From Apple Pay to Apple Paid
Apple’s announcement of turning iPhones into point-of-sale devices is about more than payments.
Things get interesting in the relatively unspectacular world of point-of-sale (POS) terminals. And that’s because the future of payments isn’t really about digital money, it’s about digital identity.
As more retailers, more SMBs, and more micro-businesses move away from cash, there’s a growing demand for cheaper and more flexible technology than the traditional hardware devices you see at the Walmart checkout.
A particular trend driven by the connected development of tap-and-go payment cards, contactless terminals, and smartphones with contactless interfaces is towards software POS (SoftPOS) solutions. These are applications that allow mobile devices to accept contactless payments via the built-in antenna without the need to connect an external “dongle” via USB or Bluetooth, and such solutions are in high demand.
(Note that SoftPOS is often associated with PIN-on-Glass or PIN on COTS – off-the-shelf devices – which is a PIN entry on the touchscreen of an off-the-shelf smartphone or tablet connected to a card reader. In the UK this is the limit for contactless payments at £100, so if the payment is more than that the consumer will need to enter a PIN or use something like Apple Pay with one CDCVM – Customer device cardholder verification method – where the customer has already signed in with their face or fingerprint, so no PIN is required.)
Investigation of Payment Cards & Mobile (PCM) identified Great demand in this segment. They estimate that the POS inventory in Europe grew by eight percent in the past year and will grow by almost a third in the next five years. All of these new terminals will have contactless interfaces, but many of them will be phones and tablets. According to Market Research Futures, the SoftPOS market will grow by about a quarter per year and will reach $76 billion in 2025.
To be honest, these numbers might be underestimated as Apple is about to change the POS market for good. A few years ago they bought a small Canadian company called Mobeewave for $100 million. Mobeewave made SoftPOS applications and it was believed that Apple would add this functionality to its operating system at some point in the future. Well, they just announced they will do so in the spring. Apple will provide the APIs to allow apps to securely access the NFC hardware and other relevant iPhone technologies. A variety of providers will leverage these APIs to provide payment acceptance service to merchants and consumers. Apple previously announced that Stripe will be the first payment platform to offer its business customers SoftPOS on iPhone, including the Shopify POS app. Other payment platforms and apps will follow later this year.
Why do payment service providers see this as such a big deal? After all, there have been SoftPOS solutions for Android for a long time (e.g. phos). Well, as always, it’s not just because of Apple’s massive market share, but because Apple’s entry into the market validates the segment. Small businesses, micro businesses and gig economy workers around the world will see this and start using their cell phones for card payments.
There are half a billion Apple Pay users worldwide (basically half of all iPhones on the market), and they’re people with money to spend. However, not everyone uses it. US numbers seem to show that only about one in twenty Apple Pay-enabled iPhone owners actually bother using it in-store, but that’s because (I suggest) they don’t care about using the contactless Credit card offers, used to use : It does not combine payment with loyalty programs or coupons, as merchants do with their own apps.
(Interestingly, Apple Pay usage is much higher in the UK than in the US, presumably due to the general popularity of contactless payments in the UK, where already more than 90% of all card payments are contactless.)
What if Apple manages to gain a foothold on both the retail side and the consumer side? The guy who recently fixed my Mac probably takes half a dozen payments a day, and his iPhone is never far from his hand. Why not just tap my Apple Pay on his Apple Paid (or whatever they’re going to call it) and whether the payment is £1 or £1,000… that’s it. No dongles are required and since Apple Pay uses CDCVM, no PIN pads or PIN COTS are required either.
(By the way, tapping phones together to pay isn’t new. Anyone remember Bump? Back in 2010, PayPal used the Bump API to allow users of the PayPal app to initiate transactions by they physically collided their phones.Later, PayPal removed the functionality from their app and Bump – funded by Y Combinator, Sequoia Captial, Andreessen Horowitz and many others – launched a standalone app BumpPay app a decade ago.)
If you think this is only interesting for map nerds, you are wrong. Playing contactless chess, Apple is a few moves ahead. Right now, payments are going through the decades-old card rails to implement decades-old payments that were invented at a time when consumers, banks, and merchants weren’t permanently connected. I might wave my Apple Pay, contactless card or payment ring over a terminal and feel like I’m living in the future, but deep down there’s ISO 8583 messaging, clearing and settlement.
Taking this thought further, you have to ask yourself, will Apple encourage stakeholders to just completely forget about 1950s payment cards and 1970s terminals? As has been clear since the day of the Mobeewave purchase, if Apple has both the consumer and retail sides, they could theoretically do it Bypass traditional payment systems and banking infrastructureand process their own payments (Apple Cash or Apple Coin, who knows!) or initiate payments via open banking APIs.
It is getting interesting now. Remember, this is about identity: it’s about Apple knowing that Merchant Alice has requested a payment and Consumer Bob wants to complete it. And once you know who the counterparties of transactions are, all the rest of the payments business is just a matter of updating some spreadsheets (or blockchains).
As Alastair Johnson wrote here at Forbes A few years ago, the convergence of payments and ID gave the industry the opportunity to solve a number of significant problems in the payments sector (e.g. fraud) while opening the doors to a major new wave of innovation. As a matter of fact. Just as Apple makes my life easier by creating an alias identity for me to use on websites, they could just as easily create an alias identity for me to use in stores, protecting my privacy across the universe and metaverse .
Merchants want to know who you are so they can connect you to their loyalty programs and provide you with personalized service. Customers want to know that the dealers are legit and that someone has verified them before they start taking money! Think about what this might mean in practice for the typical consumer… I go to the Osage Beach Farmers Market and I’m excited to buy some of Darlene Snell’s delicious organic honey. She holds up her iPhone and I tap on it with my iPhone and Apple provides both the payment token needed to complete the transaction and an alias email address to enter into the SME app Darlene uses will.
This means that she gets her money and a unique identifier and can later send me special offers, news about developments in the world of organic honey and a collection of delicious honey recipes. Darlene gets a valuable entry in her CRM database and I get delicious honey, knowing the Snells don’t know who I am, where I live, or what my bank account is.
I don’t have any inside information on Apple’s POS plans, of course, but it seems to me that you’re not paying attention if you think the point is to make cards a little easier to use at the Farmers’ Market.