What If Apple Pay Succeeds?

Similarities and differences

Apple announced its entrance into mobile payments on Tuesday. In many ways it is very similar to the ill fated Google Wallet. They both use NFC technology and they both use software on your smartphone. In terms of security, they are both vastly superior to credit cards and their magnetic strips (or 3-digit security codes). I do not claim to know the details of both systems, but at least superficially, they seem to be much more similar than different.

What seems to be very different is the way they handle privacy issues. Eddy Cue, during Tuesday’s announcement, strongly emphasized that Apple will not store credit card details on the phone, nor will they store transaction details.

We are not in the business of collecting your data. So, when you go to a physical location and use Apple Pay, Apple doesn’t know what you bought, where you bought it, or how much you paid for it. The transaction is between you, the merchant and your bank. It’s fast, it’s secure and it’s private.

This means that Apple cannot use and is not interested in using Apple Pay as a means to collect point-of-sales data.

Obviously, this data is extremely valuable for advertising. Hence for a company like Google that generates the vast majority of revenues from targeted advertising, this data is too important to simply discard. In the Google Wallet Privacy Notice, Google says the following;

When you use Google Wallet to conduct a transaction, we may collect information about the transaction, including: Date, time and amount of the transaction, the merchant’s location, a description provided by the seller of the goods or services purchased, any photo you choose to associate with the transaction, the names and email addresses of the seller and buyer (or sender and recipient), the type of payment method used, your description of the reason for the transaction, and the offer associated with the transaction, if any.

Regarding how Google plans to use the data, they say the following;

In addition to the uses listed in the Google Privacy Policy, we use the information you provide us, as well as information about you from third parties, in order to provide you with Google Wallet services, and to protect you from fraud, phishing or other misconduct. Such information may also be used to assist third parties in the provision of products or services that you request from them.

This basically means that Google will treat your financial transaction data in the same way as they treat other data; it will be used to learn as much about you as possible, and to send you advertisements.

Can Google change its business model?

If Apple Pay is to succeed, it is very possible that Apple Pay’s business model will be the reason. Merchants and credit card companies will be understandably more willing to work with a company that promises to do only a single function, rather than work with a company that could possibly disrupt them in the future. However, this is not what I want to discuss. I am more interested in what would happen if Apple Pay does succeed.

Let us assume that Apple Pay does succeed and the business model plays an important role in it. Since all previous attempts have failed, this will set the standard for mobile payments. Merchants and credit card companies will expect new entrants to abide by store-no-data policies that are similar to Apple Pay.

Google will naturally have a hard time with this. Accepting a store-no-data policy directly conflicts with their basic business model. It will be interesting to see how Google will manage the situation.

Will other companies step in?

If Google hesitates to provide a store-no-data policy mobile payment solution, other companies might step in. For example, Samsung might add a mobile payment feature to their Samsung Wallet app. Samsung has a large share of the high-end Android market, and hence has access to a large proportion of the customers whom are attractive for a mobile payment scheme. They can also incorporate specialized hardware (secure enclaves and/or biometric sensors) which will enhance security.

Moreover, Samsung has no business model conflict in adopting a store-no-data mobile payment scheme. Like Apple, Samsung makes money by selling phones. They make money when their phones are better and have more meaningful features than the competition. In fact, Samsung would very much like to differentiate itself from the Android competition by including any compelling features that Google will hesitate to provide. If they can make money while doing this, that’s wonderful for them.

Other companies may also step in with a different business model, but still abiding a store-no-data policy.

Update

Some other articles that suggest that Apple store-no-data policy is a big deal, but that other companies could technically adopt the same scheme if they were willing (Google does not currently seem to be willing);

“Here’s How the Security Behind Apple Pay Will Really Work”

There are a number of interesting implications here. First, while it may seem that Apple isn’t using any new technology, Lambert maintains that the combined use of tokens and biometric security features distinguishes Apple Pay from others. Second, Apple will not be handling the tokenization — the credit networks like Visa and MasterCard will be doing so. This essentially takes Apple out of the payment process — Lambert said that Apple will be acting “more as a channel and not a party,” and Apple already said in its major product announcement this week that it will not retain any transaction data. With Apple acting as a payment conduit and not a processor, it would already see little data, but Lambert said Apple has put up “some Chinese walls” to further prevent it from gaining access to payment data.

“Google Wallet Is Leaking Money”

For Google, the goal wasn’t to generate fee revenue from the transactions, as banks, PayPal (EBAY), and other companies do. The idea was to collect data on consumer habits and target ads to them. Google pays such high fees to the credit-card companies it works with, though, that it loses money on every transaction, says Osama Bedier, who stepped down as head of Wallet on May 20 and will shortly leave the company.

“Banks Did It Apple’s Way in Payments by Mobile”

“There are schemes that don’t respect and honor the payment networks,” said James Anderson, the senior vice president for mobile product development at MasterCard. “We want to invest in programs that respect our role in the ecosystem.”

  • Walt French

    Hey, Samsung Creative Team: make this message palatable: “Samsung phones only sell SOME OF your personal shopping info to Google etc!” Every keystroke up to the actual purchase is fair game, but after you’ve hit “Buy,” you’re totally anonymous!

    Yeah, I can see that working just great!

  • WillD2

    The rest of the world already has various forms of NFC payments, so it is a moot point. Apple Pay will be too late everywhere but in the USA where contactless payments haven’t taken off yet.

    It is a question of too little, too late.

    • The rest of the world already has various forms of NFC payments, so it is a moot point.

      The mere availability of NFC payments does not make it a moot point. Far from it. As far as I know, no country, even the ones with NFC cards and NFC terminals in many locations, has reached the point where NFC payments have become significant in transaction value (excluding transport). This is even true in Japan where NFC payments have been available since 2001 and NFC enabled mobile phones have been available since 2004.

      If you have some examples of countries where a large proportion of non-transport transactions are made using NFC, please let me know.