The iPhone X is a very different type of smartphone, shedding much of Apple's familiar hardware design and adding new, unproven features. Here are some of the ways the iPhone X is changing mobile payments.
Retailers such as Amazon are already making use of ARKit, the augmented reality tech Apple announced as a centerpiece of its iPhone X and iPhone 8 announcement.
Accessible within the Amazon app, AR view enables customers to select an image from thousands of available items—furniture and home décor are at the forefront—and overlay it in their present environment.
Limitations include the fact that AR view works only with newer iOS devices (iPhone 6S or later). The tool also requires users to move the camera screen around to find a workable “surface,” such as a floor, wall or tabletop, to display objects before the selected item appears.
This can create some awkward combinations, such as placing a large chair atop a small desk, but the concept underscores retailers’ eagerness to explore augmented reality even before it’s fully evolved.
“AR view helps customers make better shopping decisions by allowing them to visualize the aesthetic and fit of products in their own living space,” Amazon said in the release.
Makeup marketer Max Factor and IKEA were among the first wave of merchants to use augmented reality to enhance online shopping with smartphone camera-based tools enabling consumers to overlay images to virtually try out products.
Apple's iPhone X will ditch its fingerprint sensor in favor of a multi-camera system, but it still expects some users to opt for a PIN code.
In eliminating the fingerprint sensor to accommodate an edge-to-edge display, Apple had to redesign a lot of the ways its smartphone handles common interactions, especially payments. And while the company touted the strength of its new Face ID system, it came with a few words of caution.
"If you happen to have an evil twin, you really need to protect your sensitive data with a passcode," warned Phil Schiller, Apple's senior vice president of worldwide marketing, when announcing the company's newest smartphones.
When picked up by a stranger, that stranger has a one in a million chance of being able to trick the camera — a huge improvement from the one in 50,000 chance with Touch ID, which Schiller described as the "gold standard" of biometric authentication. The odds get lower when people such as family members share traits with the phone's owner, but it has protections against being unlocked by a sleeping user's face or a photo of the user.
"Face ID also works with Apple Pay," Schiller said. "You look at iPhone X to authenticate and hold it near the payment terminal to pay."
Third-party financial and security apps like Mint, 1Password and E-Trade also support Face ID authentication, Schiller said. The iPhone 8, announced alongside the iPhone X, still uses Touch ID instead of Face ID.
As with anything Apple-related, the company's P-to-P service is deeply embedded into the overall Apple ecosystem.
Rather than hide P-to-P in the Wallet app or any other part of Apple Pay, the company built its P-to-P offering around its Messages app as part of iOS 11.
“It’s super simple because it’s integrated right into Messages … you securely authenticate with Touch ID and if you receive money with iMessage, it goes into your Apple Pay cash card," said Craig Federighi, Apple's senior vice president of software engineering, in a presentation at Apple's annual Worldwide Developers Conference (WWDC), in June.
The Messages app also integrates P-to-P as an autofill suggestion when typing. If a friend mentions needing an amount of money, the Messages app can suggest sending those funds via Apple Pay from within the chat.
Apple’s move into the P-to-P payments landscape is somewhat late to the game and faces stiff competition. PayPal's Venmo is often cited as the biggest threat, but Apple's system also resembles what Facebook is doing with its Messenger product under the leadership of former PayPal boss David Marcus.
An Aite Group report investigates the current P-to-P competitive landscape, which is best described as a fragmented ecosystem of bank-based initiatives such as Zelle and Popmoney, as well as myriad alternative vendors such as Circle, PayPal, Venmo, Square, Google Wallet and Facebook.
Reinventing mobile banking
A Wells Fargo spokesman noted that the bank has been exploring how biometric authentication can improve the user experience in digital environments, suggesting that it might be interested in the new iPhone’s capabilities.
