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Over Easy: The “War” over Apple Pay

Apple Pay is a mobile payment service that lets a shopper use the newest iPhone 6 or 6 Plus, iPad Air, iPad Mini 3, and (in early 2015) the Apple Watch, to make payments both at brick-and-mortar stores and online checkout systems. Using Apple Pay, these devices communicate wirelessly with point of sale systems, using a near field communication (NFC) antenna and a “Secure Element” internal chip that stores encrypted payment information, together with Apple’s Touch ID and Passbook. Apple Pay keeps customer payment information private from the retailer, and creates a dynamic security code that is generated for each transaction. Apple says they will not track usage, which will occur privately between customers, vendors, and banks.

Here’s how it works: You add a credit card from your iTunes account, or add a different card using the iPhone’s built-in iSight camera. Once your credit card is on file with Apple Pay, you can use your phone to check out at participating vendors — both brick and mortar and online — by authenticating with the Touch ID fingerprint reader on the iPhone. In a store, you’ll hold your iPhone in front of a reader and place your finger over the fingerprint sensor to confirm the payment. Within an app, you’ll select Apple Pay as your payment method and confirm with Touch ID.

No, this is not an Apple commercial, although I am dying to get my geeky hands on it! Since the introduction of Apple Pay, a “war” of sorts has broken out, and it has implications for how stores use our information to track our purchases.

We all are aware that retailers track us relentlessly, both online and in person, using all sorts of mechanisms, from those pesky loyalty cards to the enticements to provide our email addresses. I’m sure you remember the father who learned his unmarried daughter was pregnant from the junk mail Target sent to her based on her purchases. Now some retailers have actually shut off the ability of their NFC readers to accept Apple Pay in their stores, specifically because it detours around their ability to track us.

Last weekend, drugstore chains Rite Aid and CVS stopped accepting Apple Pay, although they had done so for a week. Rite Aid offered a vague explanation that, “We’re still in the process of evaluating our mobile payment options.” CVS refused to comment. But the truth is that a Walmart-led group of retailers (that includes CVS and Rite Aid) has been busily creating their own mobile payment system called CurrentC, which cuts out the credit card companies and their fees AND builds in all the tracking and spying features of store loyalty cards, making the data available to all of the merchant partners. Apple Pay, by contrast, lets people remain anonymous.

An article in the NYT explains, (emphasis mine)

[D]isabling acceptance of Apple Pay was a way to favor a rival system that is not yet available but is being developed by a consortium of merchants known as Merchant Customer Exchange, or MCX. Rite Aid and CVS are part of that consortium, not part of the group of retailers that had teamed up with Apple on its payment system.
A great deal is at stake. MCX’s payments system helps merchants keep track of customer shopping habits across the dozens of merchants who plan to accept the payment product. That is a potential treasure trove of data for retailers, who wish to better target consumers with deals and loyalty programs.

This also gives retailers the potential ability to cut credit card companies out of the payments process entirely. MCX’s system, CurrentC, will be linked to a consumer’s debit account, according to the company’s description of the product. By bypassing credit card companies, MCX merchants could potentially save money on the fees they pay per transaction.

So CurrentC lets merchants eliminate credit card transaction fees all while scooping up even more and more data on our shopping habits. And MCX tries, and fails, to explain why its merchants are blocking Apple Pay.

On Apple Pay’s first day, seven times more people added Chase cards to Apple Pay than signed up for new credit cards, according to a Bloomberg interview with Avin Arumugam, Chase’s digital executive director. Ed McLaughlin, chief emerging payments officer at MasterCard — which teamed with Apple on its new system — said Rite Aid and CVS made the wrong decision. “We think consumers should have the ability to pay any way they want.”

I wonder how long it will take the MCX retailers to cave in? They won’t do it without a fight, but they’re picking on the wrong giant. A record 10 million iPhone 6 and iPhone 6 Plus units were sold in the first three days of launch. I, for one, will be delighted to use Apple Pay instead of handing over my Chase credit card to the retailers’ tracking.

Hmmmm….now where do I get the money for that new iPhone 6?

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I retired from the University of Notre Dame in the Office of Information Technology in 2010. I'm divorced, with two grown children and 8 grandchildren. I'm a lifelong liberal and a "nonbeliever."