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Apple Pay Details: Apple Gets 0.15% Cut of Purchases, Higher Rates for Bluetooth Payments
Apple's ambitious new mobile payment initiative, Apple Pay, was announced on Tuesday during the company's iPhone event. Many questions still linger about the service, but information is beginning to trickle out from various sources as retailers, banks, and credit card companies prepare for the service's October launch.
According to a new report from The Financial Times, Apple stands to make quite a bit of money from its payments service. Banks and payment networks will be forking over 0.15 percent of each purchase to Apple, which equates to 15 cents out of a $100 purchase.
Additional details about Apple Pay's security have been unveiled by MasterCard executive Jorn Lambert, who spoke to Bank Innovation, explaining how each transaction will be secured.
Along with the cryptogram generated between a standard debit or credit card and a point of sale terminal, Apple Pay takes advantage of a token system that encrypts every step of the payment process. Tokenization is already built into the standard NFC specification, so what Apple is really doing is utilizing existing technology and further securing it with its own Touch ID fingerprint authorization system.
Every card added to Apple Pay (and located in Passbook) is assigned a token, which Apple calls a Dynamic Account Number. Each Dynamic Account Number is stored in the secure element of the iPhone and accompanied by a unique cryptogram for each transaction.
According to Lambert, Apple is not handling tokenization, instead leaving it up to credit card companies like Visa, MasterCard, and American Express. He describes Apple's role as a "channel and not a party," and Apple itself has confirmed that it won't store any information about transactions conducted by customers.
Apple has plans to roll out Apple Pay beginning in October, and promises the program will work with more than 220,000 U.S. retailers including Walgreens, Macy's, Nike, Bloomingdales, and more. Some stores like Walmart and Best Buy claim to have "opted out" of Apple Pay, but users should be able to make payments via the service at any location that has an NFC-capable point of sale system.
Many retailers are currently in the process of updating their point-of-sale hardware, as an upcoming change will see merchants that do not support EMV credit cards being liable for fraudulent, lost, and stolen cards. EMV credit cards, also known as "chip cards," include integrated circuits to authenticate debit and credit card purchases. The updated point of sale systems with EMV card support being adopted by retailers also generally include NFC, which means Apple Pay may work even at stores that have not specifically chosen to support the service.
According to a new report from The Financial Times, Apple stands to make quite a bit of money from its payments service. Banks and payment networks will be forking over 0.15 percent of each purchase to Apple, which equates to 15 cents out of a $100 purchase.
They are also paying hard cash for the privilege of being involved: 15 cents of a $100 purchase will go to the iPhone maker, according to two people familiar with the terms of the agreement, which are not public. That is an unprecedented deal, giving Apple a share of the payments' economics that rivals such as Google do not get for their servicesAccording to bank executives, Apple was able to negotiate with so many partners and receive choice deals because the industry didn't see anything threatening in Apple Pay. One executive suggested that Apple's payment model continued to put banks "at the centre of payments." Apple may also have been able to negotiate better deals due to the tight security it has in place for Apple Pay. Payments will be made via NFC with a one-time token, and also secured with a Touch ID fingerprint.
Additional details about Apple Pay's security have been unveiled by MasterCard executive Jorn Lambert, who spoke to Bank Innovation, explaining how each transaction will be secured.
Along with the cryptogram generated between a standard debit or credit card and a point of sale terminal, Apple Pay takes advantage of a token system that encrypts every step of the payment process. Tokenization is already built into the standard NFC specification, so what Apple is really doing is utilizing existing technology and further securing it with its own Touch ID fingerprint authorization system.
Every card added to Apple Pay (and located in Passbook) is assigned a token, which Apple calls a Dynamic Account Number. Each Dynamic Account Number is stored in the secure element of the iPhone and accompanied by a unique cryptogram for each transaction.
[Touch ID] authentication prompts the "secure element" to send the token and cryptogram to the merchant. The network decrypts the cryptogram and determines whether it is authentic or not. If it is deemed authentic, the network will pass it along to the issuer (i.e. the bank), which then decrypts the token. In other words, every party to the transaction decrypts something.The token system essentially provides an extra layer of security to payments made through NFC, which, as mentioned earlier, allows merchants to pay a lower "card present" rate for NFC purchases. Merchants still pay the higher "card-not-present" rate when payments are made over Bluetooth LE rather than NFC, however, or when a purchase is made in-app using Apple Pay.
Once the issuer decrypts the token and determines that it is authentic, the issuer/bank authorizes the transaction. Money is then credited to the merchant and marked as an amount owed by the cardholder.
