Apple Is Walking Into Payments Naked

The drumbeat of reports that Apple is entering the payments business is growing louder and louder. The company has deals with Visa and MasterCard, Bloomberg reports, and American Express, says Recode. 

An announcement should be just a week away: The company has invited journalists to an event in Silicon Valley on Tuesday, September 9.

So are we that close to using our iPhones as wallets?


Adam and Eve and the Serpent. (Photo by mikecogh)

What Apple Must Bite Into

The technology is one thing. Apple has any number of means of transmitting payment data—via Bluetooth, NFC, or just over the Internet. And it has long experience in e-commerce, dating back to the late-’90s creation of the online Apple Store, which predates its physical retail outlets.

See also: Apple May Tap Old Tech For Payments

But Apple has a number of challenges it must solve before it can enter the payments market. Those fall into three broad areas: regulation, fraud, and customer service.

Apple doesn’t appear to have taken any of the obvious public steps someone getting into the business of moving money would need to do. For example, it hasn’t registered with its home state of California as a money transmitter, as Amazon, Google, Square, and PayPal have. (Even Airbnb, the lodging marketplace, has registered, since it holds rental funds for a few days before disbursing them to hosts.)

Apple can argue that it doesn’t need to register if a banking partner is handling the financial aspects of its payments business. And it will need a partner—like Chase, Wells Fargo, or Bank of America—if it wants to process Visa and MasterCard transactions for other retailers. (American Express is different, since it both issues cards and processes transactions: Apple can deal directly with that company for transactions involving its cardmembers.)

Fraud is another issue. Apple will likely find ways to protect payment-card details from obvious forms of hacking. But what about merchants and consumers who are out to trick each other, selling bum merchandise or using stolen card numbers? Apple or its banking partners or both will have to figure that out—and any new payment system is attractive to fraudsters.

There’s also Apple’s lousy track record with digital security, freshly in the news thanks to the apparent hacks of several celebrities’ iCloud photo backups. In 2012, Wired writer Mat Honan lost years’ worth of documents when his Apple accounts were hacked, allowing hackers to remotely wipe clean his iPhone, iPad, and MacBook. 

Apple is far from alone in having security problems, and has been working to improve its systems—it just fixed a vulnerability that may have allowed hackers to get their hands on celebrities’ intimate photos. But none of this is reassuring when you think about using an account Apple is guarding to make online purchases. If anything, handling payments makes Apple a richer target for hackers.

And then there’s customer service. What are merchants supposed to do if a transaction doesn’t go through? Line up at the Apple Store? In 2012, Apple laid out plans to hire 3,600 more workers in its Austin, Texas campus, largely to staff up its AppleCare support operations. Those phone lines will be busy.

What Apple Brings To The Cash Register

Apple has undeniable assets to bring to a payments business—chiefly its 800 million customer accounts on iTunes with credit cards on file. 

It also has intriguing experiments under way, like its Apple Store app, which lets you buy things in the store with your iTunes account without needing to swipe a card or even talk to an employee: You just pay on your phone, grab, and go. It also has iTunes Pass, a program which lets you walk into an Apple Store with cash and load it up on your iTunes account. Especially in developing countries, a link between cash and digital spending could be transformative.

Connecting Apple’s physical infrastructure with a payment service could be its biggest advantage. Small merchants pick up iPads and card readers at the Apple Store already. Amazon, Google, and PayPal don’t have that kind of physical touch point with businesses.

But before you can start paying with your iPhone, Apple has a lot of questions to answer: Where can you buy things? What will it cost merchants? And who will help if something goes wrong?

Photo by mikecogh

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