iPhone Acceptance – Mobeewave Pt 2

As I outlined in 2020 and again back in May 2021, Apple is enabling the iPhone as a “merchant terminal”. References

• ApplePay Mobeewave May 2021 
• Mobeewave acquisition Aug 2020 
• Bloomberg this week

The key enabler of Apple/Mobeewave is perhaps the largest change in acquiring rules, technology and certification: Visa Acceptance Cloud (announced Dec 2021). As I outlined previously, one of the biggest flaws of the payment networks was that nodes were segregated into either card holders (purchasers) or merchants. The idea that an individual could both send and receive payments (be both) was never contemplated. The merchant acquiring process was long, opaque and laborious (until Square). Think of the number of FinTechs that were created to enable small merchants, P2P, …etc. 

There are 2 very big challenges in acquiring POS transactions for small merchants: 1) Underwriting and 2) Point of Sale Payment Terminal. 

Acquiring

JPMC helped Square understand the hurdle for acquiring and then helped them take on the merchant risk and act as a payment facilitator (PayFac) for Chase Paymentech. The merchant acquirer is responsible for merchant fraud in the 4 party model. Small merchants are costly to sell and hard to underwrite. For example, who would want to take you as a merchant if you only did 10 transactions a yr (accept card payments on your phone). 

The underwriting innovation use by Square, Stripe and others is to put the merchant in a transaction “box” limiting their total payment volume until a risk model can be developed. Elavon was the primary payment processor for the Mobeewave pilot. I am curious to see who is behind Apple’s roll out. 

Payment Terminal

Payment terminals are the devices that take a card swipe, dip or tap. A key for keeping merchants out of the complexity of PCI compliance is to encrypt the card information at swipe. Typically terminals are issued by the processor/acquirer with encryption keys managed by the processor. 

Prior to Acceptance Cloud (VAC), Payment Terminal certification was a 2yr+ effort and key management (aka key injection) was a time consuming process. Think of Acceptance Cloud as the merchant equivalent to tokenization (see Visa member Letter). It will not only enable every iPhone to accept payments, it is key to embedding payments within iOT (charging stations and vending machines). No more specialized payment terminals.  Within the EMV Token specification Section 6 it also provides for enhanced token assurance/device information (see blog on Token Assurance). 

Biggest unknowns:

1. When will Apple release
2. What is their target merchant size
3. Cost/MDR
4. Who are the acquirers? My guess is Elavon (US) and GPN (US + Other markets)
5. Apple rolls things out with a unique consumer experience in mind.. What will it be?
6. Will Apple look to enable P2P as well?

Impacts

• No impact to mainline processors in near term, possible expansion of processor services to embedded payments in iOT (example EV charging). 
• Significant impact to long tail POS merchant solutions (Square, Toast, Clover, …etc)
• FinTechs.. A new wave of innovation will be coming along with VAC. 

Thoughts appreciated

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