Apple Pay and the rise of the five-party network

https://fin.plaid.com/articles/apple-pay-and-the-rise-of-the-five-party-network

by npratini • 9 years ago

25 22 9 years ago

fin.plaid.com

Does anybody know how Apple Pay peer-to-peer actually works? I find all the information I can on the web disappointingly light. The same thing was true for the original Apple Pay which lead to myths like Apple Pay using a new PAN every time out pay.

Bank transfers will be handled separately.

When are bank transfers used and for what? For unloading? If so do you have to unload via bank transfer or can you use a CFT transaction? I can't imagine a case where you want to unload using an ACH or SWIFT transaction. I would image you always want to use a domestic settlement system or T2 if you can.

Apple Pay Cash’s back-end is powered by a Green Dot-backed Visa prepaid card

Only in the US or globally? I imagine there is a lot of fine print associated with that like the amount of funds you can store. I will get a tax statement even if I live outside the US, right?

tear888• 9 years ago

It's a debit push payment. Everyone is issued a green dog virtual card and then the entire network works over debit (with a layer of abstraction that Apple builds on top).

needusername4• 9 years ago

It's a debit push payment

What does that mean?

Everyone is issued a green dog virtual card

I assume that's just a VISA Debit or VPAY with a special BIN range. Is that correct? Does everybody in the world participating in Apple Pay get a US issued VISA Debit card?

then the entire network works over debit

There is no difference at all between VISA credit and VISA debit apart from interchange and when how the issuer bills the card holder. The whole infrastructure is the same. I assume with "works over debit" you mean is VISA cleared, is that correct? Does that also mean that unloading happens with a CFT transactions? If so what does the following sentence in the article mean "Bank transfers will be handled separately."?

lathiat• 9 years ago

which lead to myths like Apple Pay using a new PAN every time out pay.

Yeah I discovered much later that's effectively a function of tap-to-pay (which is highly prominent here in Australia, unlike many countries, almost every shop terminal has support and almost all bank cards have it also... chip and pin is also standard, and signatures are never allowed for domestic card even with a swipe)

runeks4• 9 years ago

A centralized payment system will never be able to provide the best service for users. With a single entity in control -- as opposed to an open system where newcomers can enter and compete with incumbents -- there are no competitors, and competitors are responsible for pushing down fees and adding innovation, thus forcing incumbents to follow along or fade away. That's why the web is so successful: competition is built in through an open protocol, so competitors can replace incumbents by providing a better service/price.

With the iPod and iTunes, and the iPhone and the App Store, Apple created something that didn't exist before, and captured most of the newly created market. Replicating VISA's business model doesn't do the same, but simply adds a couple of features to an otherwise closed system where users will not benefit from competition.

An actual alternative to VISA needs to be open, allowing for competitors to easily enter and compete with existing actors. Such a system is the Stroem protocol on top of Bitcoin, which is a thin clearing protocol designed for competition, constantly forcing issuers to follow along on price or be left behind. This is what merchants want, and what's needed to revolutionize payments.

samfisher833• 9 years ago

This is probably not a popular opinion. Visa and Mastercards were all owned by the banks that back your credit card. These are highly regulated organizations. I rather not have startups that have sometimes have pretty dubious reputations for skirting the law trying to get into this space. What if someone steals your bitcoin what do you do? Or if you purchase something and you don't get it.

lostlogin• 9 years ago

You won't use Uber Bank?

aianus3• 9 years ago

It's cheaper to lose 100% of your purchase 2% of the time than 3% of your purchase 100% of the time.

Insurance is for health and houses not my $8 lunch or $500 wallet contents.

runeks4• 9 years ago

I rather not have startups that have sometimes have pretty dubious reputations for skirting the law trying to get into this space.

Why not? The Stroem protocol, combined with Bitcoin payment channels, is completely trustless from the consumer's perspective. The coins are stored on your phone (or whatever device you want to use for it).

Only merchants need to trust issuers, in exactly the same way that merchants need to trust VISA/Mastercard etc. now. The primary difference is that the system is designed for competition between issuers, instead of a centrally-defined issuer (e.g. VISA or Mastercard).

What if someone steals your bitcoin what do you do?

If someone steals your bitcoins they're gone. But if you don't trust yourself to keep your bitcoins safe, you're free to deposit them with someone you trust. That's the benefit of Bitcoin: if you feel confident guarding a private key you can store them yourself and, if you don't, you can use an external wallet service -- the best of both worlds.

Or if you purchase something and you don't get it.

If you find a merchant appears suspicious you should use an escrow service. With the Stroem protocol, adding a layer on top that enables chargebacks via an escrow service is really simple, and completely decentralized. Pick any escrow service you like, who all compete on service/features/price -- no need to always use PayPal/VISA.

Again, the advantage is that you're not forced to pay for something you don't need (chargeback insurance) unless you deem it necessary.

needusername4• 9 years ago

And they have a chargeback process that works and protects the cardholder. And they won't be gone in five years.

zepto• 9 years ago

This seems like an idealistic restatement of the 'open always wins' mantra, with no real logic supported by facts.

The web that you mention is a strong counter example. It is dominated by a few giant corporations, and in many places, increasingly subject to government restrictions.

The web isn't successful because of ideological openness and resistance to control by powerful actors. It's successful because it is extraordinarily useful.

Merchants may see a few percentage points of fee reduction as a potential margin increase for themselves, so 'want' whatever cuts their costs.

Consumers on the other hand want an easy solution that they don't need to worry about.

Apple Pay delivers on the consumer end of this.

A competing solution would need to deliver both to stand a chance.

Apple Pay and the rise of the five-party network

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