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What is Apple Pay and Why is it Important?

Apple Pay had its UK launch this month and it’s already making waves, with a number of the country’s biggest brands looking to take advantage. The UK rollout follows its introduction in the United States last October, where it enjoyed a staggering 1 million credit card registrations within its first three days of launch. Transport for London was one of the launch partners in the UK and has become the most used Apple Pay merchant in the country. Encouraging signs certainly, but what is Apple Pay exactly? What can merchants do to take advantage? And is it really the future of cash-free payment?

What is Apple Pay?

Put simply, Apple Pay is digital wallet service that turns your iPhone, iPad, or Apple Watch (depending on model) into a credit card. A user simply registers whichever cards they want to use to their Passbook, and it stores them on the device. It’s Apple’s form of contactless payment and was described by The Verge as “a classic Apple moment of simplification and integration [that’s] analogous to what the iPhone did to the smartphone space.”

How Does It Work?

Just like a contactless credit card: the customer holds their device to a point of sale system, the payment is authorised, and the sale is completed. The technology makes use of near-field communications (NFC), just as contactless cards do, but Apple Pay offers an added layer of security called tokenisation. This means that rather than the technology passing the user’s credit card details on to the merchant, a single-use random number (a token) is given. This authenticates the payment just on the occasion it’s generated and expires thereafter, rendering it useless for attempted fraud. The user’s fingerprint verifies the transaction to add another layer of authentication, if the point of sale is up-to-date enough.

What Are the Limitations?

While Apple Pay can support transactions of any size, the amount that can be paid in a single transaction depends on the merchant’s technology. To accept payments over the current £20 limit (which will raise to £30 in September), merchants must ensure that their terminals are “configured properly, and [that their] payment provider… support[s] the latest network contactless specifications”. In addition, the terminals must feature fingerprint recognition technology, which can be used as an alternative to pin codes. For those who don’t, Apple offers a consumer device cardmember verification white paper and recommends that merchants share it with their payment provider and seek their advice on upgrading.

Who’s Using it?

A wide range of banks and merchants have already signed up to Apple Pay. Royal Bank of Scotland, MBNA, NatWest, Santander, Ulster Bank, and Nationwide Building Society have used it since launch, and HSBC and First Direct are to follow before the end of July. TSB, Lloyds, Halifax, Bank of Scotland and Marks and Spencers Bank are due to join in a second wave Apple has promised will arrive in the autumn. Barclays has been hesitant to commit so far, stating only that it will use the technology “in the future”.

With most merchants already using contactless payment systems, the addition of Apple Pay hasn’t posed much of a problem. Waitrose, Marks and Spencers, McDonald’s, KFC, and Pret A Manger are among the big names taking payments in store, while Argos, British Airways, Miss Selfridge and Just Eat are among those accepting payments online. More are likely to follow as Apple strengthens the system and merchants do what they can to keep up.

Are Customers Likely to Use It?

The biggest question of them all, and the most difficult to answer. Contactless payment already has a robust base and good reputation in the UK, with 58 million contactless cards currently in circulation. Contactless spending was up 255% in 2014 (from £655m in 2013 to £2.32bn), with around 10 contactless payments made every second across the country. The jump from contactless to Apple Pay isn’t too big in theory, but both customers and merchants may find the switch from a physical card to a digital one difficult to adapt to.

Certainly that’s what the data so far is suggesting. A Reuters poll conducted in June revealed that fewer than a quarter of the US National Retail Federation’s Top 100 merchants said they accept Apple Pay, and nearly two-thirds said they would not be accepting it in 2015. Most worryingly, the key reasons for merchant hesitance were a lack of customer interest, the cost of the technology needed to take the payments, and the tokenisation approach, which is good for the customer, but limits merchant access to data. All are core issues that Apple has not yet found a way to address.


It’s still too early to comment extensively on the US rollout, never mind the UK one, but while early signs are encouraging, Apple Pay is not without its problems. Is this a cause for concern? Likely not. The shift to Apple Pay isn’t as simple as the shift to contactless payment was. Contactless payment simply made the process of paying by card more seamless, while Apple Pay removes the card altogether and asks customers to trust an entirely new and essentially unprecedented method. Trust takes time to develop, and no amount of Apple PR will change that. Given a few months though, that trust will come, and it’s then that the true test of Apple Pay will arrive.

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