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Visa EVP of Technology Rajat Taneja gets understandably excited when you mention Apple Pay.
That makes sense given that Visa – along with American Express, MasterCard – is one of the key partners in Apple’s new smartphone payments ecosystem, but Visa is a partner in Isis/Softcard and Google Wallet as well. What gets Tenaja really worked up is that Apple Pay could become a blueprint for all sorts of other mobile payments services worldwide.
[company]Apple[/company] Pay is the first mobile wallet to use a new financial-industry backed standard based on the tokenization of the credit card, and according to Taneja it could become the precursor of any number of new mobile wallets and digital payments solutions embedded in smartphones, applications and even web browsers.
Apple isn’t trying an end-run around the financial industry, and it isn’t introducing any proprietary technology or layer of complexity into the credit card transaction. The Apple Pay iPhone transaction over a near field communications (NFC) connection will be same basic transaction as a one-click payment in a mobile app or website. Finextra blogger Daniel Eckstein put it another way:
Apple Pay is entirely based on credit cards. That means it is not a new payment method. It looks more like Apple will become one of the biggest resellers of the credit card industry. They will only facilitate the use of credit cards, and in our industry players like that have a name: payment facilitators.
For that reason, Taneja believes Apple Pay will have a good chance at succeeding where other contactless payments systems have failed, and it’s why it’s secured the cooperation of everyone from the credit card companies and banks to brick-and-mortar merchants and online payment processors.
So right about now you’re probably wondering what exactly a token is. Simply put, it’s a stand-in for your credit or debit card number, a randomly generated sequence of digits stored in your phone and read by a point-of-sale terminal. Your real card number, or Primary Account Number (PAN), is locked in away in a virtual vault maintained by your bank or [company]Visa[/company] or [company]MasterCard[/company], and it validates any transaction using a token against your permanent account number.
The tokens can be swapped depending on the policies of the card issuer. You could get a new token every few days, after a certain number of transactions or dollar amount spent. Or you mobile wallet could request a new token after every “swipe” of your card. To the sales counter terminal, it just looks like any other card number and it will process it as such. But if an expired token number is suddenly run through the system, your bank knows something is amiss.
Apple Pay is basically riding over the newly minted token infrastructure that companies like Visa and MasterCard have begun setting up, and while it may be the most recognizable brand on that network, it certainly won’t be the only one. [company]Google[/company] actually kicked the process off when it launched Android 4.4. That version, known as KitKat, included a technology called Host Card Emulation deal for tokenization technology.
Android and iOS are now on the same page when it comes to mobile wallet technologies, Taneja said, and that opens up a world of possibilities. After Apple shines the spotlight on tokenization’s capabilities, Taneja expects many more mobile wallets to emerge, and not just digital payments solutions tied to specific mobile OSes. A mobile banking app could stand in your for debit card, or a big box retailer could embed your payment credentials directly into its own app, letting you pay for goods at the counter or over the web.
So whatever you think of Apple’s chances of success, Apple does have the financial industry rooting for it. And in the world of retail commerce — where the number of competing interests are almost too high to count — that is an advantage that cannot be ignored.