The Walmart Vs Visa Lawsuit And Why Apple Pay Can Become Mainstream

  • Beneath all the arguments, the Wal-Mart vs. Visa lawsuit is just a battle of profits.
  • But beyond profits, it is a revelation that there is a growing demand for a more secure method of payment.
  • Apple Pay fills that demand. Apple Pay is secure, reliable, easy-to-use and convenient for both the merchant and the customer.

Wal-Mart takes a swipe at Visa

Walmart (NYSE:WMT) filed a complaint in New York State court that claims Visa's (NYSE:V) U.S. unit insists the retailer use signatures to verify debit card transactions instead of using personal identification numbers. Walmart claims that Visa wants it to use a less-secure method for verifying debit cards in order to route transactions through its own networks to boost profits.

So why does Wal-Mart care?

Wal-Mart wants to control how people verify their transactions at the cash register.

Once Wal-Mart has this control, Wal-Mart wants people who use a chip-enabled debit card to authorize their purchases using a pin and not a signature.

This is good for Wal-Mart because the chip-and-pin payment protocol allows Wal-Mart to route transactions across less-expensive networks.

So why does Visa care?

Visa wants Wal-Mart to use signatures to verify debit card transactions in order to route transactions through its own networks in order to boost its profits.

Visa had a different response. Visa said that they want their customers to have the option to either use a pin or a signature. Visa has had this system in place for years and wants to give its customers that flexibility.

So why is this battle even happening?

This is happening because of the EMV technology (Europay, MasterCard and Visa). These companies have pushed for the U.S. to migrate to chip card technology because it is more secure. The technology generates new codes for each card transaction and replaces magnetic stripes on cards. Thus preventing hackers from copying codes and storing them for later use.

But the chip technology has raised a lot of controversy. This controversy emanates from the fact that the fees charged for the chip technology have climbed. This is because transactions routed via Visa's or MasterCard networks are more expensive than those for pin debit networks, according to a 2011 FED report.

The vague definition of "secure" in chip-and-pin technology

The chips-and-pin technology only stop thief's from making fake cards. If a thief takes your credit card, they can still use it.

Therefore, although chip-and-pin cards replace magnetic stripes on cards as opposed to cards where the codes are permanent and can be copied and stored by hackers for later use, they do not offer protection if the card is stolen. Meaning that they offer some but not the full protection.

How Apple Pay comes into the picture

I believe that Apple Pay offers a more secure, easy-to-use, reliable and convenient form of payment. Apple Pay security and privacy overview.

With Apple Pay, you can use your iPhone, iPad, and Apple Watch to pay in an easy, secure, and private way. It's simple for you, and it's built with integrated security in both hardware and software, making it a safer way to pay than with your credit and debit cards....Apple Pay is also designed to protect your personal information." - Apple Pay Security and privacy overview.

First, Apple (NSDQ:AAPL) is more secure than the chip-and-pin technology and better positioned for internet deficient regions. Apple Pay and Samsung Pay both uses Near Field Communication (NFC). NFC is a "method of wireless data transfer that detects and then enables technology in close proximity to communicate without the need for an internet connection."

This is important because Apple Pay does not need an internet connection to work. Thus, it ties well with Apple's plans to penetrate into emerging markets since not all countries have fast and reliable internet connectivity. Besides, internet does not work well in every place and building in the U.S. Thus, the lack of dependence on internet connectivity positions payment systems like the Apple Pay as potential mainstream products.

Second, Apple Pay is "thief proof." Meaning that you do not have to worry about someone getting their hands on your bank information if your phone gets stolen. Apple Pay does not "collect any transaction information that can be tied back to you." This is important because just like people loose their credit or debit cards, people can also loose their phones. But knowing that the thief will not be able to get their hands on your bank information is reassuring. This is what makes Apple Pay better than credit or debit cards.

In addition, with iPhones, a thief cannot access your phone information even if they steal your phone because of the fingerprint technology. Also, you can always wipe your phone clean after it is stolen or just lost.

Third, it is convenient. People carry their phones everywhere. But you can also use Apple Pay on your Apple Watch or iPad. I think Apple Pay can be one of those iPhone add-on's that expands the significance of Apple's brand power over time.


People are consistently complaining of what is the next big thing at Apple?

But we have learnt from Facebook's (e.g. Instagram acquisition) and Google's (YouTube acquisition) inorganic growth strategies that as long as you have cash you do not need to be innovative. And Apple has the biggest cash pile of them all. Meaning that it is possible that Apple's next growth frontier can come from an accretive acquisition.

Besides, Tim Cook did say that " we are going to give you things that you cannot live without, that you just do not know that you need today." So, I cannot bet against Apple. But I think there are products currently on the market that we might be overlooking.

