Will Apple Pay Be Most Significant for Retail or Online Payments?

It’s too early to say how much impact Apple Pay, Apple’s new mobile payment service, is going to have. Many share the belief that if any company is going to make a big difference in mobile payments, it is Apple.

What isn’t yet clear is whether the big impact winds up being “retail mobile payments,” where the iPhone is used in place of a credit card or debit card, or eventually will have more impact supporting e-commerce.

When asked whether Apple pay “kills the credit card,” Apple CEO Tim Cook has quipped “I think we put a dagger in it.” And there is legitimate reason to think retail payments will be a big part of the value and eventual revenue streams for Apple.

On the other hand, some might argue equal success, or perhaps more success, will be found in the “e-commerce payments” part of the business, which is not, strictly speaking, dependent on the payment features of the iPhone.

In other words, Apple Pay might ultimately become more significant as an alternative to PayPal, Visa Checkout or MasterCard PayPass, han as a replacement for a credit card in a retail store.

With 800 million iTunes accounts worldwide, and each potentially able to use Apple Pay, the new payment service has a huge potential installed base of users.

To be sure, Apple needs to convince other online merchants to accept Apple Pay as a payment mechanism, as they now accept PayPal, PayPass, Checkout or credit and debit cards.

Some of us would argue that is the bigger long-term opportunity.

Either way,  it will take some time. The iPhone 6 or 6 Plus features Apple Pay natively, with major retailers going live with Apple Pay in October 2014.

Consumers can then use Apple Pay accounts to pay for purchases at retail locations outfitted with near field communications terminals, and the ability to support Apple Pay.

Apple Pay arguably is more secure than prior efforts. For starters, the iPhone fingerprint reader is used to authenticate the user when making an Apple Pay retail payment.

The other angle is that actual credit card or debit card information is not on the phone, at all.

Instead, cardholder information is “tokenized” and stored in the secure element and never makes it onto the phone’s memory or on Apple’s servers in the cloud.

So it is no surprise that Visa recently announced its new Visa Token Service, which  aims to assure consumers that their mobile devices can safely use mobile wallet and payment services and apps without fear of accidental disclosure of credit card numbers. Apple apparently is using Visa Token Service to support the Apple Pay tokenization feature.
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