How Apple will generate revenues from mobile payments begins to become clear

Apple Watch
BIOSENSOR: Apple Watch will detect when it is taken off and lock its payment function

An innovative biosensor security function built into the Apple Watch and the Touch ID fingerprint sensor in the iPhone 6 and iPhone 6 Plus will work in combination with NFC and tokenization to provide additional security to Apple Pay transactions, it is now becoming clear — giving Apple the ability to negotiate special deals with card issuers that will generate new revenues for the Cupertino company.

“Apple Inc will reap fees from banks when consumers use an iPhone in place of credit and debit cards for purchases, a deal that gives the handset maker a cut of the growing market for mobile payments, according to three people with knowledge of the arrangement,” Bloomberg reports.

“Under deals reached with banks individually, Cupertino, California-based Apple will collect a fee for each transaction, said one of the people, who requested anonymity because terms aren’t public. While that gives the tech company a share of the more than $40bn that banks generate annually from so-called swipe fees, lenders expect to benefit as consumers spend more of their money via mobile phones and other digital devices.”

Apple has been able to negotiate those kickbacks because all Apple Pay purchases will include an extra layer of security beyond NFC and tokenization, it is now becoming clear.

Payments made with an iPhone 6 or iPhone 6 Plus combine both NFC and Touch ID fingerprint security, delivering additional proof that both the mobile device and the authorised cardholder is physically present in the store. Apple Watch does not include a Touch ID fingerprint sensor — but it does include a biosensor that will be used to prove that the authorized cardholder is physically present in a store.

“An Apple staffer at the hands-on demo told me how the watch will be protected against fraud,” Cult of Mac’s Leander Kahney reports. “Thanks to sensors on the Apple Watch’s back, the device can tell when it’s being worn and when it has been taken off.

“When you first put the watch on, you must enter a code. When the watch is removed from your wrist, the watch locks itself and can’t be used for payments unless the code is entered again.”

Both Visa and MasterCard are now looking at making these new “cardholder present” rates available to other mobile wallet providers, according to Bank Innovation.

“The lower price is contingent on the mobile wallet providers integrating their services with biometric sensors,” the report says. “The card-present rate is on average 1.5% of the purchase price. Card-not-present, meanwhile, costs 2.75%.”