This Verbal Confrontation Shows Why Walmart Will Never Accept Apple Pay

http://recode.net/2014/11/09/this-verbal-confrontation-shows-why-walmart-will-never-accept-apple-pay-video/

by prostoalex • 12 years ago

49 48 12 years ago

wilde• 12 years ago

I think I'm missing something. How does Apple Pay have enough info to generate the larger payload they're looking for if you add cards by typing in the number?

ploxiln• 12 years ago

Apple Pay gets the lower rate just because they decided it does, there's no real technical reason. The technical answer was just re-iterating that with the full technical terms.

If you think about it, until chip-and-pin is required in the US, there's not really more security for card-present transactions in the US. Anything they read from the card when they swipe and use to validate the transaction could be intercepted, saved, and written to another card.

So it's all arbitrary. Sometimes they ask for your zip code, so they get a better rate. Sometimes (often) they ask for the csc online, so they get a better rate. I guess the statistics work out, but from a technical security point of view, it all seems not really secure.

ghshephard• 12 years ago

You can't just add a credit card to an iPhone - it has to be validated against the owners account. The data Being sent to the Nfc terminal can't be used for anything other than that transaction, and it's generated by the secure element on the iPhone.

prostoalex2• 12 years ago

http://www.zdnet.com/apple-pay-and-security-could-tokenizati...

[Apple Pay] "Tokenization removes the actual credit card number and replaces it with a randomly generated number. That number, or token, can be configured to expire after one purchase or made specific to a certain transaction, making it a useless target for hackers or fraudsters.

But what's more, tokenization removes a huge storage burden from merchants, since they never see a person's actual credit card information and it never enters their POS system or online payment portal.

Now, Apple didn't invent tokenization. But by taking the tokenization route, the Cupertino powerhouse could be looking to ride the security wave all the way to payment success, especially considering the rising number of merchant data breaches and instances of stolen credit card information that continue to hit the payment and retail industries."

fpgeek3• 12 years ago

But what's more, tokenization removes a huge storage burden from merchants, since they never see a person's actual credit card information and it never enters their POS system or online payment portal.

Yes, merchants think that getting additional customer-identifying information that forces them to run extra analyses on the mountains of transaction data they warehouse is a huge burden they'd like to be relieved of.

</sarcasm>

evanspa3• 12 years ago

When you provision a card to Apple Pay by taking a photo of your card or entering the info manually, what happens next is that the iPhone makes a call to the card network (Visa/MC/Amex) to verify the card data (the card network will also make a call to the issuing bank of the card for a validity check), and if all is well, the network will return the same information that is effectively provisioned to physical ICC chips that you see in newer credit/debit cards. These parameters are stored in the iPhone 6's secure element, and allow the iPhone to perform full EMV transactions.

One difference between these parameters and those provisioned to a physical ICC on a new debit/credit card, is that the card number (PAN) is not used; instead a payment token is used (it looks like a PAN - it has the same number of digits, etc). This allows Apple Pay transactions to run on the same infrastructure as chip+pin/signature transactions.

zaroth• 12 years ago

Walmart's Mike Cook asks an interesting question;

At a physical store, if you use any other mobile app, like LevelUp, then the merchant pays the higher 'card-not-present' rate. The same transaction with Apple Pay pays the lower 'card-present' rate. But an in-app purchase on an iPhone still charges the 'card-not-present' rate.

Visa's Jim McCarty's response is, "Fundamentally because the payload is different. One is a full EMV track read transaction and the other is not."

"Because it's a rule that y'all made?"

"No, because the data doesn't flow. It's why the standard was written like that." ... and then later Jim quips... "That's the first time Mike's complained about getting the card-present rate." which the moderator replies "OK, that gets the best answer beer."

The format of the packet is irrelevant. The security properties are derived from the user interaction points. Specifically, Alice loads her card into Apple Pay by taking a picture of it. A week later Alice uses her phone to pay with Apple Pay and the merchant would get a card-present rate. Can any other app do the same thing? Is there an open standard which allows LevelUp (who currently is forced to pay card-not-present) to use the same exact steps and get the same favorable rate? If not, I think Cook has a very valid point.

