Apple Pay App And How We Buy Things

There are two ways to get ahead in business: either innovate, or take ideas already out there and either make or market them better. While there is no question that Apple is an incredibly innovative company, its real skill has been to see what other companies tried, analyze their mistakes, and make a product that does it better – and, of course, announce it to great fanfare. Apple Pay App is one of those innovations.

The latest unveiling of Apple products was no different: a two hour presentation in a 4000-seat arena with a capstone concert by U2, playing a new album the you can listen to for free on iTunes. Apple does things big, and they do it well, but as usual, they are announcing products already on the market. Bigger phones (like the Galaxy Note III “phablet”), a smartwatch, of which there are numerous, and a way to pay for things using your phone and a NFC antenna.

Of these, to me, the third is the most interesting. The first two are going to be amazing products, but they are just an evolutionary step forward. Phone-payment, even though it is already possible, is now going to be a bigger thing simply because Apple is involved.

How The Apple Pay App Works

Before we get into why this could be such a big deal, it is important to understand how this works. Companies have used similar technology to streamline payments for years – you can tap your credit card at McDonalds, or at the gas station, and many stores, like Target, have been experimenting with using phones. The idea is similar.

The NFC (near field communication) antenna sends out a signal to a device, which uses it to capture the payment information. This is only broadcast a short distance, which is supposed to reduce the chance of anything getting stolen during transmission. Your phone (or keychain pin or anything with an NFC) is hooked up to a credit card, and the charge is automatically applied. (Apple’s system is different, importantly so, and we’ll get to that below when talking about security.)

We’ve said that Target has been experimenting with such payment plans, and that’s because the market has been fragmented. No one really seemed interested in playing along. As Laura Shin argued in Forbes, part of the reason no one followed was because “companies who previously introduced mobile payment systems had also tried to make money from them.” Apple, so far, doesn’t seem interested in doing so, instead using the service as another way to sell iPhones – not making money from the service directly. Apple, with its might, has a chance to consolidate and strengthen the idea of phone payments.

Where Apple leads, markets follow

We talked in a previous article about how Apple can change a marketplace just by throwing its weight into it, as they are doing with wearable tech. Apple has a way of sucking up all the available oxygen from a room, rightly or wrongly. Samsung and Motorola releases were treated with about 1/1000th the attention of the Apple shindig. So when Apple jumps into an arena, the rest of the field jumps in with them. More importantly, attention is paid to that field in a way that it might not have been before.

This matters. A dominant market force can change the very nature of supply and even demand. For the classic example, look at how Walmart has changed the supply chain in the United States and around the globe. Regardless of what one thinks about Walmart, its impact has been enormous. Apple has a similar amount of clout in the tech world.

The Gamble of the Apple Pay App

That’s why Apple’s foray into phone payments is such a big deal. Retailers and other businesses obviously recognize the role that Apple plays, and are eager to get on the train here, to avoid being left behind. They are gambling that the 70 million iPhone users will want to take advantage of this convenience, and don’t want to be known as the company that refuses Apple users the ease of iPhone usage, which in some areas may be a felony. A list of companies already on-board seems like a Fortune 500 list met a Top Design list and exploded. Already you have Macy’s, McDonald’s, Sephora, Walgreen’s, Whole Foods, Target, and dozens of others, not to mention Uber, Groupon, MLB.com, and other online entities. Unsurprisingly, major credit cards are on board, as are top banks. Apple jumped into the pool like Esther Williams, and everyone follows in perfect synch.

Why it still might not work

Now time for the caveats. Not everything Apple touches turns to gold, but it usually only fails when there is an established market leader (Google Maps work just fine). In this case, there is no market leader, and Apple immediately established itself as such. But people might have some concerns that will stop them from embracing the new(ish) technology.

Security: The big one is security. In the wake of the leaked celeb pics, people are more and more concerned about security, especially Apple’s ability to safeguard their information. Even if this is not fair, the perception lingers. People might be more leery of leaving their credit card information.

Apple counters this with their really innovative ideas on how to pay. You merely take a picture of your credit card with iSight (or from your iTunes account). That syncs it up with your bank. However, your credit card is not on the phone. It’s a proxy number that is used, letting your credit card company know how much you should be charged. Apple doesn’t have a say in the transaction, never knows what you are buying, and never sees your actual card. It has no access to the number, embracing a “zero knowledge” philosophy. This is very different from other NFC or one-touch payments, and Apple believes it will make things much more secure. It certainly is a huge step in the right direction. Which leaves only one other objection.

Fiscal responsibility: Technically, this doesn’t have to be a concern of Apple’s. But it is a little scary that they’re making it even easier for Americans to rack up credit card debt, putting another step between you and the real knowledge of spending money. Anything that makes it easier to purchase something on credit should possibly be looked at a little askance.

But in a way, that’s sort of the point about Apple. For a long time, your value was just what you owned. Then it was how much money you had. You couldn’t buy something if you didn’t have the right amount of currency, except with a direct IOU. Checks and credit cards helped distance us from the concept of spending, making it wildly easy to put off til tomorrow what really should be thought about today. These developments have changed the concept of how we spend.

And now it is happening again. If Apple makes this the new frontier of currency, if your phone can now be a seemingly-bottomless wallet, our ideas of what it means to buy something will change. Not many companies can alter our perceptions on the basic human fact of exchange, but then, not many can get U2 to play at a PR event at the drop of a hat. I’ll leave it to you to decide which is more impressive.

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