In addition, there is a growing misconception that any innovation is appreciated the moment it is introduced. Every great innovation was first ridiculed, condemned and doomed to die.

"I think there is a world market for maybe five computers." -Thomas Watson, president of IBM, 1943

"Television won't be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night." - Darryl Zanuck, executive at 20th Century Fox, 1946

My favorite came from Nathan Myhrvold, former Microsoft CTO in 1997 when he said that "Apple is already dead." The same things people are saying about Apple now.

So it makes you wonder, what does Apple have now that we might be overlooking? Can Apple Pay be the most secure, easy-to-use and convenient form of payment in the near-future? Apple Pay has all the characteristics to gain market share from other forms of payment. Will gadgets like the Apple Watch make Apple Pay more mainstream?

In a world where security is paramount and where cyber attacks are increasing, people will start assigning a premium to security. People will start to appreciate secure, reliable, easy-to-use and convenient forms of payments such as Apple Pay.

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Comments on this article and AAPL stock

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CurrentC, Walmart Pay, Target Pay: The problem with these merchant-initiated efforts is that the consumer's funds still have to be sourced from a bank debit/credit account somewhere, either via a MasterCard/Visa transaction, or via the clunky Automated Clearing House (ACH) "direct debit" process. Unfortunately, ACH direct debits are not processed in "real time" but are aggregated for overnight settlement, and, if the funds (or credit) are not available, the bank will reverse such debit the following day. The simple reality is, the ACH direct debit system was never intended, nor is it suitable, for the sourcing funds for goods/services that are going to immediately walk out the door.

Conversely, the banks' interactive "card" payment system works, that's why 99.9% of merchants accept such MasterCard/Visa transactions; but, more materially, and incomprehensively, those merchants that don't like the higher discount fee of "credit" transactions have always had the option of accepting only "debit" transactions. So, the exercise would appear to be more about harvesting data on consumers than it is about the transaction cost, or am I missing something? ...

What a total waste of time and money it is to try to develop an alternative to the universal system offered by the banks. It seems that these major merchants have forgotten what happened to those major merchant store-credit accounts that used to be around during the last century—before the original "bankcards" appeared.

Methinks that these latest merchant efforts will be stillborn or soon enough thereafter be added to the statistics on infantile deaths ...

Indeed, it appears that CurrentC has been stillborn ...

"Currently [June 2016] the three biggest mobile payment competitors are Apple Pay, Samsung Pay, and Android Pay. Samsung has publicly stated that its Samsung Pay service now has 5 million monthly users, but it’s never been known how many active monthly users Apple Pay and Android Pay have.

"Until now, that is. Bloomberg Business reports that mobile-payment researcher Crone Consulting has issued a report that breaks down mobile payments by provider. The study looked at the big three: Apple Pay, Samsung Pay, and Android Pay. It found that Apple Pay is the clear winner as far as active monthly users goes, saying the service has over 12 million people regularly using it each month. As for Android Pay, it matches Samsung Pay’s 5 million monthly users, Crone Consulting says.

"Upon first glance those numbers would appear to be music to Apple’s ears, but Crone Consulting says that they actually reveal stiff competition for Apple’s mobile payment service. That’s because both Android Pay and Samsung Pay launched almost a year after Apple Pay did. That suggests the two services are adding users more quickly than Apple Pay is. If that rate continues, Android Pay and Samsung Pay could pass Apple Pay usage within a year.

"... Currently only 6% of users with Apple Pay-enabled iPhones use the service. For Samsung Pay, only 4% of users with compatible devices use the service. And for Android Pay, a paltry 1% of users with compatible devices use the service."

SourceGoogle "Apple Pay Leads Mobile Payments With 12 Million Monthly Users"

Given that Apple's share of the smartphone market outside of the US is, proportionally, only a fraction of that in the US (worldwide, Apple's iOS represents only ~14% of the smartphone market compared to Android's ~83%), why would Apple Pay be able to do any better in Asia or Europe than it has been able to do in the US?

Who cares about Apple Pay anyway? Not even the Apple faithful, apparently; in the US, only ~5% of those Apple users that have had the opportunity to use Apple Pay, have done so; and on the Black Friday 2016, the number was down to 2.7%; the use figure is currently even less for payments via all Android OS phones (including the clunky PayPal Mobile).

In Australia (and Canada) the retail banks have resisted paying Apple a fee to allow Apple to better promote the sale of its new iPhones on the back of the banks' already established "contactless" payments systems; possibly, the banks think that any payment, if there is to be one, should be going the other way ...

Apple Pay—still a proprietary solution to a payments problem that does not exist …

Google "Retail Payments: The Reality"
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