The battle over mobile payment platforms is heating up.
On one side is Apple Pay, which launched Oct. 20 and encourages users to pay for merchandise with Apple’s iPhone 6 and 6 Plus at participating retailers like Macy’s, McDonald’s and Walgreens. In its first three days of operation, Apple Pay had a million cutting-edge users activate accounts.
Its rival is the payment system backed by Wal-Mart Stores Inc. of Bentonville and about 50 other retailers: CurrentC, created by a joint venture called MCX, the Merchant Customer Exchange of Boston. The pilot program is expected to be widely available next year.
Wal-Mart said it won’t offer customers the option of using Apple Pay. And the drugstore chains CVS Pharmacy and Rite Aid, which had the hardware in place to accept Apple Pay, turned off their systems last week, according to news reports. Neither company returned a call for comment.
Bankers have generally welcomed the new payment systems because they could cut down on expensive and disruptive data thefts at retailers. The Target data breach cost banks and credit unions more than $200 million, according to a February news release from the Consumer Bankers Association of Washington.
But mobile payments aren’t foolproof either. Last week, MCX acknowledged a breach in which “unauthorized third parties” obtained email addresses of some CurrentC pilot program participants and people who had showed interest in the app. MCX also said that several of the email addresses were dummy accounts used for testing purposes only.
At stake is a mobile payment system projected to reach $90 billion in the United States in 2017, according to a 2013 report by the technology and market research firm Forrest Research Inc. of Cambridge, Massachusetts. In 2014, mobile payments were projected at $30.6 billion.
Some banking experts think that Apple Pay could grab the early lead in the mobile payment platforms battle because of its early start.
“Mobile payment has been the next big thing for the past 10 years, and it’s always seemed difficult to get over the hump,” said Steve Kenneally, vice president of the Center for Payments & Cybersecurity Policy of the American Bankers Association of Washington. “But we haven’t seen anybody like Apple that has a lot of weight behind it to really push.”
The ABA just created the center last month because “recent high-profile data breaches and the launch of Apple Pay make clear what we already knew: that issues surrounding payments and data security will only grow in complexity and importance,” ABA President and CEO Frank Keating said in a news release.
Randy Sims, CEO of Home BancShares Inc. of Conway, the parent company of Centennial Bank, said Centennial will agree to let Apple Pay access the accounts of customers who want to use the service.
Kenneally said all the payments would still flow through the consumer’s existing credit card or bank accounts.
The merchant and the consumer won’t pay more for using Apple Pay, but Apple will receive a fee — exact amount undisclosed — for the transaction from the card issuer, he said.
Arvest Bank of Fayetteville made the decision to offer Apple Pay because its customers were asking for it, spokesman Jason Kincy said in an email. He said it should be available within a few months.
But Sims said it was too soon to make a prediction about the future of the Apple mobile system. “All this stuff is just now coming out,” Sims said.
Apple will receive some fees from the transaction from the card issuer, but that amount hasn’t been disclosed.
Sims said “it’s yet to be determined” how much it will cost Centennial to participate in Apple Pay, but some of the costs could be offset by not having losses related to data breaches.
Apple Pay “virtually eliminates card fraud,” said Bill Holmes, president and CEO of the Arkansas Bankers Association. “So the banks’ costs are going to drop for fraud.”
Banks would also save money by not having to reissue cards every time there is a data breach, an inconvenience familiar to millions of American households.
How Apple Pay Works
To use Apple Pay with a smartphone, a user would first need an iPhone 6 or 6 Plus. Consumers could use Apple Pay with the iPhone 5 models, but they would need to tether it to the Apple Watch, which won’t be released until 2015.
Apple Pay only works with the iPhone 6 models because they contain a near-field communication antenna and a chip called the “secure element.” Consumers then load information from their bank accounts or their American Express, MasterCard or Visa cards to the phone.
“Apple Pay is easy to set up, so hundreds of millions of users can simply add their credit or debit card on file from their iTunes Store account,” Apple said in a news release on Sept. 9.
Then it’s time to shop at one of the 220,000 merchants that take Apple Pay. When it’s time to check out, the customer places his finger on a fingerprint sensor on the iPhone and holds the phone near an Apple Pay reader to complete the purchase.
“You don’t even have to look at the screen to know your payment information was successfully sent,” Apple’s website said. “A subtle vibration and beep let you know.”
The system is touted as being practically fraud-proof because the card numbers aren’t stored on the iPhone or Apple’s servers. Each transaction is approved with a unique, one-time number using the digits assigned to the smartphone. “Instead of using the security code from the back of your card, Apple Pay creates a dynamic security code to securely validate each transaction,” Apple said in the news release.
CurrentC System
The difference between Apple Pay and the CurrentC system is vast:
- CurrentC will work with all major smartphones. All users have to do is download the CurrentC app through Apple’s App Store or Google Play store.
- CurrentC will be accepted in more than 110,000 merchant locations across the country, about half as many as Apple Pay has lined up. And Apple users could use the CurrentC payment system, but CurrentC users couldn’t access the Apple Pay system unless they had the Apple smartphones.
- CurrentC users could tie their coupons, store rewards, membership accounts and financial account information into a single scan, according to a Sept. 3 MCX news release.
By using CurrentC, consumers could pay “with a variety of financial accounts, including personal checking accounts, merchant gift cards and select merchant-branded credit and debit accounts,” MCX said. More options will be announced in the coming months.
It also bragged that it is a secure system — but that was before the email breach. The users’ financial information would be stored in CurrentC’s “cloud vault rather than locally on the mobile device,” MCX’s news release said. “Furthermore, the application uses a token placeholder to facilitate transactions instead of constantly passing the data between the users, merchant and financial institution.”
A spokesperson for MCX didn’t return a call for comment.
Will the Customer Use It?
One of the biggest hurdles is going to be retailers adopting the technology to use the Apple Pay system, said George Anderson, editor-in-chief and associate publisher of RetailWire, an online trade publication.
Rite-Aid and CVS turned off the technology “because it’s a competitive product with the Merchant Exchange CurrentC program,” he said.
Wal-Mart isn’t offering Apple Pay, spokesman Randy Hargrove said, because the system requires near-field communication technology at the registers.
“We have never had NFC enabled at our terminals in the U.S.,” he said, and there are no plans to change.
Wal-Mart also has been a part of MCX since the merchant collation was announced in August 2012.
“The MCX solution is going to be QR code-based,” Hargrove said. “If you look at QR codes, they are highly obtainable. … It doesn’t require hardware investments. It’s accessible today by most smartphones.”
Kenneally, of the American Bankers Association, said getting Apple Pay off the ground is sort of “a three-way chicken-and-the-egg problem.” More merchants and financial institutions would have to agree to the service, and then more people would have to buy iPhone 6 models, Kenneally said.
Anderson said, though, the use of mobile payments could be widespread in a few years.
“I don’t know that the consumers are clamoring for this,” he said. “But generally speaking, when something is found to work that makes our lives convenient and it’s not cost-prohibitive, then we tend to go for it.”
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