One of the logos that wasn’t splashed across the screen during the launch of Apple Pay was PayPal. Bill Ready, CEO of PayPal’s Braintree unit, sat down with MPD CEO Karen Webster to answer some tough questions about whether or not PayPal sees Apple as a major game changer or disruptor, what he believes their next move will be and PayPal’s future course.
KW: We’ve all seen and now know a bit about Apple’s plans for mobile payments – Apple Pay. During the launch, we saw lots of logos flashing on the screen, but PayPal wasn’t one of them. Why not?
BR: We work with a lot of the players that were listed there. Braintree will support Apple Pay from day one. I think Apple has brought together a number of players in a short period of time, which many have mentioned. We’ve announced that we’re supporting Apple transactions given that it’s running on the Visa tokenization and EMV standard.
KW: Let’s talk more about tokenization. That’s really been the core of the Braintree offer for quite some time. How does what the networks are doing now impact what Braintree does today?
BR: We’ve been huge proponents of tokenization for a long time, so I think seeing the networks now embrace it is a positive thing. I think that one of the questions to be answered is how it will work for non-card transactions. What we do with tokenization is work across not just card payments but also alternative payment methods. We announced bitcoin recently, and we have a broader view of what tokenization can mean. But we think it’s a positive move for the industry to see the networks embracing it.
KW: What’s your overall impression of Apple Pay?
BR: It’s an interesting take on how to enter the space. My quick assessment of Apple Pay is that they were thoughtful in going after specifically the plastic form factor of the card, but not really encroaching on the rest of the ecosystem, and looking to existing players in the ecosystem to do the things they do today. Apple is targeting the plastic form factor, but they are going to let the people who handle the transactions do that – handle the transaction. That’s a bit different from what other players have done, those that have tried to enter the wallet space and haven’t been able to do so successfully. Payments is really difficult, especially with handling merchant services and fraud protection and other factors.
That said, the fact that they’re taking just that piece of the form factor and not dealing with the rest of the ecosystem leaves some open questions. Some of the things that haven’t been answered yet are what will happen in the case of fraud – chargebacks, and things like that. Who’s liable for those? Those are open questions that remain to be answered.
KW: The thing that I observed was Apple’s approach to the in-store POS, using a technology standard that the existing ecosystem around payments is very much an advocate of - NFC. It’s a very different approach than what PayPal, for example, has been working to deploy in-store over the past few years. How do you think merchants are going to view the alternatives that they have now as they contemplate what to accept and reasons to make those decisions?
BR: From the merchant perspective, they probably care less about NFC vs. Bluetooth or beacons or things like that. There are technological reasons why one may be advantageous over other in certain situations.
Merchants will care more about making it easier for consumers to pay – how much easier is it than a swipe transaction? Is it more secure? Who’s taking on the risk and fraud protection? Those are really the big questions they have. Apple made a point that they won’t know how or where or what a person is buying, but for merchants, this is information that is important for fraud protection as well as from a customer engagement and loyalty perspective.
I don’t know any merchant executive that wakes up in the morning and says “boy, I’ve got to kill card swipes.” I think they’re much more interested in making it easier, safer, and more secure for customers to buy, doing so in a high quality and low cost way.
KW: There are obviously a lot of things that we still don’t know. It strikes me that what Apple really tried to persuade everyone about is how secure their solution is. There’s a tokenized credential in the secure element in the phone and additional tokenization with respect to transacting, and the networks are stepping in and taking on that role on behalf of the issuer. Are there vulnerabilities?
BR: That remains to be seen, as this has just been announced. That said, we have been the first in the industry with our One Touch payments, and have now done that across PayPal. One of the things we’ve assessed is that if you think about security for these kinds of things, much of that is around understanding consumer behavior, spotting suspicious activity, and interacting with a consumer in a way that’s difficult for a fraudster to spoof but still seamless for consumer in terms of experience. One of the questions that will remain is that, regardless of the secure element, what happens in the event of account takeover issues because when that happens, even if data is stored in a secure way, charges will still happen before the token gets turned off.
So yes it’s a step forward for the industry in that instead of reissuing a plastic card, you can reissue a token, but that will potentially be after charges have happened on an account that’s been taken over. Who will stand in for those charges? That’s a huge part of what merchants will care about.
KW: Let’s talk about what Apple announced about the in-app aspect of Apple Pay. We talked before about what PayPal is doing in-app and the advantages it offers merchants. Tell me about how yesterday’s announcement related to Apple Pay may have changed your thinking about where PayPal is headed.
BR: That didn’t come as a surprise, in fact we’ve been planning this for quite some time. We chatted before about the One Touch payments for all apps on the device, as well as our SDK, which we said laid foundation so that we could seamlessly add other payment methods and wallets. We expected there to be some proliferation of more of these kinds of payments.
On the one hand, we’re excited to see other players embracing One Touch payments. We also sit on both the consumer and merchant side of the network, so we can solve for things like fraud and security in ways that will be difficult for players that don’t sit on both sides of the network.
At the same time, we’re an open platform, so any way that consumers want to pay, we want to support. We’re happy to take any form of card payment, and if consumers choose Apple Pay as something they want to use, we’ll be happy to support it. We’ve been architecting for this for a long time.
KW: So Apple also announced its own API, which sounds a lot like what you described. So, they want to be “the button” and you want to be “the button” – how does a merchant decide?
BR: I think historically, merchants have had multiple buttons, they take Visa but not American Express or Discover. I think it’s been the case for a while that merchants don’t think about the one button or one payment acceptance mark – they think about the few that are relevant. PayPal has certainly proven that they are one of the most relevant payment marks for a merchant.
