Visa execs Charles W. Scharf, CEO and Global Head of Innovation and Strategic Partnerships, Jim McCarthy sat down in two separate discussions to talk about payment innovations within the past year, as well as Visa’s token business and Apple Pay.
McCarthy spoke at the Pacific Crest Internet Innovations Conference on November 12, while Scharf spoke the same day at the Bank of America Merrill Lynch 2014 Banking & Financial Services Conference.
On Apple Pay
McCarthy touted Apple Pay’s “highly curated environment,” given Apple’s ability to manage its ecosystem. So if consumers are within Apple’s ecosystem, there’s no doubt that they will choose to utilize Apple Pay at checkout, whether it be in-app or in-store.
Scharf indicated that he saw Apple’s new venture as an opportunity for Apple to quickly scale its payments initiative. “If you want to get scale, you do it with the existing rails that exist, Visa, MasterCard and AMEX.”
On Tokens
Scharf asserted that “Apple Pay is the first example of a product that wouldn’t have been possible unless the network community created tokenization.”
McCarthy mentioned that while there are a variety of reasons to tokenize their credentials, Apple ventured down the payment because “they saw an opportunity to drive value to the devices” and to “drive a better experience.”
He also indicated that tokens offered a way for third parties to jump in on the payment experience, which is inherently a commerce experience, and allows them to do so without taking on payment system risk.
McCarthy also believes that in terms of providing token services, Visa is in a pretty good place and believes that larger banks will likely refrain from trying to do it themselves. Players like Visa look like a natural aggregator for banks at this point to manage their tokens.
“Because of the way we launched with Apple, we decided to defer fees until January of 2016. And again, I think as long as we get those fees right, I think we’re in a pretty good position long term to be evolved on behalf of lots of our clients.”
Scharf talked about the Visa business model and why token services are truly key.
“We are in the middle of relationship between the merchants, acquirers and the issuers. That’s the role we play. We manage the pricing. We manage the rules. But we are also responsible because it’s in our best interest, as well as all of their best interests to drive the industry towards the most secure things we possibly can.”
He also went on to say “tokenization has opened up this whole world for us to be able to use digital devices to be a meaningful part of the payments flow in a way that they wouldn’t have in the past.”
On NFC
McCarthy said that “NFC, which had been more or less considered dead for a couple of years, I think is coming back around as a result of Apple’s move here.” As consumers purchase more and more NFC capable mobile devices, McCarthy said he believes that terminal manufacturers will be ready to meet the demand and merchants will want to turn the service on.
He also noted that “The only participant that didn’t have to do anything was the merchant that has an NFC reader and they got the benefit.”
On Security
During the discussion, McCarthy touched on consumer demand for security features, noting that the real advantage to EMV is that in every scenario, a cryptographic value is required which utilizes bank keys and is passed through the networks that have not been corrupted or tampered with. “Apple does that by calculating that value on the device because it’s got the secure element.”
Scharf complemented McCarthy’s statement by referencing the recent breaches that both merchants and customers experienced this past year. “While EMV wouldn’t have stopped that, it would have stopped the ability to take that information and actually create duplicate cards, because you cannot duplicate an EMV card, it hasn’t been done.” Therefore supporting the “momentum for both the issuing community and the merchant community to move towards EMV,” he said.
Tokenization was a key factor as to why Visa opted for Apple Pay, Scharf noted. “If it wasn’t for the process of randomizing credentials on the iPhone, we wouldn’t have done it.”
On Apple Pay In App
During the McCarthy’s segment, he took a moment to shed some light and perspective on in-apps and indicated that it will gain some potential over time in terms of opportunity.
“As merchants code or write new apps that take advantage of the Apple Pay environment, I think it will take a lot of friction out of the checkout experience, drive top-line growth and, because the credential is being pulled from the device, actually be able to lower their fraud costs as well.”
The real obstacle here is the need for applications. And while McCarthy is “bullish on apps” the problem is that apps aren’t exactly scalable in the sense that consumers would need an app for every single merchant they interact with. Therefore, McCarthy doesn’t see apps as the problem solver for every merchant.
McCarthy also noted that while Apple Pay can be utilized in-app with various different retailers, Apple Pay is the “only game in town” to be at the point-of-sale and in-app. However, he also noted that Apple Pay has yet to tap into the browser environment where Visa Checkout, Google Checkout, PayPal and MasterPass all play.
On Apple Pay, Tokens and Merchant Economics
When talking tokens, Scharf stated, “We want people adopt tokenization. We think it thus creates a meaningful set of opportunities that would be difficult for us to participate without something like tokenization.”
McCarthy also took the opportunity to talk tokens but from a merchant’s standpoint. McCarthy believes that with the ability to pass information securely, not only will merchants be protected from an investment standpoint, but also the data “will be dynamic and allow us to lower the fraud cost.”
When Apple requests a user to input their credit card information, the bank guarantees the customer protection against fraudulent activity and also takes out a new set of risk.
Then when a user utilizes Apple Pay, the phone basically turns into a point-of-sale device. That, says McCarthy, gives merchants “the best rate. They get the payment guarantee. When I walk out of the store with the goods, they’re protected.”
From an economics perspective, McCarthy indicated that it really looks like it’s in the merchants favor.
McCarthy also then publicized that for the first time, “I can take the phone just like it is now when the terminal is rung up, I can put it close and it brings up all my cards and I put my thumb on it and pay. I think it has at least met that bar.”
While Apple’s payment solution has met the bar, this is where add-ons should be implemented. McCarthy suggests coupons, offers and loyalty. “But if you can’t match that core ease of use, you’re not even in the game.”
McCarthy then acknowledged Apple Pay as a reference model in terms of token services.
“And the one thing about Apple beyond their design, which they’re great at, is they’ve got a loyal customer base, and you can see it in the MCX discussions. People went bananas when they couldn’t use it. So, they will begin to drive because consumers follow them. And if you look at the penetration of their iOS in terms of upgrades, people will try and use their technology. I think that’ll start to change, for the first time, the consumer behaviors that need – to make the rest happen.”
For additional news on Apple, visit the PYMNTS.com Apple Pay EcoSystem.
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