John Naughton 

How the iPhone 6 literally pays for itself

If the new Apple Pay system delivers on its promise, financial transactions will be revolutionised, writes John Naughton
  
  

iPhone 6, John Naughton
Taking the credit: Tim Cook introduces Apple Pay at his company’s convention in San Francisco last week. Photograph: Stephen Lam/Reuters Photograph: Stephen Lam/Reuters

On Tuesday, the church of Apple held its annual convention in San Francisco. Legions of the faithful, carefully vetted, were assembled in a darkened auditorium. The atmosphere was not quite as hysterical as it used to be when His Steveness was due to take the stage, but the frisson of excited anticipation was nevertheless palpable. The entire event was recorded in the highest definition so that the faithful could catch some of the buzz from any corner of the globe, and so many tuned in that Apple’s servers occasionally wilted under the strain.

The celebrations were led by His Steveness’s representative on Earth, Tim Cook. He was there to unveil marvels such as have not been created in all the Earth, nor in any nation, in all of which the people would see the work of Jony Ive, for it is an awesome thing that he has wrought. Etc. (See Exodus 34:10 for the analogue version.)

In practice, what this meant was: a bigger iPhone and another, even bigger, iPhone; a digital timepiece; and a new way of electronically paying for stuff. All of these were, needless to say, magical, awesome, unprecedented, etc. A more detached view would be that some of the new stuff in the phones is pretty clever (a processor that packs 2bn transistors into a tiny patch of silicon, for example; an improved camera; a way of enabling apps to scale automatically for bigger screens; seamless handover from Wi-Fi phone calls to conventional mobile connections as you move out of range; and so on) but, essentially, all examples of incremental innovation. And although the iWatch looks like being the first “smartwatch” that might be halfway usable, it’s still just an incremental innovation in a product category pioneered by others.

That doesn’t mean it’s uninteresting. After all, when the iPod emerged there were lots of portable MP3 players around. What made the Apple product revolutionary was its intuitive interface, elegant physical design and, most importantly, the way it was embedded into the iTunes system, which made it easy for users to rip CDs and get tracks on to their iPods.

The Apple Watch is a chip off the iPod block. There were lots of Bluetooth-powered smartwatches around before Tuesday – Amazon lists dozens by outfits such as Sony, Samsung, Pebble, etc. But my experience of them is that they are clunky in the way that early MP3 players were. If journalistic reports of the Apple product are to be believed, the Apple Watch is better designed, has a slicker user interface, more sensors and will eventually spawn an ecosystem of usable apps. And being an Apple product, it will be seen by some consumers as a gadget and by others (mostly people with more money than sense) as a status symbol – there’s a high-end version in gold!

In the long view of history, though, the innovation that may be seen as really significant is Apple Pay – an ingenious blend of contactless payment technology with security features that are baked into the new iPhones. Apple Pay will, burbled Tim Cook, “forever change the way all of us buy things... it’s what makes the iPhone 6 the biggest advancement in the history of iPhones”.

The idea is to do away with the rigmarole of having to pull out a credit/debit card, insert in a store’s card reader, type a pin, etc. Instead, you simply bump your iPhone (and, eventually, your Apple Watch) against the store’s contactless reader and – bingo! – you’ve paid, and the store never gets to see your card. Why? Because Apple has stored the card details in heavily encrypted form on your device and assigned each card a unique, device-specific number, which is accepted by the retailer’s contactless reader.

This only works, of course, if the retailer has already signed up with Apple. Cook claimed that 220,000 US retailers have already opted in to the system, as well as six major banks, plus MasterCard, Visa and American Express – which means that 83% of all US credit card payment volume can theoretically already be handled by Apple Pay.

If true, this is a really big deal, because it puts Apple at the heart of an unimaginable volume of financial transactions. In a way, the company is now doing to the card payment business what it did to the music business with the iTunes store. Which is what led one shrewd investor, Jason Calacanis, to predict in an email that “Apple will be the first company to hit a trillion dollar market cap”. Even His Steveness would have been impressed by that.

 

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