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Mobile payments entered a competitive new era last week with the launch of Apple Pay. Several large retailers including Walmart and CVS say they won’t use the system, which works through Visa and Mastercard, in part because the credit card companies will still add fees for merchants. Instead, the big retailers are launching a mobile payments alternative, CurrentC, which uses a QR code and cuts out the major credit card companies. We explore the future of paying with your phone.
- Doug Kantor Partner, Steptoe and Johnson; Counsel, National Association of Convenience Stores
- John Miley Technology and telecom reporter, Kiplinger's
MS. JEN GOLBECKWelcome back. I'm Jen Golbeck from the University of Maryland, sitting in for Kojo Nnamdi. Maybe you paid for this morning's Starbucks with an app or perhaps you signed on to Google Wallet a few years ago. And so the concept of paying for things with your phone isn't new for you. But the arena of mobile payments entered a competitive new era last week with the launch of Apple Pay. Some retailers, including big ones like Walmart and CVS, won't accept Apple Pay.
MS. JEN GOLBECKThey have a mobile payment alterative of their own in the works. So what does this mean for those of us who might be interested in convenient new ways to pay? Joining us to discuss are John Riley (sic), a technology and telecom reporter for Kiplinger's, the personal finance and business publisher. Good to have you here.
MR. JOHN MILEYGood to be here.
GOLBECKAnd Doug Kantor is a partner at Steptoe and Johnson Counsel for the National Association of Convenience Stores. Doug, it's great to have you.
MR. DOUG KANTORThanks for having me.
GOLBECKWe'd like to hear from you, too. What do you pay for with your phone? Do you use the Starbucks payment app for example? Give us a call at 1-800-433-8850. Send us an email to email@example.com. Or drop us a tweet to @kojoshow. John, Google launched Google Wallet back in 2011, but mobile payments weren't really catching on yet. Can you talk about the landscape as it stood until recently?
MILEYSure, yeah. It didn't really gain in popularity, but now we think with Apple Pay there's a little bit of an extra incentive for consumers to use it. Specifically, the thumbprint reader. So there's a little bit more security. It's a little bit easier to use, which I think will be huge for these types of mobile payments to be adopted. And I think that's why Apple's sort of a little bit of a game changer with this.
GOLBECKAnd, John, I want to apologize. I totally mispronounced your last name.
MILEYOh, that's okay.
GOLBECKThis is John Miley joining us. Thank you. Doug, to follow up on that, what do you see in the mobile pay landscape right now?
KANTORWe see a lot of really interesting things happening. There's not just the big names out there like Apple Pay and Google. But there are companies looking at using Bluetooth technology to connect consumers and their phones to merchants. There are companies looking at using cryptocurrencies, like Bitcoin and others, as an easy way to pay. There's lots of innovation right now where there's a real potential to change the marketplace we've had for a number of years on the payments front.
GOLBECKCan you, John, explain to users sort of what these apps and payment systems are like? Because credit cards are pretty convenient and they only take a minute to swipe them. So what's interesting for the consumer about paying with their phone?
MILEYSure. Like, for example, Apple Pay, you could take a picture of your credit card or you could type in the numbers and then the credit card will be saved on that phone. Or -- but none of the information is saved on -- exactly on the phone. So it's just a code that links to your credit card. So there's an extra level of safety there. And then it -- Apple now has an NFC chip in their phone which…
GOLBECKCan you explain NFC for our listeners?
MILEYYeah, NFC is near field communication. So it's really short distance, a few centimeters, wireless transactions. So you put it close to the payment terminal with your thumb over the fingerprint reader and then in a couple seconds it will ping your bank and then you make the payment.
GOLBECKSo it's pretty fast to do that?
MILEYYeah, it's quick.
GOLBECKSo how does that contrast to things, for example, we were looking at CVS's system -- which I'll ask you more -- that involves scanning a Q.R. code, which are those squares with all the kind of patterns on the inside. And I think Starbucks works in a similar way. Where there you have to launch an app, is that right?