Apple Pay wins by default if they are the only mobile app in town which can get a card-present rate. I assume Google Wallet is card-not-present, for example. Merchants won't pay a higher rate so you can use some app. Jim McCarty specifically mentions the scale problem with changing brick & mortar merchants card-not-present rates.

fpgeek3• 12 years ago

According to this: http://www.quora.com/Is-Google-Wallet-considered-a-card-pres...

Google Wallet is card-present for the merchant, but card-not-present between Google and the consumer. I guess that means Google is eating the difference between the two rates (and/or has other tricks up their sleeve).

demallien• 12 years ago

I would imagine that it is because brick and mortar merchants are a lower fraud risk than an online property. Don't forget that visa and MasterCard suck up fraud on both sides of the transaction.

Which is not to say that there aren't shenanigans going on, but there's a reason that consumers really like MasterCard and visa, they both look after customer interests, sometimes at the expense of merchants.

tomp• 12 years ago

What kind of fraud is there to suck up at the merchant part of the transaction? Isn't it so that if the merchant doesn't deliver, they don't get paid?

netcan2• 12 years ago

MasterCard and Visa have the ability to put the full cost of fraud (including a fee for dealing with it) onto merchants in many/most cases. This includes "friendly fraud" of the false chargeback variety (customer falsely claims they did not receive a product) taking advantage of consumer protection guarantees offered by MasterCard and Visa to their customers as a value add.

IE, CC companies offer their customers consumer protection to encourage use of their product. They charge merchants when a consumer uses the product. Then, they unload the risks, costs and other burdens inherent in offering this add on service onto merchants as well. This is why they put little effort into investigating claims, making it feasible for merchants to dispute them or otherwise preventing fraudulent claims. It's has a distinct odor of oligopoly.

Oligopoly also allows for price setting. IE, the forces pushing the cost of a good or service closer to the (marginal) cost of producing it are weak. It could also be that "card present" is cheaper because in-store purchases have to compete with cash purchases. IE, they might be charging the higher fees because they can, not because they have to.

Shivetya• 12 years ago

Apple Pay is like iBook to me. Apple making these grandiose claims about how much they are doing this for us. Yet there is this issue of Apple taking a cut while binding us the very credit card companies many of us find repugnant. I know, but its Apple!!! Well Apple condom or not, its still the same in the end, they sell us to the CC companies and we are supposed to be happy.

Check with my credit union, no plans though a CC I do have elsewhere does offer it.

As far as stores, I can see the issue with being bound to the higher payment structure CC require (in or out) compared to options they are developing as a group. I am not too pleased with privacy issues of their idea but its not like I appreciate my CC's privacy issues either

aaronem5• 12 years ago

It's been some decades since the only option for a payment card was a line of revolving credit. You can get one that's tied to a deposit account, no chattel-slavery strings attached, and they sure are handy things to have.

(I don't love revolving credit any more than the next guy -- less, in fact; I've worked in the industry and seen its unloveliness firsthand. But you can get the benefit of a payment card without it.)

aaronem5• 12 years ago

One is a full EMV track read transaction and the other is not.

I don't see how that can be true; loading a card into Apple Pay is done via photo or manually, neither of which entails a swipe of the card through something like a Square reader, which is what would be necessary for Apple Pay to provide "full EMV track read" data. The information available via Apple Pay is therefore necessarily a proper subset of that encoded into the magstripe, which, according to the Visa rep's statement, should require that Apple Pay transactions be billed under the same card-not-present fee scheme as in-app purchases and online transactions.

Your argument from packet format is irrelevant; "user interaction points" don't enter into it, under the rules defined and promulgated by the card associations. Those rules include a distinction between card-present and card-not-present transactions, made on the basis of whether or not the transaction data includes a full and valid magstripe read. Apple Pay transactions cannot include such a read, because, based on the methods by which a card can be enrolled in Apple Pay by its user, the information available at transaction time cannot be other than a proper subset of what a magstripe read would provide.

It's understandable that WalMart's Cook should be cross over this; his irritation stems from the perception that "the fix is in" between Apple and the card associations, such that they're breaking their own rules to give preferential treatment to Apple Pay.

On the other hand, these are their rules; the conditions under which various transaction fee schemes apply are defined entirely by the card associations (Visa and MasterCard, et al.), and if they want to extend preferential treatment in this fashion, then it's entirely within their scope to do so.

