Apple Enters the World of Fintech

With the announcement of Apple Pay for iPhone 6, CEO Tim Cook may have begun to write the obituary for plastic credit cards.

Apple Inc. Reveals Bigger-Screen iPhones Alongside Wearables

An attendee demonstrates the new Apple Inc. iPhone 6 Plus after a product announcement at Flint Center in Cupertino, California, U.S., on Tuesday, Sept. 9, 2014. Apple Inc. unveiled redesigned iPhones with bigger screens, overhauling its top-selling product in an event that gives the clearest sign yet of the company’s product direction under Chief Executive Officer Tim Cook. Photographer: David Paul Morris/Bloomberg

David Paul Morris/Bloomberg

Mr. McGuire: I want to say one word to you. Just one word.

Benjamin Braddock: Yes, sir.

McGuire: Are you listening?

Benjamin: Yes, I am.

McGuire: Plastics.

Benjamin: Exactly how do you mean?

McGuire: There’s a great future in plastics. Think about it. Will you think about it?

If Apple has its way, that most famous Hollywood film sector-level bull call (from The Graduate) might just have completed its run, almost half a century later — at least where credit cards are concerned.

Last Tuesday Apple CEO Tim Cook walked onto the stage of the Flint Center in Cupertino, California — where his company has announced some of its most exciting products — to unveil its latest innovations. Showiest among this year’s offerings were the iPhone 6 Plus — shiny and enormous compared with previous models — and the Apple Watch, Apple’s first wearable device. Perhaps more interesting than the next generation of smartphone or smartwatch was a real solution to a real problem — a product that might change the way money moves through our economy.

Tucked between the announcement of the new iPhone and Apple Watch came the company’s effort to replace the analog wallet and plastic credit cards entirely. According to Cook, payments processing is the place where we need innovation, and where digital technologies can make a real difference in our day-to-day habits. The wallet is, in Cook’s words, “fairly antiquated,” as “Americans scramble for our wallets 200 million times a day.” The solution to this inefficient — and insecure — fumbling is Apple Pay, a technology that allows users to make payments using their iPhones at hundreds of thousands of retail locations nationwide and online and that links to 83 percent of the credit and debit cards currently used to make those transactions.

Apple Pay is an exciting and meticulously executed idea. It eliminates the need for swiping your credit card or entering your credit card number to begin using the app. People can even link credit cards to their phones simply by using the camera built into the latter.

The technology behind Apple Pay isn’t so new: Near-field communication, or NFC, allows devices to interact with one another over very short distances. Hold your phone up to a sensor at the register or the pump, and it passes payment information to a merchant’s systems. It’s as simple as that. PayPal’s PayPass and Google Wallet both work off of NFC, and they’ve been in the market for several years.

Then what’s so very significant about Apple Pay? Despite the simplicity, neither PayPal nor Google Wallet has done especially well in the market. It might seem — and indeed certain data support the idea — that we’re not willing to buy things with our phones, despite the fact that we’ll perform most financial and banking functions on mobile. We’re willing to deposit checks, transfer funds within our own accounts and to others, check on investments and make trades, but a recent survey by CreditCards.com found that more than 40 percent of Americans “would never” buy with their phones. It’s more than arguable, however, that no company has had more success than Apple when it comes to convincing customers that they must have a product they’ve never had before, and when it comes to radically modifying consumer behavior.

Forbes and other news outlets have already emphasized that Apple Pay has two strengths. The first is security, since the app doesn’t store its users’ information, nor does it share actual credit card numbers with retailers. Instead it provides them with a one-time payment number and a dynamic security code to validate a transaction.

The second strength is the fact that millions of users already use Apple to buy media through the App Store and iTunes. There have been very few security breaches in either system, and users don’t need to alter their purchasing behavior significantly. Users of the iPhone have the option of enabling Touch ID for App Store purchases, meaning that they already buy on their phones and that they already trust Apple not to sell their information or leave it vulnerable to hackers.

Apple Pay may or may not discomfit PayPal, which currently processes the most online transactions in the U.S., and its parent, eBay, whose revenues now depend on PayPal fees, not auction sales. In fact, it might help PayPal by encouraging us to use our phones when we buy, offering a lift to all boats in the mobile payment ocean. What it will certainly do is extend Apple into regions of our lives and habits the company has heretofore left alone.

Apple was once firmly branded a company for creatives, for the ones who “think different,” as its famous tag line would have it. Now Apple has come to represent a totalizing design-driven consumer lifestyle; its purview has stretched to encompass everything from the new U2 album you download on your MacBook for free to the means by which you send your money to Target when you buy a minimalist white duvet cover. Removing material obstacles from day-to-day life, optimizing radically and doing so in the name of iconoclasm is a claim no other technology brand can make so convincingly.

Another, larger perspective on the importance of Apple Pay is possible here, one that comments on the world outside of Apple itself. Over the next few years, we’ll continue to see the disappearance of material currency, and its symbolic exchange as coins, then as paper currency, then as checks, then as charge cards. Few appreciate that the credit card is more than half a century old: The charge card and the credit card were introduced in the 1950s; then came the march of online banking and Bitcoin. It’s not hard to foresee a future in which cash — or even a paystub and the concomitant brick-and-mortar bank — is as unfamiliar to younger generations as postage stamps. That Apple has thrown its weight into the destruction of the wallet is only more convincing proof that this will occur. The idea behind all of this innovation, after all, is to make life easier, to allow us to refocus on our own inner narrative instead of fumbling around at the barista counter with the material accoutrements of our identity — including our wealth — that we carry around.

Has Apple rendered the plastic credit card obsolete? Not so fast. Like the coin currencies our ancestors wore as necklaces many millennia ago, those very same totems of our wealth have more than instrumental value. Lesser sociologists than Claude Lévi-Strauss would be needed to observe that it would be hard to imagine financiers rushing to swap their Black Cards for invisible air play payment apps, just to save the inefficiency of throwing down heavy black plastic — sorry, anodized titanium — on the nightclub table. To the contrary, some might say that’s the point.

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