Apple and banks take their time to ready Apple Pay

Friday 26 September 2014 | 10:59 CET | Background

Apple Pay will launch in the US in October. From then, iPhone 6 users will be able to purchase goods online and in shops with their credit card(s) stored in the phone. No announcements have been made for other markets, as negotiations are ongoing. Visa Europe has said it is working with Apple on bringing the services to the EU, but the launch is not likely before some time next year.

Apple Pay can be regarded as two separate payment services, based on one platform: online checkout and payment at point of sale.

Credit card networks require a Secure Element is used in a smartphone to store credit card credentials. The iPhone 6 and 6 Plus have a Secure Element isolating card payment credentials from the main processor where the apps run. Authentication is performed with Touch ID.

The Apple Watch also contains NFC and a Secure Element and can be used for in-store purchases when it is paired with an iPhone 5 (5, 5c, 5s) or iPhone 6. With the watch, a double click on the button is enough, which suggests that the sensors in the watch generate a biometric user profile – what the sensors were designed for.

According to Apple, around 220,000 cash registers in the US accept NFC, meaning that most cash registers don’t. The payment infrastructure is still dependent on outdated magnetic stripe readers, banks have been slow to switch to EMV chip and PIN technology.


The same Apple Pay functionality will also be used for online purchases. Apps that support the functionality will show a “Buy with Apple Pay” button. The app will then interact with the Secure Element in the Phone, receiving a payment token, but also a shipping address, if applicable.

Apple Pay will not leverage the 800 million credit cards that are linked with iTunes. In-app Purchase will continue to leverage those, Apple Pay will be limited to the users who have bought an iPhone 6. Apple said more than 10 million people have bought one in the first weekend of sales. Apple could sell over 50 million iPhones in the last three months of this year, with the iPhone 6 taking a large share of that.

Broad support from payment integrators

So even if the reach is limited, the launch of Apple Pay in October will likely lead to a flurry of app updates – the “Buy with Apple Pay” button will appear in many an app from online and retail vendors. Integrating the functionality is not that complex after all.
Apple Pay will be available in the US in October, but no exact date has been announced. The API’s and SDK’s have not been released to the developer community before September 9, when the iPhones were shown to the world (the news would have leaked out in an instant), so developers and PSP’s need some time to build and test.

Any app that uses American Express, Visa or MasterCard checkout will not require updates from that side – rather, the app needs to get the interaction between app and Secure Element. The rails to the card networks are the same.

A significant number of Payment Service Providers has announced support for Apple Pay, including Authorize.Net, Chase Paymentech, CyberSource, First Data, Stripe and TSYS. Other PSP’s have announced their services as well, including Braintree and Adyen.

Even when Apple Pay goes live in October, it is expected that introducing Apple Pay on the store floor will not happen before the first quarter of 2015.

More work needed in Europe

Apple has reached agreements with the leading banks in the US prior to unveiling the phones, but is yet to do so in other markets. Apple has said it will launch the payment services outside the US, but it’s not clear where and when Apple Pay will reach Europe.

Support from the card networks is required, but that seems the first and easiest step. Visa Europe has announced [we are] “working closely with Apple and with our member banks to bring this new service to market in Europe.” MasterCard Europe has not made an announcement however.

Visa Europe's director of mobile Mary Carol Harris joined Apple, where she will lead the firm's push into the mobile payments sector on the continent. Harris is an experienced digital payments expert with over 14 years of experience in a range of mobile payments, having launched some of the early SMS- and USSD-based m-payment services in developing markets and more recently mobile contactless (NFC) and other mobile payments across Europe.

Consumer banks will also have to reach an agreement with Apple as they must allow cards be registered with iPhone and iTunes. Debit cards are far more common in the European payments space than credit cards however. Apple may also have to move away from its current policy to accept only credit cards for iTunes.

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