In effect, the rule for a card-present transaction has been extended with a clause "...or if it's done by Apple Pay". This is a special case of a more general rule under which effectively all card association operations occur, and whose most concise formulation is "Because we say so."

wfjackson2• 12 years ago

On the other hand, these are their rules; the conditions under which various transaction fee schemes apply are defined entirely by the card associations (Visa and MasterCard, et al.), and if they want to extend preferential treatment in this fashion, then it's entirely within their scope to do so.

And how is what Walmart accepts for payment in their own stores is not under Walmart's own scope?

evanspa3• 12 years ago

briandear• 12 years ago

The idea that WalMart is paying a high percentage is nonsense. For an commerce startup I work with, we're getting .5% from First Data. I'm sure WalMart can do better than us. This is about something else.

thaumaturgy• 12 years ago

Even .5% at Wal-Mart scale is a lot. Regardless, it's a bad enough situation that in March Wal-Mart withdrew from a $7.5 billion settlement to continue its own lawsuit against Visa et al: http://www.bloomberg.com/news/2014-03-27/wal-mart-sues-visa-...

I found a few other articles that support the guess that the big retailers are in the middle of an all-out war with their credit card processors (e.g. http://www.csmonitor.com/Business/new-economy/2011/0413/Cred..., http://www.forbes.com/sites/danielfisher/2012/07/24/wal-mart...), so now CurrentC and the rejection of Apple Pay makes a little more sense. I didn't get it before.

nemothekid• 12 years ago

Yahoo Finance says Yahoo's current profit margin is 3%. (Most others of the top 10 most valuable companies in the world are at 20-30%).

If you are only making $3 for every $100, 50 cents is huge - thats nearly 15% of your profits you are paying out to CC processing.

ohsnap• 12 years ago

Walmart pays over 2%. Probably a hidden variable in the .5% number.

ewang1• 12 years ago

Is that 0.5% total or 0.5%+interchange? 0.5% total sounds unbelievably low.

alkonaut2• 12 years ago

The article mentions cards linked to a customers checking account. I assume that means a "debit card", i.e. one where transactions are deducted immediately rather than aggregated into a monthly bill? How common are those cards in the US?

Here (.se), most Visa and Mastercards are bank-issued debit cards, and almost everyone would have such a card, even if they also have a credit card from Visa/MasterCard. Is the situation the same in the US?

tombrossman2• 12 years ago

In the US you would typically get one of these debit cards automatically with your checking account, and it works as you describe. If you want a credit card you would have to submit a separate credit application at the same (or different if you like) bank and that would be a completely different card with its own account and terms. I think this is the same in most countries.

alkonaut2• 12 years ago

Ok. Guess the difference is not technical but cultural, here the debit cards are used more frequently, and many never get a credit card. I do think we have bonuses on many cards, but I have never found them appealing enough to switch to a pay-later system. I prefer knowing the balance all the time. I use mine only for work expenses and "future" expenses such as flights, where an airline going bankrupt would be problematic if I had already paid the ticket up front.

Maybe we also have less fraud since chip+pin is used everywhere?

ubernostrum• 12 years ago

Debit cards come free with most bank accounts here. But the fraud-protection laws give you much more protection for a credit card than a debit card, so many people who have both only ever use the debit card to withdraw cash from an ATM, and use the credit card for purchasing things.

Also, among the types of people likely to have and use luxury-device payment systems (like brand-new iPhones), typically credit cards are coming with some type of "reward" for use -- some give "cash back" (you get refunded a certain percentage of what you spend), some give points/miles for hotels or airlines, etc., which creates another incentive to use the credit card rather than the debit card.

MrJagil• 12 years ago

I'm sorry, but what is the god damn deal with those video players? I am so so tired of companies and sites building their own _always_ shitty video player, and then it's like they don't even test them! And Recode! A site for tech enthusiasts, made by tech enthusiasts! I am so confused, sitting in hazy cloud of memories of real player...

