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  • Thierry Spanjaard

Apple latest step in payment

Photo credit: Apple

For long many companies from diverse horizons have been trying to enter the financial transactions arena. Apple is perhaps one of the best example of a long series of attempts to become a payment stakeholder. The latest embodiment in this series is the Apple credit card announcement.

Already since the inception of the App Store, Apple has been collecting and keeping credit card numbers of its customers. Then, in our secure transactions industry, we all remember about Apple Pay launch and its controversies: Is apple trying to become a financial institution, a payment processor or a payment player? We know now Apple has found a place for Apple Pay in the payment value chain. Apple is more than a merchant, but still not a payment processor, and definitively not an issuer. With Apple Pay, Apple positions itself more like a transaction aggregator than a key player in the payment industry.

Now, Apple is unveiling its next step: it will issue credit cards, at least in the US, thanks to a partnership with Goldman Sachs and Mastercard called Mastercard Digital-First. The company calls it a “new kind of credit card” as it is designed to be dematerialized before being a physical card. Apple leading goal is to make cardholders use its card with Apple Wallet and Apple Pay. The dematerialized card data will be stored in the iPhone secure element. A physical card will only be issued to cardholders to serve as a backup option for locations not accepting Apple Pay.

In order to drive adoption of its new card, the company is proposing a 2% cash back on transactions, expect the ones completed with Apple physical card that will only yield a 1% cashback, and a 3% cash back on transactions at Apple stores.

The physical metal card will appear somewhat different from what we are used to: the card body will carry neither a PAN, nor a CVV, expiration date or signature. It will also not carry a contactless interface as Apple considers everything contactless has to go through its iPhone. All cardholder authentication will be performed on the user’s iPhone using Face ID or Touch ID along with a one-time security code.

“Apple Card builds on the tremendous success of Apple Pay and delivers new experiences only possible with the power of iPhone,” said Jennifer Bailey, Apple’s vice president of Apple Pay, an assertion that may seem a bit exaggerated when one knows that Apple Pay had around 250 million users worldwide in 2018, and Apple Pay users now make 10 billion transactions annually, most of them out of the US. Just as a matter of comparison, leading processors in the US have seen over 95 billion transactions go through their systems in 2018, according to the Nilson Report.

The launch of Apple credit card will probably be limited to the US for the beginning. Also, it will be limited to Apple iPhone handsets that account for less than 15% of world handsets. We know payment solutions, to be successful, have to be universal in terms of both issuance and acceptance. Apple credit card model will only be seen as a global evolution when it becomes available on Android handsets and on a worldwide basis.

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