Monday 20 October 2014

Goodbye wallet, hello iPhone? Apple big Pay-day

Goodbye wallet, hello iPhone? Apple big Pay-day

CNBC.com staff


Are consumers ready to cast off their credit cards in favor of a smartphone application?
That would be Apple's (AAPL) best-case scenario as it officially launches Apple Pay, the new mobile payment service that allows users to buy goods with their smartphones. The tech titan is betting consumers will no longer want to carry their wallets, credit cards or cash.

Here is how Apple Pay works: users walk up to a checkout line while hold their iPhone 6 or iPhone 6 Plus up to a special reader. By simply pressing the fingerprint sensor, the transaction is completed.
For online shopping within apps, apple pay is also available on the recently announced iPad Air 2 and iPad Mini 3.

The new service is enabled by a free software update to iOS 8.
"Taking out your credit card and swiping it is pretty easy," Eddy Cue, apple's senior vice president of internet software and services, tells CNBC. "We wanted to make something that was even easier than that."

With this new service, Apple is trying to capitalize on the swelling mobile payments market, which is set to quadruple to $90 billion by 2017, according to Forrester Research. The company has not yet disclosed how it intends to monetize this service.

The iPhone maker already boasts an extensive network of retailers and merchants jumping on the mobile payment bandwagon at 220,000 locations across the country, including Whole Foods (WFM), McDonald's (MCD) and Macy's (M).



Apple Pay also supports credit and debit cards from American Express (AXP), Mastercard (MA) and Visa (V). A wide range of banks have also signed on including Bank of America (BAC), Citibank and Wells Fargo (WFC).

What are some potential challenges for Apple's new service?
Attracting more merchants could be a hurdle. To make Apple Pay work, stores have to install what's called an NFC reader at the checkout line. Currently, such devices are being used by fewer than 10 percent of merchants, according to research firm Gartner.

Industry analysts believe Apple Pay could prove an immediate hit with tech-savvy consumers, but some are cautious about the technology's broader appeal.

"It is very easy to conduct transactions with credit cards, debit cards and cash," says Bryan Yeager, an analyst at eMarketer. "You don't need a battery to be able to do that. Apple Pay will have to contend with ingrained consumer behavior when it comes to paying with credit cards."

Apple's Cue, however, disagrees with that analysis. He argues that Apple Pay will prove popular because it is much faster than traditional payment methods, and it is also more secure.

For the service to work, consumers use credit cards they already have on file with iTunes, or enter a new credit card number. A unique, 16-digit security code is then created each time a consumer authorizes a new purchase. That one-time code, if intercepted by criminals, cannot be used on another device –or by another person.
With the iPhone 6 and iPhone 6 plus, the transactions boast an extra layer of protection as well: the iPhone is unlocked with a user's fingerprint.

With hacking and identity theft being common nowadays, consumers might feel apprehensive about using their iPhones as digital wallets for another reason: the reams of data being generated about their habits. But Cue vows Apple will not track or collect information about what consumers purchase.
"Privacy is a key component of this," he told CNBC.

Apple's executives are clearly excited about this new service, as are the analysts who see it as a new source of revenue for the company.

The only question that remains is whether consumers will be as enthusiastic.

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