if the Apple Pay checkout will become available for regular ecommerce purchases is unclear. Giving the current condition that the iPhone is required to conduct payments, it does not support for desktop ecommerce purchases. It is purely guessing whether Apple has the ambition to tap into these ecommerce payments as well, and secondly, how that would work (bearing in mind the iPhone is positioned as the card and authentication device in one).
Maybe there might be an option to work with 'QR-code' type of checkouts: the iPhone is used to scan a QR code (or some other 'bar-code') that appears on the payment page of the online merchant. After scanning the code the shopper would be able to use the iPhone to complete payment (a similar service is developed and deployed by SEQR and Ingenico Payment Services).
A more logical (first) ecommerce step - besides contactless and in-app usage - might be to support for Apple Pay checkouts on mobile webshops. The payment experience (and processing) could be the same as for in-app purchases.
However, first we have to wait and see how the introduction of Apple Pay in the US will go and how the actual perceived consumer and merchant experience will be. For European merchants it is good to know that at least two major Payment Service Providers with operations in Europe support Apple Pay. It might not take long for the service arrives in Europe.
Article by Erik van den Heuvel, About-Payments, September 16th, 2014.