Why Apple Pay is a Game Changer

By Eugene Zhelezniak ’16


Earlier last month, Apple announced its new iPhone. Not only thinner but larger than its predecessor, the smartphone ships in two sizes – 6.9 mm and 7.1 mm. However, the screen and the processor, while impressive, don’t wow the tech gurus; what makes the iPhone stand out is its simplicity and functionality set, with Apple Pay leading the way.

What exactly is Apple Pay? Essentially, it is a mobile wallet with the capability of storing information linking your credit cards and bank accounts.  A user enters their credit card information either manually or by taking a picture of the card. The device is compatible with credit card terminals equipped with NFC (near-field communication); in the store, you need to hold the device in front of the terminal with your thumb on the Touch ID reader to allow the information to be wirelessly transmitted.

Mobile wallets are not new. Google pioneered the technology as far back as 2011. What differentiates Apple pay is Apple’s outstanding job perfecting and marketing the product. First and foremost, Apple simplified the features and explained them in layman’s terms. While Google never specified security as its top priority, in the light of recent data breaches, Apple made security features key.  All of the private information is stored in the encrypted form on a chip that the company calls the Element. The information is localized to your device, so Apple servers never touch it, avoiding the iCloud fiasco. This is fundamentally different from Google Wallet, which stores the information on Google servers. Furthermore, when a payment is made with Apple Pay, information is dynamically encrypted, so the merchant never sees your credit card number, hence imposing an additional level of security.

Second, Apple makes it clear where Apple Pay is accepted. At the moment, participants include Whole Foods, Walgreens, and the fast-food giant McDonalds. Overall, the platform is accepted at 220,000 merchant locations, and growing. The wide acceptance is in-part tied to Apple’s deal with major credit card networks. Earlier, the tech giant signed deals with Visa, American Express, and MasterCard, the triumvirate that together processes 80% of all credit-card transactions. Apple monetizes the product by charging an interchange fee on each transaction. WSJ estimates that the feature will generate 118 million in 2015 and 310 million in 2016. While this is a tiny fraction compared to the Apple’s estimated revenue of180 billion for the most recent fiscal year, the growth potential, especially in the developing markets, is enormous.

In the end, Apple Pay is a game changer because it adds value to the established payments industry. Unlike Google Wallet, Square and Venmo, who seek to disrupt the payments industry, there is very little upfront cost for the merchant, and a significant value added to both business owners and consumers. What lies in the future? Apple needs to focus its efforts on integrating gift cards and business-specific payments methods into Apple Pay. Seamless integration will further enhance value and personalize the process, and establish the Apple ecosystem that the company sought all along.





Photo: theverge.com


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