Apple Pay was this week's most revolutionary product

Years of failure have made mobile payments seem like the impossible dream


If you’ve paid any attention at all to the mobile payments space, you’ll know that one of the most notable pieces of news recently is that the consortium of carrier oligarchs trying to create a payment system rebranded from ISIS to Softcard so that it wouldn’t be associated with the militant group. The irony is thick enough to spread with a spatula, but that’s just the frosting on top of the multi-layered shit cake that has comprised the mobile payments industry so far.

Paying with your phone has always been a confusing mess. It has always been a financial cold war between credit card companies, banks, phone companies, and phone manufacturers fighting to divert a tiny rivulet of the humongous river of money that flows through credit cards every day. Incompatible and confusing systems proliferate and vary depending on country, region, carrier, and who makes your phone. The result: incompatible and confusing systems that are hard to understand and even harder to successfully use.

Which is why, for me, the most revolutionary thing Apple announced yesterday wasn’t a giant iPhone or the Apple Watch, it was Apple Pay.

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On stage yesterday, Apple CEO Tim Cook pulled no punches when talking about what’s wrong with the mobile payments industry. "Most people that have worked on [mobile payments]," Cook explained, "have started by focusing on creating a business model that was centered around their self-interest instead of focusing on the user experience." Not only was Cook exactly right about that, if anything he understated the case.

I’ve sat through conferences where carrier executives bragged about their ability to literally sell space on the secure element inside their customers’ SIM cards. And when carriers and banks weren’t wheeling and dealing, they have been engaged in an Illuminati-esque battle for slivers of the transaction fees we all pay — and also the valuable consumer metadata each transaction creates. It’s been cutthroat, opaque, and confusing.

It’s no wonder, then, that the last high-minded attempt from a big company to fix this mess failed. Google Wallet, though it has been rebranded and repurposed as an all-around solution for buying things through Google, was unable to overcome the incredibly strong entrenched interests in the payments space. Carriers, in the thick of developing Softcard, openly blocked Wallet on their branded devices without consequence — a peril of an open platform like Android. Google Wallet’s dynamic, straightforward, and intelligent VP Osama Bedier left for greener pastures just over a year ago — and Google’s ambitions for Wallet look much smaller today than when it originally launched.

Apple’s foray into that same muck was much more successful. According to reports from Bloomberg and The Wall Street Journal, Apple will be taking a cut from each transaction. But Apple will not, according to Eddy Cue, be collecting any information about your transactions. Your credit card data and the information your purchases generate are all run through anonymized tokens that are said to be considerably more secure than a simple swipe.

The system behind those tokens was first agreed upon about a year ago, according to Rajat Taneja, executive vice president, technology, at Visa. "We are at this very important moment in the industry," Taneja says, "there is a common standard." His company dedicated 750 people and a year of time to perfect it, and other companies like MasterCard dedicated similar efforts to their own implementations. But the more important thing is that there is a common implementation of this token system. It’s been a rare piece of collaboration and agreement between all the various players in the banking space, and it’s not much of a coincidence that it’s being implemented on Apple’s devices.

James Anderson, group head and SVP, mobile and emerging payments at MasterCard, says that his company began working with Apple in 2013. Like Taneja, he’s excited about the possibility of finally seeing a ubiquitous, commonly-used standard for mobile payments. In particular, he pointed out that his company was able to develop a new system for digitizing credit cards that’s easier than what’s come before. Just "getting the consumer ready to pay" in the first place was a huge pain point before, but now the banks are able to securely get you set up with a photograph of your credit card and some back-end verifications of your identity.

"We are at this very important moment in the industry, after a lot of efforts there is a common standard."

More than anything else in yesterday’s keynote, Apple Pay was a classic Apple moment of simplification and integration. It’s analogous to what the iPhone did to the smartphone space. Before the iPhone, smartphones were confusing, fragmented, and just plain not very good. But Apple forced carriers to leave its phone alone. It also took a bunch of pre-existing technologies and integrated them in such a way that the final product was much more than the sum of its parts.

Apple could be having the same moment now with mobile payments. Instead of bowing to the varied business interests and releasing a substandard solution, Apple appears to have (finally!) thrown its significant weight around to bring credit card companies, carriers, and banks to heel. Because of its unified ecosystem and dominant reach, it has a real chance to become the de facto mobile payments standard.

"The ubiquity of Apple devices and the fact that a lot of point-of-sale devices are being refreshed" are both reasons that Apple Pay could be a success, according to Taneja. And though Apple isn’t gathering data, Visa still is; the company tells me that "We treat [a tokenized Apple Pay] transaction just like any other Visa transaction," Taneja says.

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That’s perhaps something to worry about — the idea of letting Apple have this much power in a vital part of our economy could be seen as dangerous. But it’s also the only solution that makes sense right now. Google and Softcard (nee ISIS) haven’t gained any real consumer traction and don’t seem likely to anytime soon.

There are still important questions. Will it be as secure as Apple promises? Will enough stores actually sign on and support the payments system? (Early wins — Subway, McDonald’s, and Starbucks, among others — are promising.) Will the banks and credit card companies screw up their end — or worse, withdraw support? Even more problematic is that NFC itself is not a magic bullet. It needs to be in more point-of-sale systems, and it needs to be there fast. Indeed, not everyone thinks that this is the cure-all: Apple Pay "will not be transformational," says Will Graylin, an experienced entrepreneur in the payments space and co-founder of Loop. "Merchant NFC and QR code acceptance is so small that the accessibility that consumers demand is simply not being met."

Having watched mobile payments for years now, I can say with confidence that there are no easy answers anywhere. Anderson, who has been in the mobile payments business for over seven years, says that "it sounds so simple, but it’s been really hard for people to pull off at scale."

Hopefully it works this time. Hopefully the various powers that control tiny parts of the rest of the ecosystem will find a way to do something equally simple on Android and Windows Phone. But even if Apple Pay fails, at the very least we got the moment yesterday when Apple’s CEO stood on stage and told the truth: mobile payments have sucked so far, and it’s high time somebody fixed it.