Q: Just as I was trying to get my hands around how to accept EMV cards at my store for the October 2015 deadline, Apple introduces Apple Pay. Can you explain how Apple Pay works and how I can prepare my stores for all these new payment types?
Michael Dattoma: I truly believe Apple Pay will be a game changer in retail payments. In a sea of payment solutions that have flooded the market over the years—with little adoption—Apple Pay is a solution from a company that has mastered simplicity with a brand that consumers trust.
Let me start off my giving you a little primer on how Apple Pay works and then I will get into how it impacts you, the retailer, especially at the point of sale (POS) in terms of new hardware/software requirements.
To activate the Apple Pay service on a new iPhone model, the consumer scans their credit card with the phone’s camera, which picks up the account number, name and expiration date. This information is then securely transmitted to Apple, along with Visa/Mastercard, or Amex’s payment network. Once the card info is cleared for security and eligibility, a secure “token” is sent back to the iPhone, where it is held in the secure element (think locked-down section) on the iPhone. This token will be in the same format as regular credit card numbers, and a unique token is assigned to each and every iPhone. Apple Pay uses NFC (Near Field Communication) to link the iPhone to the retail POS. That means that all the customer has to do is hover the phone next to the NFC chip reader instead of swiping a magnetic strip.
What about security? What if you lose your iPhone? If a phone is lost, Apple can deactivate the token used on that phone and the consumer does not have to cancel their credit card. Also the NFC chip on the iPhone will not be able to send/receive a transaction until the consumer activates Apple Pay with their phone’s security pin number or the touch ID using their fingerprint.
The success of Apple Pay is all about adoption and with the use of the token, enhanced security and the Apple branding, people who would once never consider their phone for mobile payments will perhaps be intrigued and motivated to join the mobile payments revolution. Apple is not charging the retailers or the consumer any additional fees when they use Apple Pay, nor do they share any of the purchasing history on Apple Pay.
So what does this mean to the retailer, and how do you get ready for Apple Pay?
First and foremost your POS must be NFC-ready, which means having an NFC chip reader integrated to the POS terminal. It is this reader that allows the iPhone to transmit the token to the payment processing platforms. The token is then authorized for the payment amount and returns an approval to the POS. The great news is that no pin number is required, which makes it far more seamless for the consumer. In addition, NFC transactions are treated as “card present” transactions which allow them to receive the best interchange rates for processing with Visa/Mastercard (See my post Explaining Credit Card Interchange Plans).
So retailers will need to have an NFC reader—a new hardware element at the POS—and this comes at a time when retailers also need to have the ability to accept EMV chip and pin cards by October 2015. Since Apple Pay is now another catalyst calling for additional hardware at the POS, it would make sense for retailers to kill two birds with one stone and implement a solution that will allow them to accept both Apple Pay and EMV chip and pin cards, along with any other form of payment that may grow out of the NFC/mobile payment wave. These unified solutions are available, solutions that have anticipated the need to “future proof” the POS.
To take the scenario a step further, since both Apple Pay and EMV chip and pin are creating disruption at the POS, it may be a good time for retailers to evaluate their entire POS strategy, not just payments but inventory control, CRM, omni-channel, etc.—it could be an opportunity to refresh the store’s technology.
In summary, these changes require a plan to update your store’s technology sooner rather than later. Apple Pay is going live within weeks, and EMV acceptance is mandated by October 2015. Apple Pay is one of many reasons why the time may be just right for retailers to evaluate their overall store technology needs.
If you have any additional questions on Apple Pay, EMV or POS software technology, you can reach Michael at firstname.lastname@example.org.