MILEYSure, yeah. And that takes a couple extra seconds, which Apple is saying people might not be as apt to do. So with this you'll also have an additional level of security with the fingerprint reader. And it's quick and easy to use. So that's really the difference here.
GOLBECKJohn, it seems part of the competition that's heating up is around the technology behind the mobile payment systems. Can you just give us a little about the landscape on the tech side at the moment and what's out there? So we talked about Apple Pay, we talked about some of these apps. What else is it that consumers might use?
MILEYSure. There's PayPal. There's CurrentC, which I believe is Best Buy, Walmart, a lot of other big retailers which are now using the same bar codes to scan, but I believe they're also looking into those wireless type of payments as well. So it's not just Apple. There's a lot of different ways that people can do mobile payments using their smartphone.
GOLBECKWe'd like to hear from you, too. Do you see your phone becoming your wallet in the near future? Give us a call at 1-800-433-8850. Doug, you represent convenience stores. What are some concerns around mobile payment systems like Apple Pay?
KANTORWell, there have been a lot of concerns over time with our credit card system as it exists today because Visa and MasterCard have dominated for more than a generation. And they have baked a lot of extra costs into the system. When you think about why we pay -- with anything that we pay, the question is what makes things more convenient and what makes things cheaper? Those are the real drivers of payments. It's why we have money in the first place.
KANTORHere the question is why would someone go into mobile payments? Well, from the merchant's perspective, there's an opportunity for the first time in a long time to actually have some new competitors and break up the dominance in this market and bring those costs down. That's a big potential value to merchants and one that could create a huge amount of value for consumers, as they try to induce their customers to use the kind of payment that works best for them.
GOLBECKCan you talk a little about the fees attached to credit cards for merchants? Because I think this is something that the average person like me -- we know that there's some percentage that the merchants pay off that, but we don't know exactly how that works or how that relates to these new technologies.
KANTORYeah, it's something that's been hidden for a long time. As consumers, we look at it and it appears the cards we use are free or, in fact, that there's some benefits to us in terms of airline miles or something like that. But in the United States merchants actually pay the largest fees in the industrialized world in order to take these transactions. And that's because Visa and MasterCard each have member banks and tell their member banks how much to charge.
KANTORAnd that lack of competition among the banks has led to a steady increase over time of these fees, where it's different than virtually any place else. And ultimately, even though we don't see it as consumers, it means everything we buy is more expensive. So there's a lot of room actually to innovate and have -- if the merchant has a lower cost, offer consumers discounts and other things.
KANTORStarbucks that you mentioned in the introduction to the piece, they've done some really innovative things with loyalty that have gotten them to be actually the most successful mobile payments company in the country right now -- even though we think of them as coffee, not payments.
GOLBECKSo this is why back in the day -- and I may be dating myself here -- when you went to buy gas they would have different prices for paying with cash and paying with credit, right?
KANTORThat's exactly right. And some of those stations still do that today. And in fact, there's a little more experimentation now than there's been in a long time in part because of these developments and in part because of changes that have happened with debit cards in recent years. But those are things that merchants are looking at as a way to both control their costs and hopefully get customers to keep coming back.
GOLBECKSome of the complaints that we've seen from retailers who have refused to accept Apple Pay, like CVS, has been around this fee issue. And I wonder how do the fees that they would pay with an Apple device vary from the fees they would pay with a credit card? I'd like both of your thoughts on that, but Doug first.
KANTORSure. At the moment those fees are the same, in terms of what the merchant pays for with Apple Pay and what they would pay for with somebody's credit card on a normal transaction. But there's a big concern because Apple is getting a piece of the revenue from the banks, as part of this system. And merchants are convinced, because this is what they've seen happen on the credit card side, that that cost will get built into the fees they pay very shortly. And Apple Pay will be more expensive than the traditional credit cards.
GOLBECKJohn, what are you seeing on this issue of fees and companies starting to accept mobile payments?
MILEYYeah, I agree with that. I think that a lot of companies are -- that joined in do want to accept it because so many people have iPhones. So many people are going to have iPhone 6's, which have the NFC. But there is a question, how much is Apple going to take? I don't they've revealed that yet. And will those fees passed on to the consumers or the merchants?
