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If you managed to see any of Apple’s live product announcement on Tuesday, you may have noticed that the company introduced a major innovation in how Americans pay for things. The new iPhone 6, along with the wearable Apple Watch, will integrate mobile payments, which would basically allow you to purchase products at stores using only your device.
Mobile payments in America could be a great innovation, updating one of the worst payment systems in the world and making trips to any store easier.
But there’s one more thing: limiting it to just new Apple products carries a cost. Your ability to use phones to pay for goods and services should not be limited to what phone you own, creating a divide between Apple haves and Apple have-nots.
There are compelling public policy reasons to open up this kind of mobile payment to everyone. Mobile payments can and should be universal. At their best, they increase access to the banking system for everyone by making payments easier. They improve commerce by making transactions quicker and more efficient, lowering costs. Countries like Kenya have integrated systems that allow consumers to pay for virtually anything by mobile phone, leaping past the US in offering that technological promise to virtually everyone.
What’s the best way? Don’t look to Apple’s rivals. Look to using the US postal service as a financial services provider with mobile payment options.
It may sound far-fetched to choose the postal service, but it’s not as strange as you may think. The postal service has something most companies don’t: access to almost every American. That includes those who don’t have bank accounts, as Senator Elizabeth Warren has pointed out.
Most corporations who have tackled mobile payments have failed at it. Several companies have rolled out mobile payment options over the past several years. But none offer the convenience of using text-based payment services for all purchases. Amazon’s beta version of a digital wallet only allows users to store gift or membership cards. Ebay’s Paypal system is great for online purchases and user-to-user transfers, but doesn’t work so well for going into an actual store. Smaller sites like Venmo and Cover and Gopago and others have had to line up merchants one by one to accept mobile payments.
But Apple Pay would represent a serious step forward. Thanks to “near field communication” technology, Apple’s new phone and watch devices would allow users to scan their phone on a sensor to pay for things. The phone would basically act like whatever credit or debit card you link to your Apple Pay account.
Apple has been able to get a level of cooperation that most companies couldn’t. It has teamed with credit card networks like Visa and MasterCard on the venture. And unlike its competitors, Apple has made a deal with the five largest credit card issuers – American Express, JPMorgan Chase, Citigroup, Capital One and Bank of America. They have agreed to offer lower fees on Apple Pay transactions through their credit cards. That gives retailers a powerful reason to equip their stores with Apple Pay-enabled devices, because they wouldn’t be charged as much on each transaction. Combine that with the millions of Apple users (over 800 million have accounts on iTunes), and plenty of retailers could be enticed to expand their acceptance of mobile payments.
Retailers like Uber, Starbucks, Target, Nordstrom, McDonald’s and reportedly CVS and Walgreens have signed on. Apple Pay launches in October with 220,000 merchant locations; it will even be accepted at Disney World.
But the only consumers able to take advantage of this would be those with an iPhone 6 or Apple Watch. Apple’s clear intention in owning the digital wallet is to create more value for their products; they’re not going to create an app out for use on other phones. And that’s a shame, because our banking system needs a working digital wallet.
This creates several potential problems. First are the security risks, where stealing a phone would now be, temporarily at least, equal to stealing a wallet. Apple will seek to reduce this threat with a one-step cancellation tool, and by authenticating Apple Pay through a fingerprint scanner on the iPhone. But the fingerprint scanner has already raised questions about privacy. And considering the recent hack of Apple’s iCloud storage that led to the release of nude celebrity pictures, consumers might not want to centralize their financial and medical information with the same company.
If Apple can hurdle past the security challenges, the company would have a near-monopoly on mobile payments, leaving behind the millions of people who cannot afford an iPhone. This could have a real-world cost. Retailers often entice customers by reducing prices when they pay in cash. Cheaper transaction fees through Apple’s mobile payments network could help the Apple Pay system for the same reasons; if it costs a retailer far less to convert an Apple payment, they would want to encourage more of them.
At that point, you have people who cannot afford an iPhone effectively paying a tax on their purchases.
Mobile payments can also actually limit fraud, which is so prevalent with easily breached credit cards where personal data can be quickly stolen and re-used. Nearly half of all credit card fraud in the world occurred in the US in 2012, because our security systems are so lax. This can re-create our banking infrastructure, making it more secure and modern.
But if mobile payments are limited to iPhone users, you’ve just extended the problems of inequality into the payment system.
We have a better solution right in front of us, with the US postal service. Over the past year, policymakers and activists have urged the postal service to add basic financial services, to rescue the tens of millions of Americans who have no bank account of their own.
Because the post office would be starting from scratch, they could incorporate a mobile payment app into their offerings, using the same technology (which is available on all phones) but expanding it beyond Apple devices. The postal service could serve as the backbone for a new system that would improve payments for individuals and small businesses, and give people more control over how to spend their money.
Mobile payments are coming to America one way or another. Once you let private companies control access, they inevitably narrow it. With its 35,000 locations and the potential for millions of bank accounts, the Postal Service would have just as much leverage to offer a better payment system, one that would not depend on your brand of phone.
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