David Donohue has a tough relationship with his wallet and the items inside it.
He has lost his wallet twice in the past year. He has fallen victim to credit card theft three times. On one occasion, a thief plucked a credit card replacement sent to his home directly from his mailbox.
Mr. Donohue said that is why he was excited to use Apple Pay, the tech giant’s new e-commerce product released on Monday. By pushing a button on his iPhone, he can make a purchase at one of the thousands of retail locations, including Macy’s or Walgreens stores, using the new service. No wallet, cash or plastic card necessary.
“I’d be beyond thrilled to be walletless, simply because I don’t enjoy carrying one,” Mr. Donohue, 42, who works at a social media marketing start-up in San Francisco, said in an interview. “My dream scenario is to carry only my phone and cash.”
Large tech and telecom companies like Google, Verizon and AT&T have tried for years to replace the traditional wallet with smartphone apps, having a click here or swipe there replace a credit card or dollar bills at the register. But commerce experts say they believe that the involvement of Apple, which helped revolutionize the mobile industry, could be the impetus that moves mainstream consumers to digital payments — the latest in an evolution of the way people buy goods and services.
The Apple Pay service, which was introduced on Monday, can be used only through the most recently released iPhone 6 and 6 Plus.CreditEric Risberg/Associated PressGeneration after generation of Americans used cash as their primary payment. They then turned to bank checks, later to credit and debit cards. Within a few decades of their introduction, credit cards became ubiquitous: By 2012, nearly three quarters of a billion credit cards were being used in the United States, according to the Federal Reserve.
Think of Apple Pay as taking the card out of credit card. After entering their credit card information into the latest iPhones, customers can wave their phone in front of a properly equipped payment terminal at retailers like Whole Foods and McDonald’s. Customers verify the transaction with the iPhone’s fingerprint scanning hardware.
Today, relatively few people buy things with a wave of a smartphone. In the United States last year, consumers spent $1.6 billion using contactless mobile payments of the sort allowed by Apple Pay, according to estimates from eMarketer, a market research firm. That is just a tiny fraction of $264.3 billion in e-commerce purchases made last year, and an even smaller portion of $4.26 trillion in traditional in-store retail purchases.
“Right now, mobile wallets are sort of like e-commerce in 1995,” said John Collison, co-founder of Stripe, a payments processing firm. “Amazon was one of the big companies that made people feel O.K. to put their credit cards online.” Apple, he said, will do the same for the mobile wallet.
But others point to previous mobile wallet efforts from Google, Verizon and Square, among others, all of which failed to gain wide adoption. And Apple’s largest difficulty could be to persuade thousands of retailers to accept Apple Pay at the checkout line.
“Apart from the cool factor, there’s really not a lot of value for the average merchant at the moment,” said Denée Carrington, an e-commerce analyst for Forrester Research. “Especially when you think about how merchants want to capture more information from consumers with each transaction.” She pointed out that Apple Pay did not connect to loyalty and awards programs that merchants often find valuable.
Industry experts, however, say that Apple’s offering has advantages that its predecessors did not.
Accepting Apple Pay and some other mobile payment technologies usually relies on technology inside the payment terminals at registers, like at the stations where a consumer swipes a credit card. By next fall, though, American merchants face a deadline to upgrade their credit card terminals to accept E.M.V. — which stands for Europay, MasterCard and Visa — a technology that makes credit transactions more secure for consumers. Many believe those new terminals will also accept payments from Near Field Communication-enabled devices like the iPhone 6.
“Apple’s timing here is an astute stroke of brilliance,” said Norm Merritt, president of ShopKeep, a start-up that sells point-of-sale products for small businesses. “People will already have to invest in new E.M.V.-enabled machines. N.F.C. is just a few bucks more.”
Apple is also promoting Apple Pay’s security measures, calling it far safer than the credit cards consumers use on a daily basis.
“We’re totally reliant on the exposed numbers and the outdated and vulnerable mag stripe,” Timothy D. Cook, Apple’s chief executive, said in Cupertino, Calif., last month. “Which all of us know aren’t so secure.”
Apple is working with major credit card companies like Visa, American Express and MasterCard to integrate a so-called tokenization system into Apple Pay. The technology sends a secure code to merchants instead of a credit card number, which experts say will make credit card data theft less likely. Every transaction will also come with a unique encoded passcode that will help determine whether a transaction is legitimate.
“Their brand, their technology and their choices in security made it compelling to us,” said James Anderson, senior vice president of emerging payments at MasterCard, who also pointed to Apple’s fingerprint identification system in the iPhone 6 as an impressive additional way to fight credit card fraud.
