The Bankwatch

Tracking the consumer evolution of financial services

The beginning of the end for interchange and bank payment systems

NFC has been out there and few are adopting it.  Now we learn that iOS 7 has BLE (Bluetooth Low Energy) which is a low battery usage Bluetooth.  Next Apple and Paypal are planning to use this new protocol for payments.

PayPal and Apple drop mobile payments bombshells

Apple has included what is coming to be known as “beacon” technology in its new iOS 7 mobile operating system, which rolls out Sept. 18. Called iBeacon, it uses Bluetooth Low Energy wireless technology, like PayPal Beacon, and can be incorporated into apps. Stores plug in sensors that constantly look for iBeacon-enabled apps. When sensors detect an app, they notify store systems that then send retailer messages, such as coupons, through BLE to the app.

Here is where it gets interesting, and Minority Report … ish.

PayPal, however, may be the first company to create a mobile payments method that is easier to use than credit cards. With PayPal Beacon, all a consumer needs to do is have her smartphone—with the PayPal app onboard and Bluetooth turned on—in her pocket or purse. A small PayPal Beacon device in-store senses when a consumer with the PayPal app—open or closed—enters the store. It prompts the customer to check in; a customer also can set her app to automatically check in. After the customer checks in, her picture and name pop up on the retailer’s point-of-sale system. When a sales associate at the store totals a bill on a cash register or  or a card-reading terminal, the customer gives verbal confirmation to the associate, who matches the customer with the picture of the customer on the POS screen and concludes the transaction.

Relevance to Bankwatch:

There is just something that feels right about iBeacon and why it is better than NFC.  Lower power consumption, but much more importantly, increased capability.  NFC knows where you are and that you are there within a few inches.  BLE knows when you enter the store.  This opens up a magnitude of possibilities for the store and for anyone who can get consumers attention.

BLE is different:

When BLE is applied to a payment system there’s a lot of potential for more sophisticated interactions between the payee and the merchant’s computer systems. For example, if you enter a store that’s equipped with a BLE-powered iBeacon device, you would be carrying your smartphone into a sea full of radio waves. iBeacon would immediately know that your phone is within a very short range of the beacon itself.

In other words iPhone and smartphone apps can work with store apps to interact and bring a world of consumer and store benefit including advertising, special offers, loyalty, other ideas that smart people will develop.  This will be based on the knowledge that you, the customer, have arrived in the store, and what you may have told the from before.

Payments will not be about cards and merchant terminals in that future.  Read further into that and bank revenue from merchant discount is highly vulnerable.  Payments will increasingly be through alternatives to merchant terminals that bypass interchange.  This future will make bank payment systems irrelevant.

Dive in with your thoughts!

Written by Colin Henderson

September 17, 2013 at 00:02

Posted in Uncategorized

7 Responses

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  1. […] The beginning of the end for interchange and bank payment systems – The Bankwatch – “Payments will not be about cards and merchant terminals in that future.” […]

  2. Payments are “one-to-one” affairs. BLE is “one to many” interface. That’s why in addition to Beacon, PayPal also needs merchants to sign up with PP and (!) install PP s/w. That’s a major hurdle (for a player with a single payment instrument and high interchange fees).

    Consumer-merchant interaction indeed goes well beyond payments, but one needs to approach “I know you are here” VERY carefully. Advertising is not a benefit, it’s a nuisance!

    Alexander Peschkoff

    September 18, 2013 at 07:42

  3. It is SO ENTERTAINING reading all these articles thinking that because Apple’s suddenly putting a technology in their phone, the world (or a specific industry) is going to experience a complete paradigm shift. iBeacon is not new (except for the trademark), and banking systems worldwide won’t be modifying their practices simply because Apple (or any other cellphone manufacturer) employed a specific technology in a piece of rehashed hardware.


    September 18, 2013 at 23:46

    • Mark, it’s not (just) about Apple. Android and BB announced BLE support too. Suddenly, you have ubiquity. By the end of this year, let alone thereafter, there will be way more phones out there with BLE compared to NFC, despite years of NFC push. BLE will also benefit from the payments industry’s shift to cloud wallets – that solves the dilemma of secure element control. That’s not to mention other benefits of BLE (which was only introduced by Apple starting with 4S). As for “rehashed” – think about “mind share” implications of Apple Passbook’s native support of QR scanning. Simpe “rehashed” function, yet… Especially when they add hardware button access to it (with locked screen). Wildfire does need that first sparkle. Apple has always been one.

      Alexander Peschkoff

      September 19, 2013 at 01:44

  4. It would be probably good news for all the Apple users that they are incorporating new POS software. Although Apple is not the only one who is using the iBeacon technology, there are other companies as well. But it will definitely bring change in the cloud system.


    September 19, 2013 at 05:44

  5. Today I have read 4 articles which all attach the current models of payments and all have their pros and cons and many side one point and the other. I think they all have validity in some way and summarize it more for the change it will bring and the acceleration we will see. Some will take-off, some will give way to improved ideas and some for their underlying objective, will have some impact even if only to a few.
    Key is that all will reshape the payments industry which has already seen many changes and will accelerate and even see a needed shift of the Big 4 networks. Innovation and dis-intermediation are powerful forces, add a dose of legislation and I think we are well to see the future. I can’t wait what it will bring.


    September 19, 2013 at 10:48

  6. […] a personal ID or verbal authorisation to formally process a payment.  While some argue that BLE is the beginning of the end for traditional bank payment systems, others see it as one more step in the mobile payments journey that is far from complete […]

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