Visa EVP of Technology Rajat Taneja gets understandably excited when you mention Apple Pay.
That makes sense given that Visa – along with American Express, MasterCard – is one of the key partners in Apple’s new smartphone payments ecosystem, but Visa is a partner in Isis/Softcard and Google Wallet as well. What gets Tenaja really worked up is that Apple Pay could become a blueprint for all sorts of other mobile payments services worldwide.
Apple Pay is the first mobile wallet to use a new financial-industry backed standard based on the tokenization of the credit card, and according to Taneja it could become the precursor of any number of new mobile wallets and digital payments solutions embedded in smartphones, applications and even web browsers.
Apple CEO Tim Cook introduces Apple Pay. (Photo by Justin Sullivan/Getty Images)
Apple isn’t trying an end-run around the financial industry, and it isn’t introducing any proprietary technology or layer of complexity into the credit card transaction. The Apple Pay iPhone transaction over a near field communications (NFC) connection will be same basic transaction as a one-click payment in a mobile app or website. Finextra blogger Daniel Eckstein put it another way:
Apple Pay is entirely based on credit cards. That means it is not a new payment method. It looks more like Apple will become one of the biggest resellers of the credit card industry. They will only facilitate the use of credit cards, and in our industry players like that have a name: payment facilitators.
For that reason, Taneja believes Apple Pay will have a good chance at succeeding where other contactless payments systems have failed, and it’s why it’s secured the cooperation of everyone from the credit card companies and banks to brick-and-mortar merchants and online payment processors.
So right about now you’re probably wondering what exactly a token is. Simply put, it’s a stand-in for your credit or debit card number, a randomly generated sequence of digits stored in your phone and read by a point-of-sale terminal. Your real card number, or Primary Account Number (PAN), is locked in away in a virtual vault maintained by your bank or Visa or MasterCard, and it validates any transaction using a token against your permanent account number.
The tokens can be swapped depending on the policies of the card issuer. You could get a new token every few days, after a certain number of transactions or dollar amount spent. Or you mobile wallet could request a new token after every “swipe” of your card. To the sales counter terminal, it just looks like any other card number and it will process it as such. But if an expired token number is suddenly run through the system, your bank knows something is amiss.