Apple Pay Research 2 of 2

Curated information on the difference between Apple Pay and Google Wallet

Google Wallet vs. Apple Pay – Comparison
“Having a partner like Apple really was like catching lightning in a bottle,” Jim McCarthy, head of innovation at Visa, said in a phone interview. “Given their ability to effectively manage their platform, and get folks across multiple industries, merchants, banks and networks to cooperate really was the thing that catalyzed the whole thing.”

1) Google stores information on ALL of your purchases made on Google Wallet. Doing this, it set itself up in competition with the banks. Banks needed a separate network connection to do the CC validation back to google servers. When you purchase something using Google Wallet NFC the vendor charges Google who then in turn charges your credit card. There is no direct connection between the purchase and your credit card. This prevents cashback bonuses from always working.

Apple’s payment model continued to put banks “at the centre of payments” by not storing any information about your purchases. in fact, banks advertised Apple Pay so that customers with multiple cards can choose theirs as default.

The search giant pays such hefty fees to banks that it loses money on each transaction. That’s made the division something of a money pit.
Apple Goal in entering the payments industry is to increase the value of Apple hardware. Touch ID, location data, NFC and secure element mitigated some risk and so is more secure. Apple gets around 10% discount on the processing rate it will pay.

/* needs research
Google’s view is that if the PIN is stored in the SE component the banks will take full responsibility over the PIN. Apple mitigated risk for banks by using SE and encrypting card info.
2) Google tried to eliminate Visa, MasterCard by generating its own credit card number to scramble bank’s cc numbers. “There are schemes that don’t respect and honor the payment networks,” said James Anderson, the senior vice president for mobile product development at MasterCard. “We want to invest in programs that respect our role in the ecosystem.
3) No network is needed for paying from ApplePay. the POS device is connected to the network so all the iPhone has to do is send the token and CVV via NFC. After that the POS uses its own network to validate everything. The only time a cellular/wifi network is needed is when the card is first linked to the phone.

Carrier blocking
Android OEMs are still far more susceptible to carrier control, as they still require carrier approval for software updates. Meanwhile, Apple is able to distribute software updates independently of carriers, and is generally capable of operating outside of their jurisdiction.

Approach and execution
1) advertising supported model.
2) SE is debatable
US only. Same with Canada, Australia. Google can’t just go to countries that have the infrastructure

Google launched Wallet in Oct 11 in US only with limited number of phones. They did not fix these problems. Apple waited until it can secure favorable terms with the banks, retailers, and processors, as well training users with the TouchID fingerprint sensor, then hype the service and go for the kill. While Apple isn’t necessarily inventing the wheel here, Apple Pay again represents the first real implementation, on a massive scale no less, of the relatively fresh tokenization specification.

What does it mean for the industry

It’ll be a lot easier to convince the financial institutions now that Apple is finally onboard for NFC payments if they have a similar offering of security and data privacy. Apple’s adoption of NFC signals that interoperability is a key component of the ecosystem moving forward, but it also probably means we’re going to see significant morphing of the existing networks around the shift to mobile. Those shifts will be:

  • Move away from card numbers to tokenized identity as the customer identifier (no more “cardholder” folks)
  • Card networks become data networks – the data passing before, during and after a transaction becomes just as important as the authorization itself; and
  • When we move to cardless ubiquity, do card networks just become payment networks with payment and identity protocols?Benefit- advantage, profit

Tokenization vs provisioning- Apple vs google – approach on wallets

Apple Pay Research 1 of 2

This post has been in draft stage since last year. Needs some edit..

Mobile Wallet Players
  1. Retailers, merchants
  2. Payment processors, front-end and back-end — First Data, TSYS and Paymentech.
  3. Gateway- PayPal, Braintree, and Stripe (PayPal and Square make money by charging retailers fees in excess of what they owe to credit-card companies)
  4. Banks- card issuing bank, acquiring bank
  5. Networks, card network, card association, issuers – Visa, Mastercard, Amex, Discover

Credit Card Transaction – who pays who?
The swipe fees, also known as interchange, help card-issuing banks cover fraud costs, authentication, dispute settling and fund reward programs.

Interchange rate = percentage + fixed cost
2.9% fee split between gateway, front-end processor and banks
30c goes to Visa/MasterCard

Interchange rates are set by the card association, varying by the merchant’s industry. Acquiring bank pays merchant daily net balance.

