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How Apple Pay fooled the world into thinking it solved the digital wallet issue

Read time 3min 50sec

They say timing is everything, and Apple is a master at timing.

While Twitter, blogs, news sites, and every other media channel has gone gaga over the new Apple Watch, sadly, the real news of the Apple announcement has taken a back seat to a device that, let's be honest, was not a major revelation since it was announced six month ago.

The real world-changing news from Apple is Apple Pay.

Apple has managed to crack the golden mobile wallet nugget that so many others have tried and failed to do, with the Apple Pay system. This is a system that uses the phone's NFC (near-field communication) technology and a digital wallet to make a payment, instead of taking out a credit card to swipe it.

So, why is Apple's system working?

Apple Pay works not only because Apple has struck a deal with both MasterCard and Visa to accept credit cards and debit cards, but because of impeccable timing that has nothing whatsoever to do with Apple.

The banks in the US have instructed merchants that they need to upgrade their point of sale systems to new EMV ones, which includes NFC. Failure to do so and the merchant will be liable for credit and debit card fraud, as the new systems are far more secure than the current one.

According to a MasterCard interview on WSJ:

"Part of the October 2015 deadline in our roadmap is what's known as the 'liability shift'. Whenever card fraud happens, we need to determine who is liable for the costs. When the liability shift happens, what will change is that if there is an incidence of card fraud, whichever party has the lesser technology will bear the liability.

"So if a merchant is still using the old system, they can still run a transaction with a swipe and a signature. But they will be liable for any fraudulent transactions if the customer has a chip card. And the same goes the other way - if the merchant has a new terminal, but the bank hasn't issued a chip and PIN card to the customer, the bank would be liable.

"The key point of a liability shift is not actually to shift liability around the market. It's to create co-ordination in the market, so you have issuers and merchants investing in the migration at the same time. This way, we're not shifting fraud around within the system; we're driving fraud out of the system."

This is critical.

The lack of an NFC facility is what tripped up Google Wallet and other such systems. There was nothing wrong with the digital wallet technology, but as NFC was required for its operation, and mostly traditional swipe card POS systems were widely available at the time, it meant the wallet could be used only in limited outlets, and this frustrated customers. However, merchants now have to upgrade their systems, which instantly makes Apple Pay (and others) feasible.

Therefore, at the launch of Apple Pay, customers instantly have access to 700 000 merchants across the US, and as this is an Apple-backed initiative, other partners are quickly jumping onboard, including Kickstarter, so you can fund those little projects with your Apple Pay system right from your iPhone or iPad.

According to pngloop:

"This summer, Marriott will get under way with its own Apple Pay roll-out at select hotels including The Ritz-Carlton, Renaissance, and Marriott locations. 'Guests using Apple Pay at check-in will simply bring their iPhone 6, iPhone 6 Plus or soon, Apple Watch, near the contactless reader at the front desk,' the company said in a press release. 'There will be no need to provide a credit card upon check-in.'"

So Apple did what Apple does - it understood the market, understood the limitations, and launched a perfectly-timed system, and the world thought that once again, Apple single-handedly solved the digital wallet dilemma, as no one else has managed to launch with this many partners ready to accept payments.

You've got to applaud Apple for its continued excellence.

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