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Can Apple Pay kick start mobile payments?

01 October, 2014Liam Mandeville

While most of the attention related to Apple’s latest keynote was focused on the release of the new iPhone 6 and Apple “smart” watch, it also announced a new mobile payments service. Apple Pay will use Near Field Communication (NFC) technology in conjunction with its Touch ID fingerprint scanner to process and verify contactless payments.
A man using an Apple watchApple Pay is an interesting proposition. Apple has demonstrated that it can mass produce biometric security features such as the aforementioned Touch ID fingerprint scanner and it certainly has lots of potential with more than 100 million iTunes accounts linked to a payment card. Each payment would need to be validated by the Touch ID reader, which will create a one-time code that doesn’t contain any of the card holders details. Only the merchant will be able to decode and verify the payment.
NFC has already been adopted widely in Europe. London Underground has been using NFC technology for many years on its Oyster cards and more recently started to accept payments with contactless enabled debit and credit cards. The latest statistics from the UK Cards Association shows that over 48.3 million contactless card have been issued in the UK, and in June 2014, £158.5m was spent using contactless cards in 23.8 million transactions. This was an increase of 7.1% on the month before and up 238.3% from the previous year.

In America, although NFC technology has been available for a while, it is yet to really take off. Apple has spied an opportunity to take mobile payments to the next level and has already negotiated transaction fees with Mastercard, Visa and American Express. It has also pursued some of the biggest retailers in the US such as Disney and McDonalds to upgrade their hardware to accept contactless payments.

However there are concerns. In recent weeks Apple’s security procedures have come under immense pressure. The recent iCloud hack raised questions about just how easy it is to break into the system and circumvent the security and verification procedures that Apple had in place. While these are not directly linked to the processing of payments it has made Apple take steps to reassure their customers by introducing new security features such as two-step verification and a new section on their website which explains how Apple manages their customers’ privacy and security of data.

Members can read more about Apple Pay in the latest edition of Financial World.