Before a recent business trip, First Annapolis Consulting
partner Frank Martien accidentally left his wallet in his car. He traveled—and
struggled—by using his passport and by borrowing cash from colleagues.
"The only thing I could do was go to Starbucks because
I had the Starbucks [mobile] app," Martien told Travel Procurement. "Trust me, I was wishing I had Apple Pay."
Launched in October, Apple Pay is Apple's attempt at a
mobile wallet product that enables cardless payment through the use of mobile
devices. While previous attempts by others to offer mobile wallets haven't
caught on in the corporate space, the popularity of Apple products may speed
adoption rates. It already has piqued some travel managers' interest.
Apple Pay "has really captured the imagination of our
corporate clients," said Bank of America Merrill Lynch head of global card
and comprehensive payables for global transaction services Kevin Phalen. "We've
had travel managers actively asking, 'What do we need to do and how do we apply
ourselves to this opportunity?' "
The U.S. General Services Administration in December 2014
issued a request for information for "new and innovative payment
solutions," including mobile payments and electronic wallets, to meet its
vision for its GSA SmartPay program, which was valued at $26 billion in fiscal
year 2014.
A recent white paper by payment processor TSYS found that
the "technologies business travelers use in their personal banking and
credit card relationships can affect what they expect from their corporate
credit cards."
Apple Pay already accounts for more than $2 of every $3
spent using contactless payments since its Oct. 20, 2014, launch, claimed Apple
CEO Tim Cook during a January earnings call. One can assume that as mobile
wallets become more widely adopted in the consumer world, corporate travelers
also will expect to use them while traveling for business. Will travel
managers, issuers and payment networks be prepared for the shift?
How It Works
Apple Pay, which for now is only available for some consumer
cards and on the iPhone 6, iPad Air 2 and iPad Mini 3, allows users to store
credit card details on their devices and to pay for purchases at participating
merchants using near-field communications technology.
To set up Apple Pay, users input their debit or credit card
details via iTunes to the iOS Passbook application, which initially stored such
items as boarding passes, tickets and coupons. To pay, users at checkout
terminals hold the device near an NFC-equipped terminal while holding a finger
on the device's fingerprint reader or Touch ID home button. A "subtle"
vibration and beep then confirms to the user the payment was completed.
Behind the scenes, Apple Pay substitutes sensitive card data
with a "token," or what Apple calls a "Device Account Number,"
which is encrypted and stored on a chip, or "Secure Element," inside
the device—not directly on the device. Apple on its website claims that these
numbers are "never" stored on its servers.
When a user makes a purchase Apple Pay creates a "transaction-specific
dynamic security code," which, along with the DAN, is used to process the
payment, "so your actual credit or debit card numbers are never shared by
Apple with merchants or transmitted with payment," according to Apple's
website.
Mobile Wallets 1.0
Mobile wallets are not new. Google Wallet and Softcard
(formerly Isis Mobile Wallet) launched in 2011 and allowed users to store
credit cards on their phones and to pay participating merchants by tapping the
phones on NFC-enabled checkout terminals. Those wallets didn't achieve mass
adoption, nor were some available for corporate card usage.
The concept at the time was so novel that, while the
products claimed additional—perhaps even better—security than traditional
plastic cards due to protective mechanisms, consumers remained cautious.
Security features were fairly similar to Apple Pay's, including personal
identification numbers, the storing of payment information on NFC chips that
were isolated from the phone's primary hardware, the ability to freeze a mobile
wallet remotely in case a phone is stolen or lost, and the ability to issue
single-use identification numbers for each transaction.
Furthermore, when Google Wallet first launched it, was
limited to certain Citi MasterCards and to phones on Sprint's phone network,
thereby limiting usage. Likewise, Softcard is restricted to certain cards
issued by American Express, Chase Bank and Wells Fargo and to AT&T, T-Mobile
and Verizon phone networks.
American Express corporate cards are compatible with Google
Wallet but currently are not compatible with Softcard, confirmed American
Express spokesperson Rosa Alfonso. If rumors reported in January by TechCrunch
are true, Google soon may acquire Softcard.
Some networks and banks also have experimented with
launching their own mobile wallets. MasterCard in 2013 launched MasterPass,
while Visa in 2011 launched V.me.
BoAML in 2013 piloted a payment product that connected
commercial cards to mobile devices for such low-value purchases as fast food,
but Phalen admitted it had "limited functionality" as it was
restricted to just one city due to the scarcity of NFC-enabled POS terminals.
"Everyone loved it and it worked similar to the
Starbucks app," Phalen said. "If we could take that and make it
acceptable at airlines, hotels, restaurants and small-dollar purchases, then it
would become very interesting and meaningful to corporate managers on behalf of
travelers.
"That's why Apple Pay has been such a catalyst. It can
have enormous impact, given the number of people carrying Apple devices,"
he continued. "So it moves it from being a limited-point solution to one
that is—at least in the United States initially—a more universal one."
Ripe For The Picking
Apple Pay partnered with the three major payment networks
(American Express, MasterCard and Visa), 54 banks and credit unions and 43
merchant partners—with six additional merchants joining in 2015, according to
Apple's website. Cook, in the same earnings call, said 750 banks and credit
unions had signed up to offer Apple Pay. Participating banks and merchants
include Bank of America, Capital One, Chase, Citi, U.S. Bank, Wells Fargo,
McDonald's, Office Depot, Duane Reade and Walgreens.
In addition to the tokenization security feature, Apple Pay
is the only mobile wallet that uses biometric authentication, which requires
users to activate the wallet by placing a finger on the device's built-in
fingerprint reader, thereby providing users with an extra level of safety for transactions
on mobile devices.