Still, consumers can use Apple Pay at a physical retailer only if they have the iPhone 6 or 6 Plus. More than half of American smartphone owners use an Android device, which does not work with Apple Pay.
Also, cash is still hugely popular. It may not be easy for Apple to persuade millions of people to switch from a familiar payment system to a novel one.
Apple Pay will most likely need to overcome a sort of chicken-and-egg dilemma: Popularity may come, but only if a lot of people really want to use it.
“There’s a type of network effect that occurs in markets like this,” said Jerry W. Kim, a professor at Columbia Business School. “The more people that use it, the more valuable it becomes.”
For people like Trevor Mason, a 33-year-old finance buff from Ann Arbor, Mich., Apple Pay can’t go mainstream fast enough. “I never carry cash in my wallet,” he said. Knowing “that I could just pay with my phone — that would be great.”
Authored by Mike Issac via nytimes.com.
In the coming year, banks in the United States are likely to replace debit or credit cards with versions that have tiny computer chips embedded in them, a move aimed at making shopping in stores more secure.
Bank of America, for instance, has just announced that, beginning this month, all new bank customers will be issued debit cards with chip technology, and that existing cards will be upgraded as they expire. The cards work by creating a unique code for each transaction. While the change will not necessarily stop data breaches from occurring, security experts say, the chip technology prevents criminals from using stolen information to create counterfeit cards. Most credit and debit cards in the United States rely on older “magnetic strip” technology, which is vulnerable to hacking.
Many big banks and credit unions have already been issuing chip-enabled credit cards to customers who travel overseas, where the technology is in wider use. The switch to chip-based debit cards has been slower, however, because of more complex payment networks used by those cards, said Julie Conroy, research director for retail banking at Aite Group. A recent spate of data breaches is helping to accelerate the change, however. Home Depot, for example, revealed last month that data from 56 million cards had been stolen in a breach of its computer network.
A spokesman for Chase said the bank already offered numerous credit cards with chips and expected most of its debit cards to be chip-enabled by the end of next year. Wells Fargo says it is testing chip technology with its debit cards and plans to issue them “on a broad scale” in the coming year.
Citibank will begin issuing debit cards with chips in 2015, it said in an emailed statement. Citibank said that all of its new consumer credit cards were issued with chip technology, and that the bank was on track to have half of its portfolio of consumer credit cards chip-enabled by the end of this year. Most customers can request a chip credit card from the bank online or by calling customer service.
There is a catch, however. Even if customers get a chip card now, they may not easily find a store that accepts it because retailers in the United States have lagged other countries in adopting payment terminals that can process the cards. Some major retailers like Whole Foods, Sam’s Club and Costco already have the systems in place, said Ms. Conroy, but “we’re going to see cards hit the market more quickly than terminals.”
Most big stores are expected to have chip-compatible readers by October 2015. That is when the liability for card fraud that occurs on nonchip terminals will shift away from card-issuing banks, which now bear the brunt of fraud costs, to the merchants.
Because of the staggered adoption, most of the chip cards being issued will have the magnetic strips as well, so they can be used even at stores that do not have upgraded card readers, said Rebecca Kastl, a senior consultant at Neohapsis, a security and risk management company.
Here are some answers to questions about chip cards:
■ Is there anything different about how the chip cards are used?
Unlike magnetic stripe cards, which are “swiped” at the cash register, chip cards are “dipped” into a reader and remain in the device for a few seconds while the transaction is approved. Customers need to remember to remove the card.
Ms. Conroy of Aite Group said that when the cards were first deployed in Canada, some merchants ended up with a pile of cards left behind by forgetful customers. “It’s a behavioral change,” she said.
■ Should I wait for my bank to replace my debit card, or ask for a chip card now?
Paul Stephens of the Privacy Rights Clearinghouse, a nonprofit consumer group, advises those who use debit cards to ask for a chip version as soon as it is available. Debit cards are linked directly to bank accounts and have less secure consumer protections than credit cards, he said, so it is important to use one with the latest security features. Banks typically cover losses from debit fraud if customers report a loss promptly. But, he warned, it can take up to two weeks for banks to restore the funds.
■ Will chip cards make online purchases safer?
Chip cards mainly protect against fraud when customers are shopping in a store; they’re less helpful for online shopping, since consumers are not using the actual plastic. In fact, analysts suspect there may be an uptick in online card fraud when chip cards become more prevalent, as criminals seek alternate ways to steal card data. So online stores may also consider further protections, like a special code sent to a customer’s mobile phone that must be entered to complete a purchase.
By ANN CARRNS. Article originally found at nytimes.com.