The payments industry works on ridiculously low margins. Interchange rates are also determined by whether the transaction is card-present or card-not-present. Higher fee for card not present because of higher risk.
Mobile wallets have historically being card-not-present transactions. But Apple wanted its wallet to have same status as card-present. Touch ID, location data, NFC and secure element mitigated some risk and so is more secure (like a card present transaction). Apple gets around 10% discount on the processing rate it will pay.

Walmart has made a similar deal as Apple to lower card transaction rates in its stores.
Incentives for banks for higher discount rates
1 Apple wallet works with all 4 FIs.
2 Apple takes some risk for fraudulent transactions
3 Banks still own transaction data.
The money they save with less fraud more than makes up for any cut that Apple gets. That’s why all the major CC companies are on board and pretty much all the US banks, just at launch.

Incentives for merchants
Starting late 2015, merchants will be liable for fraudulent transactions, not credit card companies. They need to upgrade the payment equipment with an enhanced security system called EMV.

Apple Pay reduces the security requirements around storing actual card numbers (recent security breaches include those of Target Corp, Home Depot Inc, Michaels Stores Inc, Neiman Marcus and Kmart)
Card associations consider a participating merchant to be a risk if more than 1% of payments received result in a chargeback. Visa and MasterCard levy fines against acquiring banks that retain merchants with high chargeback frequency. To defray the cost of any fines received, the acquiring banks are inclined (but not required) to pass such fines on to the merchant. Costly fees are generally at the cost of the merchant.

Notes on 9/9

My notes from yesterday’s Apple event. Covers UI related stuff-

____iPhone 6 and 6+

4.7″ resolution: 1334 x 750 px
5.5″ resolution: 1920 x 1080 px

New UI stuff
1 iphone home screen now works in landscape too (only on 6+)
2 “reachability”- new gesture (double-touch the home button and the whole display just slides down, so you can reach the top of the screen without using other hand). Don’t know what will app switcher action change to
3 New screen sizes might need UI updates for apps.

____Apple Pay
Works both for in-store and online payments. Also pay with Watch without using phone (details not shared yet by Apple).
Emphasis on being ‘secure’ 
1 “Apple doesn’t know what you bought, where you bought it, and how much you bought it for.”
2 “we are not in the business of collecting your data.”
3 dedicated chip to store encrypted payment info
4 disposable credit card numbers and cvv numbers for all transactions

Thoughts: Apple figured out the best way for mobile payments- both online and offline. Best implementation of NFC- contactless, no screen interaction required.

____Apple Watch
Comes in two sizes
Not a standalone device
Third party developers can make apps- Mostly action-based notifications like Android Wear
Slightly rectangular display

New UI stuff
1 Hardware dial (crown) and button
2 “Neighbourhood” tap for navigating Appverse
3 rotate dial to zoom
4 Doodling as a communication tool
5 Taptic engine- haptic feedback on your wrist
6 new typeface for watch UI
7 No keyboard input. Only voice or emoji

* Apple prioritized getting the hardware right first. It looks like a finished, well-made watch. A great-looking Galaxy Gear Live.
* Widget UIs feel ugly. They focused on basic stuff like navigation, access to apps and typeface legibility for v1
* iPod nano 6th gen was the first prototype for the watch (customizable straps, square display, app UIs)

Ubuntu Donate Page

I love the fun details on Ubuntu’s donation page. There is none of the boring one text field, asking us to enter an amount. Eight sliders ask you to ‘customize’ your donation amount for various sections of the project. The copy is great too! And there’s more.

Ubuntu Donate

As you adjust the sliders, the contribution amount changes and shows nerdy, quirky stuff that your chosen amount is equivalent to. The quirkiness increases with the contribution amount :)

Wikipedia can take some hints here.

Ubuntu Options

Glass Demo

I am wary of demos of unfinished products. By the time these products hit the market, the scope is considerably reduced and they end up being a ..meh :( I hope Google Glass isn’t one of them, but comparing yesterday’s and the last year’s videos tell kind of the same story. For most part, it still looks like a wearble camera (Go Pro-ve me wrong!). If the voice UI works well, that would be game-changer.

Last year:

This year:

Next year: Google buys Go Pro and launches Glass Pro?

