iPhone 6 – Payment Predictions

30 April 2014

I’m on a roll, so thought I would put this out there as a positive prediction (vs describing how Apple is Throwing GSMA’s NFC under the Bus). My views are as much informed from the “negative” as the positive. For example, my starting hypothesis is Apple will enable a POS payment capability in iPhone 6. It was the reason for the timing of the Oct 2013 “token” announcement from the big 3 payment networks. As most of us asked “where on earth did this come from”…. It came from Apple (or the network response to Apple’s initial plan).

My problem in figuring out what is going on (if anything) is that Banks have no idea what Apple is planning. Current guess below revolves around assumption that the 3 payment networks do understand the plan. Thus the question becomes “what can Apple do in payments that starts with the payment networks, but does not involve the banks”? Constraints? It must involve: tokens, Apple’s security architecture, 600M cards on file, existing card presentment infrastructure, existing rules, recent lessons learned, and be able to expand to iBeacons.

My predictions

  • Apple will have a certified EMV contactless capability from V, MA and Amex in the iPhone 6.
  • Apple’s contactless is a proprietary architecture, based upon both tokens, and 3 card emulation applications (4 perhaps with Paypal)
  • Each Network will act as a Token Service Provider (TSP), with one token in each card emulation application. The TSP specs give this away, per the Spec, the TSP must be approved by issuer and have ability to translate token to Card. Apple may want to be the TSP… but Banks will say no. This solves a BIG problem with card provisioning, with V/MA/Amex already having the “proxy” card/token provisioned in the iPhone, and each bank working with respective network to turn on their card.  This is the Google model, with the networks running the TSP as opposed to Google/TXVIA.
  • Apple will not work in iBeacon model at launch, but rather EMV Contactless. You notice I’m not saying NFC.. from a merchants perspective this will look like NFC, and use the NFC protocol, but certainly not from a GSMA NFC perspective. There are no other vendors in this solution beyond Apple and their hardware suppliers (?Broadcom?)
  • Cards will be “provisioned” into the wallet through complex process involving Issuing banks, TSPs, and Apple. Apple’s inventory of Cards on file will be registered with the TSPs, and Banks issuers will approve based upon Token Assurance information , MNO information, card usage information … (yesterday’s blog).
  • Fingerprint will be key process which unlocks card/wallet and enables EMV Contactless interaction. Customer experience? EMV Contactless, consumer unlocks phone with fingerprint and authorizes purchase on Payment Terminal. iBeacon? Same thing only works on all iPhones via BLE (no proximity/NFC)
  • How will Apple make money on this? They won’t… nada. Altough there COULD be a way forward given that the product presented to merchant is in control of Networks AND the Issuers are in control of their cards.. a potential… but given lack of issuer participation, I have no idea of how they would pull this off. I do believe that there are groups in Apple that want to make money on a card present transaction, but join the club.. there is no economic model in any network agreement for a wallet provider.
  • I want to emphasize again.. this is just the easy payment part. I strongly believe that looking at payments in isolation is the wrong way to view this (see Blog).

I like this.. IF consumers can choose which payment products to store in phone (debit card). I think the Bank Issuers will flip out when they hear that V/MA have locked themselves into the TSP role.. talk about a reversal from TCH. Issuers could make the case that the networks own the fraud loss since it is a network proxy card wrapping the issuers card…. can’t wait for that one to happen.

I’m 90% confident in the above… lets see if I can keep my perfect track record on Apple, Google, Tokens and NFC.


8 thoughts on “iPhone 6 – Payment Predictions”

  1. Makes a lot of sense. But after reading your thoughts there is a big question mark on how apple will make money on this. It somehow has to get buyin from the banks. Banks will be more comfortable with HCE where they donot pay money to anyone. And with tokens they would anyways have contained a lot of risk. But they also understand HCE will take time especially with kitkat adoption & payment behavior on android phones.

    Banks would also not be too excited with Touch ID because they do not want near perfect authentication which eliminates risk (as you mentioned in your previous blogs) and therefore get beaten on card present rates.

    But banks understand that Apple can change behavior and its users are more likely to use iphones for payments. What can go in Apple’s favour is that smaller banks would be much more willing to pay apple for authentication on iphones and once a few banks agree, the others will have to fall in line just to not let go off this opportunity to the competitor banks.

    Even if the above happens, i am not sure whether there will be bank specific tokens/app on the secure enclave or will it still be 3 network tokens (which makes much more sense).

    1. They will not make money on payments.. NADA. There is no economic model for a wallet provider in a card present transaction. Apple’s treasury team WANTS to make money… but this desire works against them. As ISIS found out.. if you only accept issuers who will pay you will have no cards, no options and no customers.

  2. I agree with the vast majority of you predictions here.

    V/MC laid the ground work for ISIS with their optional provisioning services they offered to the issuers and have leveraged that for Apple. It makes total sense and from the bank’s perspective back when the SE/NFC being controlled by the carriers and requiring a TSM, most banks were going to be happy to deal with V/MA over Gemalto and others.

    Something that was missed by a lot of people when Visa and MasterCard announced these new optional provisioning services when Visa and MasterCard were looking to simply the need for TSM(s) you may find interesting, was a message set within the services that allowed for a consumer initiated action to result in the creation of the credentials or token on the device and the information to flow back to the issuer. Typical provisioning was Bank > TSM > Phone > Consumer. With this message set it is Consumer > Apple > Visa > Bank.

    Banks would jump over themselves to enable this so their customers could use their cards in the Apple device and not a competing banks cards. A lot of people think Apple can change perceptions of mobile payments and drive critical mass overnight and no one wants to be last.

    Here is where things get tricky for Apple, at least as it relates to Debit Cards. For that we have to thank Reg II aka Durbin Amendment for being the gift that keeps on giving. How does the above with Apple/Visa/MC work if only Visa or MasterCard can resolve the token?

    There is no routing choice unless Visa is going to resolve the credentials and then give the merchant/consumer a choice and then gateway activity to a competing network like Star/Pulse/NYCE which I highly doubt.

    Curious on your thoughts on how this will work with Durbin\Debit issues?


    1. Thanks for your note!! Two really big points you made:
      – message set within the services that allowed for a consumer initiated action to result in the creation of the credentials or token on the device and the information to flow back to the issuer
      – the BIN in the Apple wallet can NOT be used by the merchant to identify debit/credit.

      Will try to address in today’s blog.. on the later it would technically mean (per durbin) that if it wrapped a debit card, it must be treated as a debit card

  3. Tom – great note. Quick question: do you think the networks will use their own technology/infrastructure/etc. for TSP, or do you think they will outsource this to a TSM provider like Gemalto? Just trying to figure out what this could mean (financially & strategically) for a TSM provider like Gemalto if you are correct. thanks!

      1. Was talking to someone from the networks… they are in the advanced stages of building it themselves… would be out in a few months

  4. “Issuers could make the case that the networks own the fraud loss since it is a network proxy card wrapping the issuers card”

    Kind of like whats happening with the Target suit? With Issuers Trustmark and Greenbank now dropping out the Target/Trustwave case, this second set of lawsuits against the Networks state that they are at fault for not issuing EMV fast enough, and pressure the Senate for Tokenisation as the only real way to beat fraud. With this much legal pressure, and EMV roadmapped for 2015 anyway, its likely that liability for fraud will fall back to the networks and encourage a tokenisation service based on them being TSPs, which would align nicely with this Apple strategy. Im sure the networks wont mind taking the liability as long as the tokens are used inline with their standards…

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