Decrypted: Apple Pay Will Kill the Wallet — Eventually

☲☰CRYPTED
Editor’s Note: For most of us, the wide world of technology is a wormhole of dubious trends with a side of jargon soup. If it’s not a bombardment of startups and tech trends (minimum viable product, Big Data, billion dollar IPO!) then it’s unrelenting feature mongering (Smart Everything! Siri!). What’s a level-headed guy with a few bucks in his pocket supposed to do? We’ve got an answer, and it’s not a ⌘+Option+Esc. Welcome to Decrypted, a new weekly commentary about tech’s place in the real world. Writer Darren Murph, the former Managing Editor of Engadget and a Guinness World Record holder for number of blog posts published, will spend some weeks demystifying and others criticizing, but it’ll all be in plain english. So take off your headphones, settle in for something longer than 140 characters and prepare to wise up.

With the debut of the iPhone 6 (and 6 Plus) came a nugget so substantial that it deserved its own introduction: Apple Pay. Both of Apple’s newest phones are the first to feature an embedded NFC (near field communication) module, which has grown to be the de facto standard in connecting mobile devices with next-gen payment terminals. Think of it as a Bluetooth module, but for transmitting payment and account information in secure fashion. With this, Apple is not only admitting that it’s ready to join the mobile payment movement, but that it’s ready to define it.

When Apple ushered in the iPhone 5 in September of 2012, nearly every major rival flagship had a mobile payment solution embedded — and trumpeted it at every possible marketing opportunity. It was essentially a given that the iPhone 5 would also boast an NFC module as well as an Apple-branded mobile pay option. But then, it didn’t. In fact, both the iPhone 5c and iPhone 5s were launched in 2013 with nary a mention of paying on the go, but now it seems quite clear that Apple’s engineers weren’t spending the past 24 months with their heads in the sand.

Why Now?

Many assumed Apple was simply ignoring mobile payments entirely. The brand made it clear at this week’s keynote that it was just waiting until it had a sufficient quantity of partners in place before it made an announcement. You see, Apple realizes that a solution is nothing without an ecosystem. Indeed, this is the Achilles’ heel of every other failed mobile payment solution to date in the United States. Solving the technical aspect of replacing one’s wallet is drop-dead simple; any trained coder can figure out how to store 16-digit strings and expiration dates in digital form. The hard part is making sure that mobile payments are accepted as ubiquitously as magnetic-stripe cards are today.

The truth is that unless mobile payments are seen as “accepted everywhere,” people will continue to fall back on old habits: rummaging through their wallet, finding a card, swiping said card, signing a paper receipt. Apple managed to line up a staggering amount of partners, and while not every store in the U.S. will accept Apple Pay at launch, enough will that CEOs from coast to coast will have little option but to jump onboard. When you’ve got players such as McDonalds, Subway, Whole Foods, Macy’s, Bloomingdale’s, Walt Disney World Resort, Duane Reade, Sephora, Staples, and Walgreens onboard, it’s just a matter of time before everyone else makes the leap.

It took Apple to persuade record labels to loosen their grip and allow people to purchase singles for $0.99 over the Internet, and it took Apple to persuade major merchants to unify around a payment standard.

How Will It Work?

Apple has otherworldly clout, but it’s also not trying to reinvent the wheel: the same card numbers you already have will be used, just in a digitized form. This allows for a more gradual transition to a fully digital wallet. If you’ve seen how any other NFC-based payment solution works, you know the drill. Apple made an (expectedly) big deal out of how easy it is, but honestly, NFC has always been easy. First-time users will have the option of importing debit and credit cards attached to their iTunes account. To add an additional card, a user will snap a photo of the card with their phone’s camera to automatically add it to Passbook.

In an NFC-enabled store, a user will hold his or her phone within a few inches of the payment terminal, place a finger atop the Touch ID sensor, and walk away. The fingerprint acts as the authentication method, and users can swipe through available cards in Passbook prior to tapping so that they don’t ding the wrong one.

The single most important aspect of Apple Pay is a security wrinkle that no other solution offers. Apple doesn’t actually record your card number on your phone. Instead, it captures your account information and then generates a new one-time use number for each purchase you make. That one-time use number is temporarily stored on what’s called the “Secure Element”, and that encrypted information is thoroughly useless, even if stolen, when not paired with your fingerprint. One-time use numbers aren’t new — chances are, your bank will issue you one right now if you call them and ask — but never before has there been an automated way to generate them for mobile payments.

If your phone’s battery dies or the terminal is down, you’ll have to break out the card itself and pay the old fashioned way.

Will it Really Replace My Wallet?

Slowly — but still more swiftly than before. Broadly, there hasn’t been a single company powerful enough to convince the country’s largest stores to adopt a mobile payment technology. That hemming and hawing has led to indifference and fragmentation, which has led to consumers caring less about paying with items via phone.

Because Apple has swayed some of America’s largest merchants to install Apple Pay terminals at their stores, pressure will soon mount on other stores to add terminals as well. Just as shops proudly displayed “Credit Cards Accepted Here” signs decades ago, I suspect we’ll see similar placards announcing support for Apple Pay in the years to come.

We’re still many years from being able to leave our physical cards at home, but Apple’s mobile push will no doubt kickstart the revolution that has been looming. The future of its adoption hinges on how well things work in the first year of launch. So long as Twitter isn’t rife with complaints about failed taps, security breaches, or mobile payment terminals being down, this thing really has a chance. If consumers get wary of its stability or dependability, though, things move back to square one.

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