Can Apple help drag banking into the modern age?

Shaking up lethargic industries is what Apple claims it is best at, and now it says the banks and credit card companies deserve a good shake-up. If it succeeds, it will help more than just iDevice users.
Written by Chris Duckett, Contributor

Around this time each year, the ardent followers of Cupertino are used to seeing Apple trailblaze the way forward for mobile phones, and much of the computer industry in general.

But this year's presentation felt a lot less like the pushing of boundaries, and a lot more like following in the footsteps of Android, only with prettier casings.

Look beyond the shiny items unveiled last week, though, and there is one announcement that has the chance to, in a small way, change the daily lives of many — and that is the announcement of Apple Pay.

Now that Apple appears to have reconciled with the fact that it did not invent NFC, and it turns out that there actually is a fairly decent use case for near-field communications, it is possible to get towards fulfilling the long-awaited promises that the technology can provide. But, of course, not before Cupertino breathlessly claims to have come up with a "ground-breaking NFC antenna design" — good for Apple.

The first place where Apple Pay will make a beneficial impact is in a place that desperately needs to bring its banking practices up to modern standards — the good ol' United States of America, home of Apple, the NSA, and an outdated object called a chequebook, or, as it is referred to in the local parlance, a "checkbook".

If you can detect some facetiousness, that's due to a Canadian sabbatical I undertook a couple of years ago, where I had to be reintroduced to the dark art of "cutting" a cheque, after spending many years transferring and receiving monies electronically.

The infrastructure deployed across North America to expedite the processing of cheques is impressive, such as only needing to send your bank a photo of a cheque for cashing. Ultimately, however, it is propping up a standard that has long been surpassed by opening up silos and allowing customers to transfer cash to anyone within their banking websites and apps.

Similarly, while other parts of the world moved away from the credit card's magnetic stripe, embraced chip and pin, and took to contactless payments, America has taken time to warm to the technology and remained steadfastly in the camp of the magstripe.

With the breaches of credit card details from point-of-sales systems in Target and Home Depot still refresh in people's minds, it's a good time to introduce a better way.

Enter Apple and its Visa, MasterCard, and American Express allies.

The important aspect to consider is not that Apple has reimagined the payment industry — far from it; the heralded tokenisation technique promoted by Apple in its presentation was being pushed by the banks themselves in the past — but that Apple has the clout to get people and businesses on board, and to make it happen in a relatively swift time period.

And despite rival QR code-based standards from the Merchant Customer Exchange in the US, the surge in NFC terminals across the nation has the potential to spark the sort of revolution in payments that Australia is currently experiencing.

In Australia, contactless NFC payments in the country have jumped from making up 18 percent of all scheme debit card transactions at the start of 2013 to 60 percent in the last 12 months.

"We've probably never seen a shift in customer preference or customer behaviour like that before, and Australia is leading the world in this trend," David Lindberg, Westpac chief product officer, said in August.

Local supermarket giant Woolwooths has said that around 70 percent of its total transactions are now contactless, and in its recent full-year results, Australia's largest bank, Commonwealth Bank of Australia, announced that contactless payments now make up 22 percent of all its credit transactions, with NFC accounting for over 1 million transactions and spending of AU$25 million since December 2013.

It's not just contactless payments where Australia is ahead of its North American brethren. On August 1, the official phasing out of signatures as a form of verification for credit and debit card payments began, and despite squeals of impending doom from local restaurateurs, I can confirm that at the time of writing, I have yet to hear of any restaurant saying it is closing down due to the change in payment methods.

From almost nothing, in the space of 24 months, contactless payments have gone from being a curiosity to becoming a proper payment option. All of this has occurred despite Apple's objections to NFC, the need for less-than-attractive PayTag stickers for iPhones and non-supported handsets, and payment apps often being locked down to Samsung devices.

In fact, on my very unreliable anecdotal evidence, I've rarely seen anyone use a handset to make an NFC purchase — I would suggest that this is because the current NFC payment systems involving a handset offers little over using an NFC-enabled credit card — but the addition of a proper tokenisation system changes that.

Suddenly, the reason to use a handset over a traditional card is a simple choice to increase security.

The good news is that the benefits of Apple Pay should be able to escape Cupertino's walled garden, with Visa revealing this week that its token system was designed for supporting payments with mobile devices using all major mobile platforms.

The result should be that after a bit of lead time, we will see tokenisation expand across the payment spectrum, increasing the security of transactions for everyone.

Whatever the colour of your mobile phone vendor stripe, a successful push of the underlying foundations of Apple Pay into the marketplace should see everyone win.

After Google gave its Wallet push a half-hearted nudge and little came from it, especially internationally, it's time for the company known for changing markets to get in and shake things up.

This is one of those rare occasions where if Apple wins, we should all win — provided the tokenisation foundation of Apple Pay can escape its confines and any contractual arrangements.

ZDNet's Monday Morning Opener is our opening salvo for the week in tech. As a global site, this editorial publishes on Monday at 8am AEST in Sydney, Australia, which is 6pm Eastern Time on Sunday in the US. It is written by a member of ZDNet's global editorial board, which is comprised of our lead editors across Asia, Australia, Europe, and the US.

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