GOLBECKWe're going to take a quick break. But we'd like to hear from you. What security features would make you comfortable in using your phone as a wallet? Give us a call at 1-800-433-8850. You're listening to "The Kojo Nnamdi Show." And I'm Jen Golbeck, sitting in for Kojo. We'll be back in minute.
GOLBECKWelcome back. I'm Jen Golbeck from the University of Maryland, sitting in for Kojo Nnamdi. I am talking with John Miley and Doug Kantor about the future of mobile payment systems. We'd love for you to join the conversation and share your thoughts. Give us a call at 1-800-433-8850. Or send us a tweet to @kojoshow. John and Doug, I'd like to start with some emails and tweets that we got.
GOLBECKPapanick tweeted to us, "Apple Pay has the advantage of credit card protection over Current C," which is this proprietary system that we've mentioned, "while still preventing merchant tracking of either system." What are your thoughts on that, John?
MILEYYeah, so the way Apple Pay works is that credit card information is stored on your phone -- but, again, not the number of your credit card. And that's all encrypted. And then when you make a payment there's a special unique code that sort of links to that transaction. So that means the merchant doesn't have your credit card number, so there's no information exchanged there. So that level of protection is what sort of Apple is selling, is that new level of privacy and security.
GOLBECKDoug, what are your thoughts on this?
KANTORYeah, so CurrentC hasn't been fully rolled out yet. It's in a pilot stage so some things about their security aren't know. But it's very similar in that the merchant isn't going to have your card number and that's going to be at a distant place and protected. So there are similar protections. One of the main differences is with Apple you're using a fingerprint to access the payment, whereas CurrentC, that's not part of it, but you're account number isn't there present at the time of the transaction. And so that's protective in a similar way as to what Apple Pay's doing.
GOLBECKSomething that a lot of retailers like to do is track the purchases that users make. And, of course, they can do that with loyalty cards, like we have at CVS or the grocery store. But they can also do it by following purchases on a particular credit card. And so I wonder, will these mobile systems -- since they don't share your actual credit card number -- prevent merchants from tracking our purchases over time?
KANTORSome will and some won't. There's going to be differences. A CurrentC type product is set up to integrate with merchant's loyalty programs so that there can be some viewing by merchants, both of what customers purchase, but also as a way to give them offers. Most of us actually sign up for those loyalty programs, like at the grocery store, because we like it, because we then get discounts, especially on the things that we buy most often.
KANTORIn the Apple Pay scenario, it's going to be interesting because Apple and the financial institution may have a bunch of that data. And whereas we're used to sharing with the merchant we're making a transaction with, we know that they know what we're buying, we know that they pay attention to that and give us discounts in different ways. We don't necessarily expect Apple to know what we're buying at other stores and to keep track of that. So that may be a new experience.
GOLBECKWe have a lot of callers. We'd also like you to give us a call if you're interested in the conversation. Give us a call 1-800-433-8850. Let's go to Steven, in Chevy Chase, Md. Steven, you're on the air. Go ahead.
STEVENThank you for taking my call. I appreciate it very much. I will never -- I love Apple products. I have an Apple iPad. I have an Apple phone. But I will never use my Apple phone to buy anything. I think…
GOLBECKAnd why is that?
STEVENBasically, I think it won't be long until Apple will increase the prices. Right now, as has been discussed, that, you know, the credit card companies charge the retailers money. And this is a money-making project. So if the people who are selling you goods aren't going to be charged, we will be. And so more costs will be passed on to the consumer, one way or the other, either by, hey, we as the store that has products can't be paying this amount of money to a bank and to Apple, so we've got to increase our prices. Or they'll just -- it'll be a fee to be able to use this. And secondly, I think people are naïve if they don't think that what they buy is tracked. I think people are naïve that they don't realize the sophistication of hackers to be able to get into products.
STEVENAnd I expect, within -- I have some friends who work for the NSA -- in talking with them, they say within two years the codes will be hacked. And so you have another way of getting into your bank account.
