Apple Pay, the service that lets iPhone and Apple Watch users pay for things with their mobile devices, finally went live for ASB Bank customers this week.
Kiwis have really taken to so-called contactless payments using Visa PayWave (or Mastercard’s PayPass), which allow debit and credit cards equipped with a secure chip to complete a transaction then waved in front of a compatible Eftpos machine at the cash register. Surveys show there is strong interest in using the smartphone to make the payment instead.
But smaller retailers have been slower to adopt the technology to allow contactless payments and are unwilling to pay the associated transaction fees, meaning you are just as likely to be asked to swipe and enter your PIN as you are to tap-and-go. That is down to the quiet struggle for control of the future of payments underway between the banks, credit card companies and tech companies like Apple and Google and who gets what cut of the transaction fees.
Bite of the Apple
ASB follows ANZ and BNZ in making Apple Pay available to its customers - previously Apple users like myself were cut off from making contactless payments on our phones using an ASB Visa debit or credit card. But the background to the bank’s belated uptake of Apple Pay illustrates the battle underway. Finance companies FlexiGroup and GEM (Latitude) have also jumped on the Apple Pay bandwagon.
ASB’s Australian parent, the Commonwealth Bank had until late last year joined other major banks such as Westpac and NAB in boycotting Apple Pay. The three banks had tried to team up to negotiate collectively with Apple to access the phone maker’s payment technology.
But Apple has jealously guarded the NFC (near field communication) chip in its hardware, forcing the banks to play by its rules and negotiate with it individually. An application by the banks to the Australian Competition and Consumer Commission to allow them to collectively agree access and terms with Apple was rejected in 2017, with the Commission worried that the banks would wield too much power in the negotiations.
With the Commonwealth Bank capitulating, Westpac is likely to follow, opening up access to Apple Pay for its customers here too and making it the last of the four big Aussie banks operating here to embrace the Californian tech giant’s payment system.
The Apple Wallet app on iPhone screens is now the gateway to mobile payments for iPhone users and with the usual slick Apple design, it is a decent experience. The wallet links to your ASB, BNZ or ANZ banking app to facilitate the transaction, but adds a layer of security that uses the iPhone’s Touch ID, Face ID or PIN entry to authorise the transaction. You just double tap the power button on your iPhone to activate Apple Pay when the phone is in front of the payment terminal and the phone does the rest, showing you a list of recent transactions in the Apple Wallet.
One of the features of Apple Pay is that it doesn’t store or send your credit or debit card details to the merchant terminal. Instead it creates a “device account number” and a security code specific to each transaction.
Apple’s ambitions for the technology stretch far beyond mobile payments to allow Apple users to transfer money to each other and to use the Apple Wallet to store a wide range of digital loyalty cards in one place. It is an intriguing concept that many predict is the key to the future of the digital wallet and a huge factor in determining which mobile platform with reign supreme in future.
Apple claims it processed over 1 billion Apple Pay transactions globally in just one three month period in 2018. The service is growing quickly, but it isn’t a big revenue spinner for Apple yet. It receives a tiny sliver of payment transaction payment revenue, the majority of which is taken by the banks and credit card companies, the fees ultimately paid by retail merchants who pass on the cost to us, their customers.
The Apple Watch can also be used to make those mobile transactions, with it linking to the same Apple Wallet app on a user’s iPhone. Apple has also made Apple Pay compatible with the iPad and for use through the Safari browser. A physical button on new Apple MacBooks allows you to simply scan your fingerprint to authorise transactions on compatible websites.
But much of that functionality is yet to be offered by local merchants. Our digital wallet environment remains fragmented, with most people holding onto a clutch of loyalty cards and accessing them online through a collection of apps.
The Android alternative
Android phone users are no strangers to mobile contactless payments. The same NFC technology in Android-based smartphones has been used by around half of the New Zealand banks to offer their own tap-and-go mobile service, tied directly to their banking app and available on all PayWave terminals for Visa and Mastercard users. The ASB one works fine for me on my Samsung phone, but isn’t as slick as Apple’s.
Google is also getting in on the payment game with Google Pay (recently rebranded from Android Pay). Only two New Zealand bank, ANZ and BNZ, currently support Google Pay for mobile transactions at the cash register. KiwiBank is a holdout on contactless phone payments altogether at this stage, without its own service or Apple or Google payment support.
Apple’s growing update will likely speed adoption of Google Pay here too, and there are similarly compelling reasons for consumers to consider it over the basic mobile payment apps offered by the banks. The big tech companies have the innovative edge to make payments faster, safer and more convenient. Google also has a wallet and the same ambitions to put all of your loyalty and payment accounts in one place.
If common standards based on these platforms are widely adopted, all of the major companies you interact with will eventually be available via one app, with better transparency into your spending, and more importantly the benefits of staying loyal to them.
A homegrown innovation
But this innovation comes with a cost, that we ultimately wear. A transaction fee of two per cent is charged to the retailer on each contactless payment, which is split between the bank and credit card company, ostensibly, to cover all the costs of providing the technology.
But that stands to become an increasingly lucrative earner as contactless transaction volumes grow.
One factor, in addition to the stubborn hold-out merchants (Burger King recently ditched contactless payments due to the stiff fees), is blocking the path to digital wallet uptake - Eftpos. This fantastic and low cost technology has been with us for over 30 years and led the world in establishing a universally accepted electronic payment system.
Eftpos, without a fee being charged on every transaction you make, is still a hugely popular choice for making card-based payments at the cash register. Online Eftpos now also lets you pay for things using some bank Eftpos cards and websites.
But Eftpos hasn’t yet transitioned to the equivalent of PayWave, allowing your phone to act as an Eftpos card. It would require all of the banks to collaborate on funding the technology and agreeing to adopt it.
Paymark, which runs the Eftpos network knows what it is up against in making Eftpos mobile first. The banks are in bed with the credit card companies who they share transaction fees with and see that arrangement as the future of mobile payments.
The cost of that argues Paymark on its website, is to lose our autonomy in electronic payment technology that we’ve enjoyed for so long with our homegrown Eftpos system.
“Like our pioneering efforts with Eftpos in the 1980s, we want to take our payments innovation destiny into our hands, rather than have it dictated to us by the big, global monopolies that will come to this country and dictate the market and price points for Kiwi business and consumers if we don’t get our act together.”
Tap-and-go: the mobile payment options
Bank contactless apps
ASB Virtual available on a wide range of Android devices using the ASB app and Visa debit or credit cards. Westpac Pay available on a wide range of Android 5+ or higher devices using the Westpac Pay app with Mastercard debit and credit cards.