For The Advisory Board Co. vice president of business
solutions Steven Mandelbaum, this feature makes Apple Pay a "no-brainer."
During a phone interview with Travel
Procurement in November, Mandelbaum said he was eager to use Apple Pay for
his business travelers and had discussed the possibility with his card network
provider but was told it was not yet available.
"Biometrics gives us a better sense of security. … The
fraud rates on [Apple Pay] are going to be significantly less than we see on
swipe cards," he said. "This is a way to actually increase security
and decrease our number of servicing issues with travelers."
The fact that Google Wallet doesn't have a similar biometric
authenticating feature "has some security concerns for me,"
Mandelbaum continued. "I'm not saying I wouldn't use it, but it's not as
much as a no-brainer [as Apple Pay]."
Conferma CEO Simon Barker said corporate travel managers and
travelers will more readily adopt Apple Pay compared with previous mobile
wallets because of the brand's strength—in other words, simply "because it's
Apple."
"[Mobile wallet] adoption will be easier because, 'If
it's good enough for Apple, it's good enough for my company,' " Barker
said.
In 2014, more than 1 billion Android smartphones were sold
worldwide, representing an 81.2 percent market share, compared with 192.7
million Apple smartphones for a 15 percent market share, according to figures
from research and consulting firm Strategy Analytics.
However, with the launch of the iPhone 6 and 6 Plus in
September, Apple in the fourth quarter of 2014 gained market share and "tied
with Samsung to become the world's largest smartphone vendor for the first time
since Q4 2011," according to Strategy Analytics. For the quarter ending on
Dec. 27, 2014, Apple reported a record 74.5 million iPhones sold, primarily
attributed to the "successful launch of iPhone 6 and 6 Plus sales,"
according to U.S. Securities and Exchange Commission filings.
"When we've gone to clients about smaller alternatives
in the corporate space, [their sentiment was,] 'It's interesting, but not
urgent.' With Apple Pay I've heard more urgency about, 'What are we going to
do?' " BoAML's Phalen noted.
The United States' migration to chip-and-PIN cards, which is
scheduled to become standard in October, also will help speed mobile wallet
adoption—so much so that we could see Apple Pay used for corporate cards in the
next two to three years, according to BMO vice president of North American
corporate card products Steve Pedersen. Similarly, First Annapolis' Martien
estimated corporate travelers could be using Apple Pay in a couple of years.
"What we have is a coalescence of key triggers,"
Pedersen said. "There's a lot of investment going into point-of-sale
machines, which means the ability to use NFC will go up exponentially."
Considerations
While the timing, security and infrastructure factors may be
lining up for mass consumer adoption of mobile wallets, it is unclear exactly
when Apple Pay may be available for corporate card use.
While Apple, American Express, MasterCard and Visa each
declined to give a timeline and simply stated that Apple Pay currently is not
available for corporate cards, the networks are looking into incorporating
Apple Pay for corporate cards.
"Corporate cards are in the [MasterCard Digital
Enablement Services] roadmap, but not anytime soon," MasterCard
spokesperson Flor Estevez wrote to Travel
Procurement in an email.
"American Express corporate card division is committed
and investing in mobile wallet platforms so that when these platforms reach
broader scale, our corporate cardmembers will have the ability to use them,"
American Express' Alfonso said.
Visa did not reply to a request for comment.
While there will be "more openness to [Apple Pay],
without question," BMO's Pedersen said, "The first hurdle is going to
be corporate governance."
As with regular corporate cards, most program managers want
to ensure employees won't use Apple Pay on their corporate cards for personal
use, especially in the case of a company-pay structure, as such noncompliant
expenses may be more difficult to track in such a setup. This could be a
possibility if, similar to real wallets, users keep both personal and corporate
cards in the same mobile wallet.
"It really comes down to that co-mingling,"
Pedersen said. "I'd like to say that no one's had that circumstance, where
they're not paying attention or they're tired and they pull out the wrong card.
Many times it's accidental, sometimes it's not."
Safeguarding company and personal traveler information when
devices are lost, stolen or breached is of paramount concern to most program
managers. The ability to do so easily partially depends on whether employees
use company-issued or personal phones. As when company email first was
introduced on phones, companies need to understand which data is integrated and
shared within the device and between applications to determine security
protocols for data that needs to be protected during transactions, BoAML's
Phalen said.
Currently, if an Apple device is stolen or lost, Apple
spokesperson Vispi Bhoti said the first step would be to use the Find My iPhone
application or to log into iCloud to lock the device or to wipe the information
entirely. The user then would need to contact the appropriate bank and continue
with standard procedures to ensure no unauthorized charges were made on the
card.
Travel managers also likely would want to ensure all
transactions conducted through Apple Pay are captured, much as data is captured
with traditional corporate cards. Apple declined to comment on the topic and
directed Travel Procurement to its
website, which notes: "Apple Pay doesn't collect any transaction that can
be tied to you. Payment transactions are between you, the merchant and your
bank."
Apple Pay's requirement to register credit cards through
iTunes, a consumer application, also may make some travel buyers wary. Apple
perhaps would need to create a corporate version of iTunes.
If using a corporate card becomes a nuisance—or at least is
not as easy to use as a mobile wallet—while on the road, travelers could revert
to using personal cards, an action travel managers have worked diligently to
control. Therefore, it may behoove both issuers and travel managers to consider
these new emerging forms of mobile payment technologies before business
travelers take matters into their own handheld devices.
This report originally appeared in the February 2015
edition of Travel Procurement.