According to Lambert, Apple is not handling tokenization, instead leaving it up to credit card companies like Visa, MasterCard, and American Express. He describes Apple's role as a "channel and not a party," and Apple itself has confirmed that it won't store any information about transactions conducted by customers.
Apple has plans to roll out Apple Pay beginning in October, and promises the program will work with more than 220,000 U.S. retailers including Walgreens, Macy's, Nike, Bloomingdales, and more. Some stores like Walmart and Best Buy claim to have "opted out" of Apple Pay, but users should be able to make payments via the service at any location that has an NFC-capable point of sale system.
Many retailers are currently in the process of updating their point-of-sale hardware, as an upcoming change will see merchants that do not support EMV credit cards being liable for fraudulent, lost, and stolen cards. EMV credit cards, also known as "chip cards," include integrated circuits to authenticate debit and credit card purchases. The updated point of sale systems with EMV card support being adopted by retailers also generally include NFC, which means Apple Pay may work even at stores that have not specifically chosen to support the service.
Related Roundup: Apple Pay
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Top Rated Comments
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65 months ago
The best thing about Apple's solution versus Google Wallet is that Apple is not storing the details of your transaction on their servers. Google is storing all your transaction data in their servers in the cloud. A big no no in my opinion. Plus there is the fact that it is using Touch ID so there is no pin you have to enter. The process of connection your cards is also easier.
So Apple Pay is more secure, more private, and is faster and easier to use. Hopefully this will be just what is needed to make contactless payments more widespread.
So Apple Pay is more secure, more private, and is faster and easier to use. Hopefully this will be just what is needed to make contactless payments more widespread.
65 months ago
15 cents per $100 is 0.15%, not 0.0015% as the article states.
Presuming the quotation of 15 cents per 100 dollars is correct, then Apple is charging a 0.15% cut.
Presuming the quotation of 15 cents per 100 dollars is correct, then Apple is charging a 0.15% cut.
65 months ago
wrong.
There are two possible outcomes of that comment...
(1) you are trolling
(2) I just lost my faith in humanity
65 months ago
With a ponzi scheme like this, no wonder apple's stock has gone up :D
Somebody doesn't know what a ponzi scheme is.
65 months ago
The fact that Apple's payment charge is based on a % cut of the purchase means I'll never use this service. That's just too greedy. It should have been a very small static fee like how VISA charges used to be. No thanks, Apple.
The banks (not the merchants) are paying Apple. It's worth it to them because it will reduce the fraud they now have to deal with. This may very well reduce their costs....not increase them. They are paying Apple for the security improvement.
65 months ago
I find it hilarious how bad people are at math on here lol
$1,000,000,000 in Apple Pay transactions is $1.5 Million to apple.
And you can't compare Square or Paypal to Apple Pay. Apple pay doesn't charge the business anything. The banks are directly paying apple. For example:
I have square at my business. $100 Visa transaction and I pay Square $2.75 (2.75%). Square pays part of that to Visa for the privilege to take Visa.
I have an NFC point of sale at my business, I already have my set rates from the credit card merchant. I pay the same rates to the merchant when an apple pay transaction comes in that I've been paying always for credit card swipes. Instead, now the bank pays Apple .15% out of the fees they'll receive from the merchant bc Apple is providing a vehicle for their CC to be used at the business.
Apple Pay is the first real mobile wallet! Not a credit card merchant. That's what makes it's so different that Google wallet BS.
$1,000,000,000 in Apple Pay transactions is $1.5 Million to apple.
And you can't compare Square or Paypal to Apple Pay. Apple pay doesn't charge the business anything. The banks are directly paying apple. For example:
I have square at my business. $100 Visa transaction and I pay Square $2.75 (2.75%). Square pays part of that to Visa for the privilege to take Visa.
I have an NFC point of sale at my business, I already have my set rates from the credit card merchant. I pay the same rates to the merchant when an apple pay transaction comes in that I've been paying always for credit card swipes. Instead, now the bank pays Apple .15% out of the fees they'll receive from the merchant bc Apple is providing a vehicle for their CC to be used at the business.
Apple Pay is the first real mobile wallet! Not a credit card merchant. That's what makes it's so different that Google wallet BS.
65 months ago
And that is how Apple wins.
Way more than that. That's .0015% of every transaction done using Apple Pay.
If you pay for a Macbook Pro using Apple Pay, Apple just made $3 off of your credit card company alone.
does that mean profit margins increase by 0.0015%?
Way more than that. That's .0015% of every transaction done using Apple Pay.
If you pay for a Macbook Pro using Apple Pay, Apple just made $3 off of your credit card company alone.
65 months ago
There are two possible outcomes of that comment...
(1) you are trolling
(2) I just lost my faith in humanity
I am even more shocked by the three people actually voting it up
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