GOLBECKLet me get the thoughts of the panel on this. Doug, you first.
KANTORSure. Well, I agree with Steven about the costs. As I mentioned before, we do expect that with Apple getting a piece of the revenue, that will go to the merchant, and ultimately that means it goes to the consumer. On the security side, there are vulnerabilities in any system -- Apple's, other competitors', you name it -- and it's a constant race to try to stay ahead of that. That's one of the reasons why actually some of these new crypto currencies, like a bitcoin, may be a very interesting development over time, both on efficiency and on security, as they become payment devices.
GOLBECKAnd on the issue of hacking, we got an email from John in Bethesda, who wrote, "If everything's on my phone, it seems my bank and credit card information will be even more hack-able. At least with credit cards, I'm covered if someone steals my card. What about these new payment systems?" John, what are you finding with this?
MILEYSure. Yeah. If NFC is done right, these type of mobile payments can actually be more secure. So that's one of the big things. You don't have to take your card out. Your number is never visible when you're handing it over, et cetera. So there's that potential for that. But, sure, there's going to be a bunch of folks that might be more comfortable with cash. But I think that Apple's going to win over a lot of people, especially with data breaches in the news and the potential to add a little bit of security so you might not get in trouble if there is a data breach at a retailer.
GOLBECKLet's take a call from Jessica in Front Royal, Va. Jessica, thanks for your call. You're on the air.
JESSICAHello. Thank you for taking my call. I kind of wanted to reiterate what the other callers were saying about, I just don't think I would be able to ever trust my financial information on a device that there's so many different apps that you find out that actually are malware, they're spying on what you're doing and there's keystrokes, and I just -- I don't think I could ever feel really comfortable having my financial information on my phones for payment. As lucrative as it might be for Apple, I just -- I don't think that I'm ever going to be okay with that. Maybe I'm just old fashioned though.
GOLBECKWell, I'm actually going to follow on Jessica. Because in my life, when I'm not sitting in for Kojo, I'm a computer scientist and I do work in security. And I am also admittedly scared of putting my credit card information on my phone. So, Jessica, I think you're very well informed. But I'd like to get thoughts from both of you about this issue -- about users being willing to trust their systems and put their data on there. Especially because Apple with iCloud has made us a little ware of the kind of security that they have right now. Doug, you first.
KANTORSure. So there are a couple ways that these payments providers are working on this. And I do think there's actually potential for this to be more secure than the current way that we pay with our credit and debit cards, because these folks are looking at things like tokenization and encryption where, rather than having your account number on your phone, they have what's called a token for it. There's some substituted piece of data -- a series of numbers, characters, you name it -- that is not your account number but is stored on your phone and in a distant place at the credit card network level or at a financial institution level, they can substitute out and figure out what your account number was and make sure the transaction goes through.
KANTORSo you're not actually putting your account number on your device itself. And that may be more protective because we, in an interesting way, all walk around now with these cards that have our actual account number embossed on them in very large characters. And that's really a very insecure thing, including if it's on the mag-stripe on the back. And none of that changes or is dynamic. So these mobile systems have the potential to make that data changing, dynamic, and have other values that don't relate in our -- to our actually accounts in any straightforward way.
GOLBECKAnd, John, on this note, one of the things that you've mentioned and that Apple is touting is that they have this fingerprint security feature that would go along with Apple Pay. Can you explain a little bit how that works and how secure it is?
MILEYSure. The idea is, it's not just your card protected on your phone, it's to prove that you are you. So you're the one that's actually using your phone to make the payment. So that level of additional security I think that people are going to be a lot more interested in. And probably more smartphones are going to have those type of fingerprint readers on them.
KANTORAnd I would just say John's point is a really important one. Because we don't always think of the two different ways that payments get protected. And one is, what happens with your account number? And that's really important. But the other is, if you have to have something that proves you are you, as John said, whether that's a fingerprint or just a simple pin number that we're used to with our debit cards in the first place, that's really important.
