Apple’s attention to detail is legendary, especially when it comes to its product launches. So it’s safe to assume that Senior VP Eddy Cue chose his words carefully when he said this about Apple’s newly launched digital wallet Apple Pay: “We are not in the business of collecting your data. So, when you go to a physical location and use Apple Pay, Apple doesn’t know what you bought, where you bought it, or how much you paid for it.”
How Apple Pay Works
An NFC tap
The Apple Pay experience starts with a simple “tap” of your phone to transmit payment information to a retailer’s NFC reader. The reader behaves identically whether a phone or a payment card is tapped. A plastic card is oblivious to the fact that it has been tapped; a phone detects that it has transmitted information, but it has no understanding of where it was tapped (what store you are in) and what (if anything) will happen next.
When we launched Google Wallet, we had a simple confirmation screen that said “Information Sent,” but we had no way to know whether the transaction was successful. The same holds true for NFC today — and the lack of available data means that the user experience will fall well short of the personalized, Siri-esque communications iPhone users now expect.
Payment Confirmation
So, what if we wanted to know whether payment was successful? After an NFC tap, a credit card or credit card token enters a point-of-sale (POS) system where the cashier must total the order and initiate a request to the retailer’s payment processor. The payment request passes through multiple providers on its round-trip journey, from point-of-sale to acquirer (such as First Data), to network (e.g., Visa), then issuer (say, Chase) for approval, and back again to confirm the payment success.
Following a payment tap (assuming that a phone’s data connection is active), the phone can begin polling anyone in the chain to determine payment success. Still, the data that’s returned is limited. With this approach, you can confirm the retailer’s name (such as Macy’s) and the dollar total (e.g., $50), but you can’t get details about what you purchased or receive a receipt. As Google Wallet evolved, we worked with issuing banks to provide this type of payment confirmation.
A real receipt
So, what would it take to get a real receipt after a phone-based NFC tap? In this age of ecommerce, it sounds easy, but when it comes to brick-and-mortar stpres, only retailers have the level of product or SKU information required, and there’s no common network or format for transmitting this outside of the retailer’s own systems. Getting from here to there will take a major technical upgrade on the part of retailers.
To most listeners, this sounded like a guarantee that Apple won’t share or monetize user transaction data. But, in many ways, it was also an admission. As a company that has proven time and time again that it can deliver the content its customers truly want (apps, music, and movies), Apple seemed to be confessing that, when it comes to Apple Pay, it’s not ready to do the same. Without access to product- and SKU-level data — the “content” that matters in retail — Apple was signaling that Apple Pay may not be able to produce something as simple as a receipt, let alone a meaningful experience for customers.
Yes, but …
The reason Apple isn’t doing more on the data front is that it can’t. Apple Pay and other NFC-based systems lack access to the product- or SKU-level data that retailers and customers rely on every day. So, in a world where consumers are increasingly wary of privacy and security incursions, Apple has decided to treat this serious limitation as a feature of its platform.
Without this data, what’s the true value proposition of Apple’s mobile wallet for either the consumer or the retailer? Tap-to-pay is easy enough, but today’s users expect evolving, personalized experiences that sync as they shop. They willingly share personal information to foster enhanced experiences with services like Netflix, Amazon, and others. Retailers, meanwhile, are jumping through hoops to discover everything they can about their consumers so they can deepen those relationships.
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In the end, it’s safe to say that content — in the form of product-level data — will determine the value and usefulness of Apple Pay. Yet Apple’s way forward to obtain this data is far from direct.
An easy starting point, but an uphill battle
Most current Apple Pay retail partners were already NFC-enabled, and their relationship with Apple is a simple remarketing of technical infrastructure already in place for payment rather than any direct technical integration. Incorporating high fidelity data into Apple Pay would require a direct integration. Assuming retailers were even willing to share this data with Apple, the technical and business path would be extremely complex and require not only legal agreements but also one-by-one technical integrations.
It’s not just a data transmission problem, either. Many point-of-sale systems are so difficult to work with that retailers have failed to implement even basic security — like point-to-point encryption, which would have prevented compromises at Target, Home Depot and others — much less enable the types of value-added features today’s consumers expect.
While retailers could theoretically integrate with Apple to share product level information, it’s unclear how practical this would be or whether it’s truly in Apple’s DNA to integrate with retailers in this way. In sum, legacy retail systems are so far behind the times that they’re incapable of meeting today’s demands for data sharing, management, and security.
The technical and business barriers to delivering even a simple electronic receipt are evidence of challenges that lie ahead. Receipts themselves are not unique or exciting, but they might be considered table stakes in the journey to create a compelling consumer tool.
Needless to say, today’s consumers expect more than just a receipt: They’re app-savvy shoppers seeking everything from location-based discount info to coupon redemption, all via phone. Apple may find that the most compelling experiences require a real-time integration with the ability to apply SKU-level coupons rather than only receiving data after the fact.
It will be interesting to see how Apple Pay matures over time and whether it will be a simple payment utility or a fully functional wallet that plays an increasingly important role in a consumer’s in-store retail experience.
The retail landscape is shifting, and Apple has the potential to play an important role in its evolution. However, as with its other services, content and data quality will determine the value that Apple Pay delivers for both consumers and retailers. After all, where would iPhone be without its incredible library of mobile apps?
Marc Freed-Finnegan and Jonathan Wall are cofounders of Index, a retail software company that brings the personalization and measurement of online commerce to the offline world. Before Index, Jonathan was a cofounder and Marc led product development for Google Wallet.
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