A Smart Car

Tesla Test Drive


I have been following, with much enjoyment, the New York Times vs. Tesla Motors spat over a review that a NYT reporter wrote last week. Elon Musk wrote a great rebuttal on Tesla Motors’ blog. And he showed car logs (two of them above) to prove that the review was biased and false. Looking at the logs, its not far fetched to imagine all cars will show their performance in graphs and charts in the near future.

Surface Impressions


* I can touch the screen! If I get stuck, I use the screen to tap and it feels totally natural.
* The trackpad on the touchcover has multi-touch gestures (that’s a mouthful!)


* Keys on the cover don’t move. So there’s no tactile feedback. Typing isn’t all that better than tapping a glass display.
* Can’t see myself using Surface in portrait mode. It’s too long to hold. The form-factor makes it look like a mini-keyboard than a display.
* The much-hyped sound that the kickstand makes when closed (see the Surface keynote) isn’t all that great. Its a feeble click.
* Back of Surface leaves fingerprints (Magnesium clearly isn’t the best choice there).

Mobile Payments

Mobile payments is all that the tech media can talk about lately. Japan is being hailed as an advanced and mature market for mobile payments. People have been using mobile payments before the first iPhone launched. So I dug a little deeper and what I found broke quite a few myths. But before going to Japan, let me first explain the ecosystem of mobile payments (important later).

Key players – What do they want?

There is a well-defined value chain with extremely diverging interests. Here are the big five and their motivations-

1 Banks/ Associations (VISA, Mastercard)
Maintain volume of transactions that happens with cards today. Example: Visa Wallet and serve by AmEx.

2 Retail/ Merchants
* Lower transaction fee and drive costs down
* Leverage mobile technology for promotions and sales

3 Mobile Operators
Grow additional revenue areas. Example: Isis, a US carriers’ collaboration

4 OEMs
Drive sales. Example: Google Wallet

5 Consumers
How is this significantly better than the card?

History of mobile payments in Japan

Japan (Pop. 127 million) has 100 million mobile users, 90%  of which are non-smartphone users. This stat has since come down to 80% during the last year. Mobile payments based on RFID have been around since 2004. Here’s a brief timeline of how mobile payments evolved in Japan-

Late 1980s- Sony developed FeliCa technology (short for Felicity Card) RFID smart card system. After 7+ years of failed field tests, it was finally adopted as a reloadable, pre-paid card in 2001 to be used in train stations. At this stage, phones were not linked to payments. In 2004, RFID-based POS systems started appearing in convenience stores like 7/11 at train stations. Merchants paid 1-4% to receive e-money payments. For majority of non-smartphone users, Japanese carriers sold RFID and NFC stickers which could be pasted on phones to enable mobile shopping. User adoption started slowly.

In 2006 DoCoMo, the Japanese carrier, became part-owner of FeliCa technology and announced Mobile Suica, the mobile wallet service. DoCoMo also entered the credit business by purchasing a bank, eliminating the conflict that might otherwise exist between a mobile carrier and a bank (for example, over who “owns” the customer or which company receives the revenue). User adoption still did not see a major jump. Other companies started adopting mobile payments too. In 2008, McDonalds announced mobile coupons at some outlets in Tokyo.

In 2010, loyalty, coupons, points were introduced into the Mobile Suica. This brought the big adoption change that everyone was waiting for. “If it weren’t for points or promotions, adoption would be drastically lower”, DoCoMo said. “We should have emphasized promotions and other reward programs a lot earlier than we did”. Total userbase for Mobile Suica at this point- 2.5M.

As seen in the graph, handset penetration is faster than user penetration is faster than store penetration.


1 Consumer adoption takes time, even among a tech-savvy population.
2 Key components is controlled by one company. DoCoMo was the mobile carrier, retailer and financial institution.
3 Retailers do not want to spend millions on an POS system upgrade when there is no user demand.
4 Mobile payments does not need smartphones. Until costs of smartphones come down, OEMs should think of innovative ways to enable most users to enable payments on any phone.

As Gartner’s hype cycle shows below, the expectations for mobile payments is at fever pitch right now. But its still years away from mass adoption. Till that time, companies like Square are doing a great job at showing how to use mobile devices and existing cards for payments.

Companies pushing for NFC should think about new ways of rewarding users for paying through their phone. Here’s another interesting article on Wired on when will phones replace your wallets.

(click on image for larger view)