On a mac, neither safari nor chrome will allow me to watch the video.

chris_wot• 12 years ago

I'm on Windows, and it won't run for me on Firefox or Chrome. Dunno what the deal is here, but I fully agree with you - whatever they are using, it sucks.

tombrossman2• 12 years ago

Same here on Linux. I don't have Flash installed but it claims to work with 'either the Flash Plugin or an HTML5-Video enabled browser'. Both FF & Chromium (HTML5 enabled for sure) won't play it. Disappointing to see them outsource video with such poor results.

zimbatm• 12 years ago

Try removing your ad-blocker maybe ?

lsaferite• 12 years ago

No ad blocker here (Win 8/Chrome) and it won't work for me either.

manicdee• 12 years ago

iPad user here. The two minute ad played perfectly fine, despite being a pile of buzzwords rammed together with beautiful young women in the hopes of convincing someone that the product/service was worth investigating.

The video did not play. Just black space for three minutes Neil I gave up waiting for the two minute segment to load.

Udo_Schmitz• 12 years ago

Good to know I’m not alone. Found the video link in the source: http://link.theplatform.com/s/PhfuRC/media/pNlQpKi2lOU0 Plays fine in Safari, so it must be their ”player“

acex• 12 years ago

an article from recode.net - really? a fox news of tech.

netcan2• 12 years ago

It's interesting to think of how various technology-business complexes could have unfolded differently f they had gotten onto a different track. What if Google had been bought pre-IPO? Could the World Wide Web have "lost" to some other technology, perhaps centrally controlled? etc.

You end up with a lot os scenarios where certain things get set back decades. It's hard to imagine WWW and its internet riding siblings thriving in the same way under some different paradigm. The creative zeal of the telecommunications industry is not a force I would like to rely on for progress.

Anyway, I think that most "money" industries might be like the web if it hadn't hit some lucky breaks. Financial services, ways of moving money from one place to another are incredibly clunky, bureaucratic, expensive, difficult to understand, slow, expensive and expensive. Credit cards are expensive, complicated, & oligopolistic. Bank transfers are slow and bureaucratic. It's ridiculous that heavy, stealable, physical money is cheaper to handle than electronic variants.

This is all a very straightforward example of "transaction costs," a concept at the centre of many basic and fundamental economics theories. Basically, transaction costs permeate everything in economics by reducing efficiency and limiting the velocity and cumulative volume of transactions, which are one of the few very basic elements in the economics' periodic table (say, resources, labour, technology, consumption & transactions… or something).

Many massive efforts have been made to reduce transactions costs in the form of barriers to entry or international trade. Transaction costs inherent in our financial services industry are the same sort of problem, probably even more important.

A 10, 100 or 1000X reduction in transaction costs could have a lever effect on the economy similar to the discovery of a new energy source, continent, new method of communication, better legal paradigm or some other fundamental column in an economy.

This is why I was (and still am) hoping for cryptocurrencies to succeed. Who knows where it could go.

Whatever you think of Walmart, they are obsessed with costs and efficiency. I'm not surprised this pushes their buttons. The suboptimal state of electronic payment is as bad or worse than the energy industry in the worst days of cartels.

hownottowrite• 12 years ago

Apple's never had any problem hiding behind rules and standards they write for their own walled gardens. Why start complaining now?

Better to take action. Just pull their products from retailers who won't roll over. It's what Bezos would do. They could also subsidize purchases made at flagship Apple Pay partners. They have the cash for it. $1B in subsidies to happy retailers would have a punishing effect on those who decided not to play. With the thin margins in retail, that would like translate to quarterly results questions like "why aren't you taking the free money from Apple?" Or "How has turning down Apple Pay hurt your business? Company X reports a healthy jump of Y."

aaronem5• 12 years ago

Young bull, old bull. Credit card associations don't overtly lean on anyone much, and neither need Apple do so now that it's working with them. As Apple Pay gains traction, the same effect will come into play on its behalf that keeps merchants paying fees to take plastic -- people used to using Apple Pay will take their business to merchants which allow them to do so, and merchants who don't will come to understand that half a loaf is better than none.

amelius• 12 years ago

Sigh, why do we even allow a company to build quasi monopolies like this?

wfjackson2• 12 years ago

Not sure if you're referring to Walmart or VISA/MasterCard.

transpy• 12 years ago

That website... where is the volume control? And if I want to re-watch the clip, I have to re-watch the damn 25 second long commercial! And I have to sign up in order to comment. Horrible website.

This Verbal Confrontation Shows Why Walmart Will Never Accept Apple Pay

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