“In our Innovation Lab, we’ve built prototypes for facial, palm, fingerprint, and voice authentication,” he said. “Currently, some corporate banking customers are scanning their eyes with their mobile phones in place of an ID and password to access their accounts, and consumer banking customers are using their voice to authenticate themselves when they call a phone banker. We, like many of our iOS-enabled customers, look forward to hearing more about Apple’s next iteration.”
When Apple released Touch ID, many banks were onboard and ready to use the fingerprint recognition in their apps soon after the launch.
“When Touch ID came out, we all thought, is it going to work? Will it be real? How soon will it emerge?” said Douglas Hartung, senior director of global software innovation at Diebold Nixdorf. “Very quickly after TouchID was made available to third parties, the mobile banking app providers started to support it and what I considered to be a very large number of banks supported it. I don’t see why we would expect it to be different in this case. The fact that you can just pick up your phone and you’re automatically authenticated into that application, seems like a very clean user experience.”
Virtual card account
New iPhones such as the iPhone X will also function as stored-value accounts.
The P-to-P function can draw funds from Apple Pay, but it doesn't require that the recipient be enrolled in Apple's mobile wallet. The funds can instead go onto a virtual Apple Pay Cash card (a prepaid account from Green Dot), a structure that may have significant implications for issuers both domestically and internationally if Apple chooses to expand the capability.
While Apple Pay is the most commonly used mobile wallet at the point of sale, it's little to brag about. Research from First Annapolis highlights that just 8% of iPhone owners are regular (once per week or more) users of Apple Pay in store, so clearly its practice of working only with banks has its limits.
The Apple Pay Cash card is purely virtual, and thus it cuts out the need to enroll with a bank account or even carry a separate wallet.
A P-to-P system tucked within iMessage may seem like little threat to banks, but there is precedent for P-to-P as a gateway drug to retail transactions. AliPay and WeChat wallets have exploded, reaching US$2.9 trillion in 2016. Both of these payment networks evolved from messaging platforms.
"The real challenge will be getting consumers to use the P-to-P service," said Michael Moeser, director of payments at Javelin. "When Apple Pay first came out it had very little competition, despite Google’s efforts. In contrast, Apple’s new P-to-P service will compete head-on with Venmo, Zelle, Square and others. Giving the enhanced functionality of a virtual debit card may not be enough to fuel widespread adoption."
The success or failure of Apple’s P-to-P effort may be the deciding factor in determining whether Apple's devotees want to keep their money in an account tied only to their iPhones.
The dreaded 'blue bar'
Apple's decision to display a bright blue bar on iPhone screens when an application is monitoring the user's location may feel like a threat to location-based marketing. More likely, it is an overdue wake-up call for retailers and banks to improve their communication about the benefits of location data.
The premise behind Apple's location data change in iOS 11 is to help users differentiate legitimate businesses using location data to send valuable messages and offers, from those with less noble intentions. Background activity such as location detection can also be a battery drain, so it benefits Apple to give users more control over how their iPhones consume power.
Banks and retailers increasingly use location data to send location-based offers or to alert customers when they're near a store that accepts mobile payments. Under Apple's plan, the implication is that consumers will want to turn off those apps to guard their privacy and make their phones more efficient.
But that blue bar could turn out to be less of a warning signal and more of a call to action.
The change could benefit app developers and merchants that rely on location monitoring, said Asif R. Khan, founder and president of the Location Based Marketing Association, whose members' livelihoods rely on effective multichannel messaging through connected devices.
"If this development comes in the next Apple release, it is a step in the right direction for the industry," Khan said. "There is a lot of value in location, but the onus is on the developer to articulate that."
The pandemic and subsequent economic crisis have raised the stakes, since the government’s role in recovery and how stimulus is delivered — and policies impacting the goals of card and technology companies — will be largely determined by the philosophy of leadership.
The Trump administration has barred the use of TikTok and WeChat inside the U.S., including a direct ban on WeChat Pay, setting up potential retaliation against U.S. companies that could interrupt international payment flows.