During the Apple news conference today (Sept. 9) — if I ever call a vendor’s product rollout an “event,” please shoot me — the company will roll out its new smartphone and smartwatch, both with the capability of making in-store purchases in places other than Apple stores. Apple’s effort, which it has been preparing for several years, with some of the best talent in the industry working on it, illustrates how mind-numbingly difficult mobile payment processing is. It all comes down to data. IT can’t live with it and would certainly love to try living without it.
What set me off on this was a fascinating — and much linked-to — blog post about Apple crafted by Tom Noyes, a financial technology investor and former head of channels at Citi. Noyes pointed out that Apple is still struggling with some data issues surrounding these new NFC transactions. After a shopper approaches a payment terminal beacon, he wrote, the merchant scans the products but cannot use the new mobile system to deal with loyalty/CRM, coupons or discounts.
“Merchant payment terminal cannot send total amount due since it does not have Apple handset information/UUID. So how will Apple do it?” wonders Noyes. “My guess is Apple will provide UUID to the Payment Terminal via BLE at application wake up to perform a ‘lite’ checkin with payment terminal. Good news is that there would be no data connectivity requirements, but it requires a new payment terminal. For everyone else, there is no total amount due,” which Noyes estimates would affect 99% of shoppers at launch.
OK, so that’s bad. But it gets worse, with this problem affecting even more key data issues. The most significant part of the behind-the-scenes wrangling to make Apple go with NFC— and to have Visa, MasterCard and Amex onboard on launch day — was that Apple cut a deal to lower the payment processing transaction costs. Specifically, it will charge merchants the much lower card-present rate for these online transactions, even though NFC has often been exposed to the more expensive card-not-present rate. Apple justifies this change because it will have more security mechanisms in the new iPhone, including using geolocation to authenticate the shopper.
But there’s that nasty data issue again. Noyes wrote: “How will Apple ensure they get 25bps from the banks (given that) they have no insight into the transaction? The card is presented and that is the last Apple sees of it. This has been a problem for other wallets as well. It is one reason why Google created the proxy card: to see all the transactions.”
This lack of transparency into what is going on with a transaction is a common payment data problem. But there are many others. John Bruggeman, the CEO of a payment vendor called Traxpay, participated in a recent podcast where he complained that banks are routinely dropping data from transactions — especially business-to-business transactions — making the transactions far less useful.
“What happens today is that the minute the invoice is approved, it goes off that network and goes through the traditional bank network. The most important thing that gets lost is the data because banks are not set up to keep or maintain the data that got to the point of the payment,” Bruggeman said in an Aug. 21 podcast. “We lose all kinds of information like ‘What was that order? Why did I order it? Why did we agree to this price? Why did it change mid-stream? Why were the delivery conditions changed?’ All of that information gets lost when we go to the bank because all the bank cares about is ‘What’s the account number? Who owns the account? What’s the amount?’ There’s a total disconnect.”
That disconnect is certainly not surprising to IT execs who struggle with getting systems to retain all of the rich metadata that is attached to transactions — and all kinds of communications within an enterprise. The fact that it’s also sidelining Apple should be of some comfort. If a company like Apple — whose understanding of the mobile app was predicated on its acknowledgment that data is king — can risk losing payments (or, even worse, getting underpaid) because of a lack of data transparency, this problem needs some really big fixes.
Evan Schuman has covered IT issues for a lot longer than he'll ever admit. The founding editor of retail technology site StorefrontBacktalk, he's been a columnist for CBSNews.com, RetailWeek and eWeek. Evan can be reached at email@example.com and he can be followed at twitter.com/eschuman. Look for his column every other Tuesday.