KANTORThen somebody can steal your number and they can't do anything with it, if that other piece of data isn't there and they're required to have it. That's an important leap forward that we can see where we don't have it with our credit cards today, but really should, so that we know the person using it is the right person.
GOLBECKAnd in a lot of other countries, even Canada -- I go to Canada and they all have a chip and pin system set up everywhere. And I feel really like a lame American with my card that doesn't have a chip in it. And they're all a little astonished that we don't have that. Let's take another call. Chris in Leesburg, Va. You're on the air. Go ahead.
CHRISHi. Thanks for taking my call. I just wanted to say that I've been using Google Wallet for a long while now, pretty much since it was launched. I find it a great way to keep track of my spending, but also to set aside money for like vacations and stuff. My wife actually makes me use it to keep track of everything so I don't go over budget when I go on vacation.
CHRISBut I think that it's really important that if you're going to be using one of these systems on your phone, that you have your account, in general -- as far as Android's concerned -- your Google account set up on two-factor authentication so that even if someone manages to get your password, they still can't set it up on their device and use it then.
GOLBECKAnd two-factor authentication, just for our listeners who might not know, is something where you're required to have a password, but also something else, in order to get into your system -- whether it's a pin or a number that gets texted to you or some second piece to show that you're the person you're talking about. So Chris is very much in favor of Google Wallet. But it hasn't really caught on as much yet, as this conversation would suggest we might be expecting going forward. So I'd like to get both your thoughts on that. John, you first.
MILEYYeah. Well, we said that we think this is going to help mobile payments go mainstream. I think one of the big things with Apple is they own a big market share of smartphones in the U.S. -- I think it's about 40 percent. So when they roll this out, it's really going to an awful lot of people. And it's really simple to use. And it's easy. So it does work right now. And I think that's a big part of it, too.
KANTORYeah, and I think it does come down to, why is it more convenient or deliver better value for customers? That's why consumers are going to use this stuff, is because it does one of those two things. Taking your card out of your wallet and using it today is not all that inconvenient and people are used to doing it that way. So it will take some time to change what consumers are used to. And you have to give them a reason to go there. And Google Wallet and these other products have started to give those reasons. But they have to make the offerings more valuable to consumers to get widespread adoption.
GOLBECKWe have a call from Dillon in Columbia, Md. Dillon, you're on the air. Go ahead.
DILLONHi, yes. I just wanted to talk about the whole idea that -- I don't know, for me, diversity equals security. You know, the more different areas that you have where you're storing your information, the more secure you are. So if all our information is on one little device -- they have our GPS information, our payment information -- they could start making recommendations on our phone, because they think we're going to be somewhere. And that's really scary to me that -- that basically my location over the week is, you know, able to be paid for and gotten by a company so that they can market to me.
GOLBECKDillon, thanks for your call. And actually I'd like to take another call on top of that, because it follows on some themes that you just raised. Brian in Washington, D.C. You're on the air. Go ahead.
BRIANHi. Thanks for taking my call. One of the panelists had said earlier about this is a money-making venture. And I believe it is. Whether it be AOL -- or not AOL -- Apple or Google Wallet, if they're the wholesalers of our information, now that retailers aren't going to be able to track us, I think that they're going to be data mining and they're going to have that and that they're going to use it as a commodity. So just like the previous caller said, you know, we've got our GPS data. The retailer can't track our information any more, but I think the companies that are coming up with this eCommerce, I think they're going to be the data miners and they're going to hold this megadata and charge companies that want that information.
BRIANBecause as far as being able to track a customer's information, that cat's out of the bag. And that's something every retailer wants. And that's, since -- that's why we have the incentive cards and everything else. They want to know what we're doing so they can track us and give us better products. Or just track us and know what trends we're in.
GOLBECKThanks for your call. So Brian and Dillon raise a couple of interesting points here. One is that we're kind of freaked out by how much we're being tracked these days. And it's easy to see that on the Web, where you go to Home Depot's site and you look at a washing machine, and then you go to Facebook and they advertise the washing machine that you were just looking at. And so we can tell that merchants are doing this, and that's scary. So that's one point. And the other is, Doug, something that you've sort of talked about, that Apple's going to have some of this data. But Brian raised an interesting idea that he might -- that Apple might actually try to sell that data back to merchants. So I'd like both your thoughts on that. But, Doug, you first.
