What is Apple Pay?
Apple has teamed up with Visa, Mastercard and American Express to offer Near Field Communication (NFC) payment capability in the iPhone 6. The announcement of the feature last week, which the company has cleverly titled “Apple Pay,” has left many bitcoiners wondering how it will impact bitcoin. I think that Apple Pay and bitcoin shouldn’t be considered direct competitors. In fact, I see them as complimentary technologies that attempt to solve some of the same problems.
NFC, which has been part of most competing Android phones for several years, is a very low power data transmission standard that allows two devices to exchange information by touching or being waved close to one another. NFC enabled credit cards have been available in the US for the better part of a decade. The technology can also be found in hotel keys, shipping tags and other places.
Apple Pay uses NFC to turn a user’s phone into a payment token- it isn’t a payment method in itself. Instead of swiping a credit card to complete a purchase, the user waves his or her phone over the Apple Pay reader. Apple Pay, in turn, sends the transaction to the credit card of the user’s choice. Apple claims that their servers won’t know anything about the transaction except that it occurred. Apple Pay is allegedly set for deployment this fall to a handful of large retailers and a unknown number of smaller ones (just in time for Christmas!).
How Can Apple Pay Help Bitcoin?
Apple Pay is an alternative way to access existing payment infrastructure. In some respects, bitcoin is, too. Rather than competing for business, I see Apple Pay and bitcoin as complimentary ways to deal with some of the same problems created by payment cards (high cost, low security, must be present to use). There doesn’t seem to be any technical reason why Apple Pay could not charge a user’s bitcoin wallet instead of his or her credit card (sort of like a Circle or Xapo’s debit cards, except everyone gets to use it and it works well).
The big question is whether the merchant acceptance rate will ever reach critical mass. Merchants are really the ones who have the most to gain from migration to more secure methods of payment, since the merchant is usually the one who takes the hit when a payment card transaction is contested by the card owner. However, Apple Pay won’t be free. The best deal that merchants are likely to get is a small interchange fee discount for enhanced security, with Apple’s cut coming from the card servicer’s end.
In spite of the breathless media coverage when a major data breach occurs, low statutory limits on monetary liability mean that consumers usually suffer little more than inconvenience. Many banks refund all contested charges immediately and some even waive the $50 consumer liability “copay” mandated by Regulation E.
A major issue is the sorry record of Near Field Communication technology in the United States. Most consumers have probably seen NFC readers and probably even own (or have in the past) an NFC enabled card. The technology is nice- when it works. In my experience (I have but one lonely Chase Visa Card with NFC capability), the readers tend to show up in inconvenient places (drive through at McDonald’s, for example) and are almost always broken. Will Apple Pay see more success? We’ll see.
If Apple Pay takes off, a partnership with Coinbase or another bitcoin servicer would likely be the best thing to ever happen to bitcoin. Given Apple’s mercurial relationship with bitcoin, even that may be too much to hope for.