For a new merchant coming in, I think the question is how a merchant will think about a new payment mark versus those that have been accepted for a long time. They will ask those same questions. Can it help get to consumers in a better way, and facilitate easier, safer, more transactions while delivering additional value?
PayPal has proven to be a relevant button already, and what we’re doing with One Touch makes it even easier to use and something of value for merchants on the web and on mobile devices.
KW: Apple Pay is brand new with lots of iTunes accounts but zero Apple Pay accounts. You have an advantage in that you have consumers with PayPal accounts that have used PayPal to transact before. What are you thinking about now to get even more consumers engaged with PayPal?
BR: When you think about why a consumer chooses to pay with PayPal, there are a number of reasons. PayPal is the most widely used, most trusted digital wallet in the world. Consumers know they can trust it, that it’s safe and easy. In addition to that, there are a lot of services that wrap around it that give consumers a complete interaction, and PayPal provides consumer protection as well as merchant protection. We can also offer credit and other value added services. Yes ease of use is a big part of the experience, but also the security and the complete set of services for the consumer are also important. These things make it so the consumer has great freedom to pay in whatever way they want, and do so easily.
KW: One of the things that surprised me yesterday was the fact that Apple Pay, at least in store, will be available only to consumers that buy the new iPhone. There are estimates that only 25 million of those phones will be sold in the US, at least to start. Yet there are millions more consumers that have iPhones with payments apps, including the PayPal app. It would seem that you have an advantage in that you’re available to a much broader community of consumers than those consumers who want to or can buy the new iPhone. How will you take advantage of that opportunity?
BR: We just think about the fact that we’re an open platform, letting consumers pay however they want and wherever they want, on whichever device they choose to use, all in a safe way. That’s one of our value propositions – we can do things differently than others in the industry since we work on both the consumer and merchant side of the network
That’s why we end up a trusted payment mark across so many merchants as well as across platform providers, despite the fact that there’s overlap between what we do and say what Google does on the Google Wallet front. Google added PayPal to Google Play. And when you buy songs within iTunes, you push an iTunes button to buy it, but PayPal is often a payment method behind that button you push. So yes, sometimes we’re the “button” that you push, but we’re also a payment platform and network along with that.
So how many consumers that can get the iPhone matters, but the cross-platform point also matters. If you think about how many people have one device manufacturer exclusively across all of their devices – I think that’s very few. Consumers, when paying online, will think about their laptop, tablet, and phone and how they run on different operating systems, yet they want a safe and easy way to pay all on of them.
KW: The market has been down on eBay since the Apple Pay announcement came out. Why shouldn’t the market be worried?
BR: I think Apple Pay is certainly interesting, and because of that, we’re going to support it. But I think people may not realize that Apple Pay is just the front end of the transaction – everything that happens behind that is going through the existing payments ecosystem. We’ve shown for quite some time that PayPal is one of the most trusted providers across that payment ecosystem, largely because we’re one of the only players that has a trusted relationship on the consumer side and merchant side, wrapped with security and fraud protection and ease of use across the entire payment flow. That’s something that nobody else really does. Seeing a player like Apple only take on the front end of that has existed in our ecosystem for some time.
Across the 15 years that I’ve been in the industry, as an outsider looking at PayPal for much of that time, I’ve seen that every few years a PayPal killer comes along. Yet, PayPal continues to grow because most of those “killers” addressed a piece of what PayPal does, but none of them address all of what it does.
KW: Will Apple Pay accelerate the move to mobile in-store?
BR: I think NFC for a long time has been a technology in search of a problem. The card swipe isn’t hard to do – it’s one of the easiest things to do. Saying that now Apple Pay will spark adoption – well, while certainly Apple is a major player that can shift the ecosystem, but the bigger issue is whether there is a major pain point for the consumer when they swipe their card.
The other issue here is that there are 220,000 NFC-accepting locations - that’s about 2 percent of merchant locations in the U.S. So that means Apple Pay doesn’t work at 98 percent of payment acceptance locations in the country – that’s a tough place to start from. Chip and Pin can help to move that forward, but what you really need is for Apple Pay to be accepted 98 percent of the time.
There’s a long path ahead to change that in terms of merchant acceptance, but the bigger issue is does a consumer want to tap rather than swipe? We’re still unclear of the value proposition there. We’ve been working on in-store for a long time and we can candidly say that based on our own experience, it’s difficult to change the in-store behavior. Consumers are still happy swiping their cards, so it will be a slow movement toward mobile in-store for that reason.
KW: I was surprised by the fact that Apple Pay was exclusively about payment. I thought there’d be something more to provide a bigger incentive for consumers to want to use it. Over the years, NFC has only addressed the payment issue and not the real value equation between the merchant and consumer and hasn’t really moved the needle. Will this time be different?
BR: That’s part of why we’ve spent time working with beacons like Apple has – those are definitely other ways to engage consumers. The growth of e-commerce will continue, and more of what will happen in store may be about the apps you use and having a physical location. One of the positive things about Apple’s announcement is that there is a catalyst here for more ecommerce activity. A very large percentage of the growth is from mobile - so it’s a huge rising tide that will lift many ships.
KW: Yes, and that could be the wildcard here - using an ecommerce like experience standing in a store while circumventing all of the existing infrastructure and the way that payment in store is done today. It’s exciting time in the mobile space, and any time a big player like Apple gets into the market, it shakes things up and gives us lots of things to talk about.
BR: It certainly is.
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