KANTORSure. So we don't know obviously what Apple is going to do with that data as they get it. But actually, when you look at what at least most consumers do and how they behave, some of this is not new. Some of this we're used to and actually like it. So again, the grocery store context, where you sign up for the loyalty card at the grocery store, because then you get discounts. And most of us like that and are happy with it. And most of us also like it when, for example, you go on Amazon.com and they say, hey, you bought this book. You might like this one. And they might offer it to you at a discount. And people sort of enjoy that.
KANTORI think the concern really comes in, at least for most folks, when -- okay, I know I deal with Amazon, and that's a back-and-forth relationship where if I like the offers I give, great. But if data is then sold to someone else, I don't know who they are. I don't have a relationship with them. I haven't decided to buy anything from them. That's a little bit different. But one thing we should be careful of is, all of this has been going on for a long time. It's not new. We're just applying it in a different space now. And that does raise all the issues to think about again. But we've done these things over and over again at the local department store, the grocery store, you name it.
GOLBECKBut also with credit cards, right? There was a story out last year that Visa has disputed, saying that they actually used purchase data to determine if someone was likely to be getting divorced, because you spend money differently if you're about to get divorced -- and then using that to determine their creditworthiness, which really freaked people out. John, what are your thoughts on these issues?
MILEYSure. I think that security and gaining consumers' trust is going to be huge, especially if you look ahead a little bit. I know that you have Apple Pay, you have the NFC chip -- but they're going to want to use this to open your door, to open your car door, office buildings, to use for tickets, to set up Wi-Fi networks. So there's going to be a lot more applications where, if they're not building the security and ultimately the trust of users, it's really not going to take off like we think it will.
GOLBECKOne final question to wrap up with you guys. Email from Tanya in Silver Springs said, "I'd love to just carry my phone and skip my wallet. But if different retailers all use different systems, what's that going to mean? Will I have to use multiple systems? John, you first.
MILEYYeah, I think there's going to be a tussle amongst retailers of -- or what they're going to accept. I think that Apple is sort of a gorilla in the room. But there's no doubt there's other big companies having their own type of mobile payments, like PayPal, et cetera.
GOLBECKSo I would have to an app for Starbucks and an app for CurrentC and an app for PayPal and then also my Apple Pay and maybe my Google Wallet. Doug, what are your thoughts?
KANTORYeah, we're in the early days of this now. And the marketplace will shake out over time as to how widely accepted are these different forms of payment. If you're as old as I am, you might remember that we used to get something called an ATM card from our banks, before they even called them debit cards. And when you went to the ATM, you actually looked on the back of your card at all the different logos of the payment systems on there. And then you looked at the ATM you went to, to see if they had a matching logo to see if you could get money from that ATM or you had to go find another one.
KANTORWe're sort of at that point in our development now. And we'll see, over time, clearly there are going to be some systems that are very broadly accepted. But we'll see who takes what and who wins.
GOLBECKIt's a broad space with lots of openings for new things to happen. So it'll be interesting to follow how it goes. That's all the time we have for today. I'd like to thank our guest. John Miley a technology and telecom reporter for Kiplinger's, the personal finance and business publisher. Thanks for joining us.
MILEYThanks a lot.
GOLBECKAnd Doug Kantor, he's a partner at Steptoe and Johnson, and counsel for the National Association of Convenience Stores. Thanks for being with us.
GOLBECKI'm Jen Golbeck, sitting in on "The Kojo Nnamdi Show." Thanks for listening.
GOLBECKComing up tomorrow on "The Kojo Nnamdi Show," wrapping the election of 2014, the winners and losers in our region's races, our analysts on the results and what they mean for the future. Then at 1:00, the birth of Wonder Woman, the unconventional man in feminist history behind the world's first female superhero. "The Kojo Nnamdi Show," noon till two tomorrow on WAMU 88.5 and streaming at kojoshow.org.
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