Apple to turn iPhone into a payment terminal

It is great to see iPhones reading NFC payment cards -- this has been a long time coming. Now can we extrapolate to reading verifiable cryptographic credentials more broadly? The mDL standard will bring NFC based driver licensing, with embedded attributes like age and residencey. Some eID cards are NFC-capable now.  With a little standardisation push, we could see a transformation to "tap-and-prove" for all personal credentials. https://www.linkedin.com/pulse/tap-prove-stephen-wilson

Some people are wondering if this announcement as paving the way to p2p credit card payments, but I only interpret it as meaning the iPhone is now able to perform the physical activity of reading the card, and presumably doing the necessary mutual authentication, maybe even secure PIN entry too. If the iPhone can thus act as a merchant terminal, then AFAIK it would still need to be running a card scheme-approved card acceptance app, which would connect to the card scheme network, after authenticating the *merchant* and thus helping to enforce the Merchant Services Agreement. 

It would not be rocket science to pull in tame acquirers for this and replicate The Issuing/Wallet side Applepay  with an acquiring Appletake or Applesell approach....  Settlement wouldnt be an issue as Apple can either Card accounts or Debit card/bank accounts, as most Apple phone users are also subscribing for services 

With my knowledge of card readers, the security that goes into them and the opportunities that exist even now for fraudsters, I personally would not be comfortable making a payment to an iphone (or any smart phone). As it is, if I were paying a sole trader, a market stall, unknown taxi company, cash is my first choice, especially if I don't recognise the card reader/PIN entry device. If spending while travelling in less developed countries, definitely cash in the above environments!

Come the day you have your card cloned in an environment you consider "safe", you'll understand my reasoning.

Credit  card has its perks

Anyone knows if Apple bundles a Merchant Account, the way Square does?

Dont believe they have this, but may do in the forseeable future -based on their issuing behaviour this would be delivered in partnership with localised acquiring bank. Acquiring is a bit more complex than issuing and much riskier as you know! 

If Apple is not bundling a Merchant Account, then it will not be a serious threat to Square. Although Square is identified with its hardware dongle, IMO its blockbuster success comes from its Merchant Aggregation model whereby it issues sub-merchant account to merchants who wouldn't qualify for one directly from an Acquirer Bank.

I would hope this would require some sort of authentication, or the streets could become a free-for-all, as all iPhone users set their phones to accept a payment up to the contactless limit!

I'd think authentication would defeat the basic purpose of contactless payment, which is to make the payment frictionless by eliminating the need to enter PIN etc. for transactions below a certain threshold value?

In a PINless, contactless regime, the risk of random payments happening has always been, in theory, The Clear And Present Danger With NFC Payments. Now, I wrote that post 10 years ago. That the sky has not fallen on random payments yet suggests there's some inbuilt check. Maybe the iPhone can accept contactless payments only when it's in the mode where the merchant has rung up a payment? Since most iPhones will not be in that mode most of the times, we don't see random payments happening as often as PIN-less transaction regime would seem to suggest?

But until now, there hasn't been a payment terminal in everyone's pocket...?  When you say "merchant", doesn't this open things up for mass P2P payments, such as paying a friend?

It does open things up!!!  - Any  two trusted Applepay customers with a strong profile and 2FA could be facilitated to perform a card to card (or Cardholder Card to Merchant Card) transaction - with or without the 2FA - if both are Biometrically validated its a pretty secure transaction!

Or even someone in a queue with a real card in their pocket?

Tapping a card on a device isnt thath complex,  but also its not that secure.....  If i was a small merchant i would feel much more relaxed accepting an apple or android payment rather than a card - also card limits are lower than @Pays -  See COTS and CPoC specs on this 

Yes - my point was that it could become very expensive to walk down the street with a card in your pocket, in case every iPhone user you pass has the app running and set to a sale.

"Finextra member" commented
"But until now, there hasn't been a payment terminal in everyone's pocket...? When you say 'merchant, doesn't this open things up for mass P2P payments, such as paying a friend?"

No, it really doesn't. "Merchant" in a card scheme is a business that has signed up to the scheme Merchant Services Agreement via an Acquiring Bank. This is the guts of my original point: the party that can accept payments in a scard scheme is tightly regulated by the scheme, and must operate under a highly standardised set of rules and contracts. 

In particular, the merchaint must only use scheme-approved termnals or gateways. I reckon the guts of the Apple announcement must be that a scheme has approved the iPhone (plus a merchant app of some sort) as a terminal. As someone else said, authentication is a must; only approved merchants can be allowed to run such an iPhone app to accept payments.  

Can people please identity themselves? It's hard to thread conersatyions when it's "a finextra member". At least sign off your comments using some handle please. 

If the iphone is to become a payment terminal it must be approved by EMVCO. That takes time which makes an early spring release unlikely.

@ChrisStewart: LOL amidst the Fintech Disruption Kool-Aid, I totally forgot about EMVCo! Any idea if all the iPhones using dongles from Square, iZettle etc. have approval of EMVCo to work as POS terminal?

@StephenWilson:

Agree that some kind of proxy ID is required to make sense of anonymous comments. At one point, every comment on Finextra.com would appear as a post on the Twitter handle of @Finextra. Even if the comment was posted anonymously, the tweet would display the commenter's name. I miss those days! 

As I said in a an earlier comment, if a merchant rings up a payment on POS terminal, contactless cards in the vicinity can get charged without any authentication if the payment value is lower than the PINless threshold. Of course, that's true whether the POS is an iPhone or even a "traditional" verifone / ingenico POS terminal. 

@KetharamanSwaminathan. The izettle and square readers are approved. They just use the iphone as a means to connect to the network so are not part of the approval. If the iphone itself were to be a pos terminal then it would have to be approved. I would have thought that every time you updated the software a new round of approvals would be required.

TY @ChrisStewart. 

Whenever Apple enters the scene, hardware steals the show whereas IMO the real value / innovation / differentiation comes from the software, regardless of the handset. 

There's a fintech in India called Pine Labs. Apart from basic POS feature, it provides value-added functionality that, among others, helps merchants optimize interchange costs by automatically routing a transaction to the acquirer bank that offers the most attractive terms for the given transaction. AFAIK, it runs on both Android and iPhone handsets.

Anyone knows if Apple will offer similar value-added functionality or just the basic POS feature?