Look Ma, No Dongle

Apple’s Tap to Pay has captured the industry’s attention. Now the question is how far it can get with it—and how rivals will react.

Apple Inc. stirred up the point-of-sale industry last month with an announcement that it will introduce within a few months technology that will enable merchants to accept Apple Pay and card transactions on an iPhone without any card-reading dongle or other attachment.

It turns out, though, that the development, for all its deep portents for the POS business, may have been less a surprise than many may have thought.

The computing giant has been working on this product, dubbed Tap to Pay, at least since the middle of 2020, and perhaps for some time before that. In August that year, news emerged that Apple had bought a Montreal-based company called Mobeewave Inc., which had developed just such technology for handsets from Samsung Electronics Co. Ltd.

Apple wanted the technology enough that it reportedly shelled out anywhere from $120 million to $150 million for Mobeewave in a deal that could have closed months before the news went public.

The Samsung product included the near-field communication link Tap to Pay will depend on. But Mobeewave made its proposition even more interesting—and particularly valuable to a certain tech titan looking to expand into the point of sale beyond Apple Pay—by adding to the Samsung proposition in January that year a capability that allows a merchant to enroll and begin accepting payments within 10 minutes.

Apple’s move took the technology out of the hands of Samsung—a major handset rival—and gave Cupertino a key to the fast-growing small-merchant market. Indeed, snapping up Mobeewave laid the groundwork for a “micro-merchant play,” says Chip Kahn, founder and chief executive at Boomtown Inc., a POS services provider. The ease of making payments renders Tap To Pay, he says, “almost like a card-present Venmo.”

Apple said last month that Tap to Pay will work on the iPhone XS, launched in 2018, and later models, so there should be plenty of potential handsets in the hands of those small businesses.

A Salient Strategy

Nobody is so bold as to predict the demise of the conventional POS terminal. Makers of these devices, after all, are showing strength again following the worst impact of the pandemic. One example: Verifone, long a stalwart in this business, which is seeing double-digit revenue growth.

But the surge in business startups among micro-merchants, particularly as the pandemic caused many workers to try their hand at running a shop, presents a rising opportunity for technology like Tap to Pay.

Of the 32 million U.S. small businesses, an estimated 23 million employ 20 or fewer people. Numbers on how many of these firms are e-commerce rather than brick-and-mortar businesses were not readily available Suffice it to say a good many are both.

A partnership Apple forged with Stripe Inc. to offer processing for Tap to Pay could make it even easier for small businesses to adopt the iPhone for payments. This is a particularly salient strategy given Stripe’s strength among independent software vendors, the players that weave payments capability into business software.

“Stripe is heavily courting the ISV space, and has been for years,” notes Don Apgar, director of merchant services at Mercator Advisory Group, a Marlborough, Mass.-based consultancy. And with the onset of cloud computing at the point of sale, the ISV channel is an inevitable pathway to market.

Apple’s thrust into POS technology has also led many observers to speculate that the player with the most to lose from Tap to Pay is Block Inc., whose Square card readers emerged more than a decade ago to fill the same gap Apple is now apparently targeting—a need for simple and fast payments acceptance at corner shops, food trucks, diners, and other small sellers.

‘The Non-Sexy Stuff’

But the whole acquiring question surrounding Apple’s latest product is a bit too murky to suit some observers. Apple hasn’t talked “about the non-sexy stuff,” observes Bradford Giles, senior vice president of marketing at the big terminal maker Ingenico Group, who contrasts the openness of the Android operating system with the traditional closed culture at Apple. “Are they going to open [Tap to Pay] to all acquirers?”

Android has been adopted by a wide range of device makers over the years because of its open environment. But at the same time, these players may have the most to lose from Apple’s latest gambit, Giles says. “We’ll feel some impact, we’ll feel it a little bit, but we’re not overly concerned,” he says. Apple did not respond to written questions from Digital Transactions regarding
Tap to Pay.

One developer that has been making hay with an Android-based version of Apple’s latest POS technology is Santa Clara, Calif.-based MagicCube Inc., founded in 2014 by former Visa executive Sam Shawki to enable merchants to take card transactions on everyday mobile devices. Now, with Apple’s announcement, “our phones have been ringing,” Shawki says.

No wonder. A survey sponsored last fall by the processor NMI indicated 34% of small and medium-sized businesses in the U.S market still don’t accept contactless payments. Some 300 small businesses and 1,000 consumers were included in the survey.

Now the race is on to ease the way to contactless for those merchants, and Shawki argues he’s in the best position to win it. That’s because MagicCube’s latest gambit is i-Accept Cloud, a service that can run on both Android and iOS devices.

“We’re giving everyone the freedom to run on anything. In payments, open always wins,” Shawki says. Rather than locking themselves into Apple’s platform, he argues, merchants “should be talking to me because I can give you the Android market [also]. We have ubiquity.”

Still, Apple’s entry with both feet into Shawki’s market may raise some questions that could go unanswered for some time. Shawki, for example, predicts that the impact on Square’s device base will be negligible, particularly if Apple restricts Tap to Pay to iOS. But Apple is likely to impose what he calls a “tax”—a levy above interchange “on its own behalf. I don’t know who’s going to absorb it. It could be the merchant.”

Executives with other device makers are inclined to agree. “Apple will keep taking a bigger part of the apple,” says Chris Lybeer, chief strategy officer at Atlanta-based Revel Systems. “There’s no rocket science here. Apple controls the device.”