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During one of Bloomberg TV's latest business video reports posted yesterday, Emily Chang discussed Apple's mobile payment technology known at Apple Pay with Piper Jaffray Senior Research Analyst Gene Munster and Bloomberg's Editor-at-Large Cory Johnson. Apple Pay, which now works at Walgreens, the number one pharmacy chain in the U.S, was purposely disconnected by a rival pharmaceutical chain store(s) CVS (and Rite Aid) which has erupted into an online war over the mobile wallet of the future.


Gene Munster doesn't see CVS's decision to yank Apple Pay as a big deal. Munster rightly pointed out that Target was a part of the mobile payment consortium that will be competing with Apple Pay but has since defected to the Apple Pay camp.


In Johnson's view, Munster had gotten it all wrong, as usual. "This is fundamentally opposed views and this is why Gene Munster is wrong once again. Because what's happened is that retailers want to use customer data to target customers better. They want to know who their customers are, they want to collect that information, slice and dice it, use big data and market directly to those customers. The Apple Pay process really takes that ability away."


Johnson further noted that "Fundamentally, Apple Pay keeps the customer information private to the customer, doesn't share it with the retailer." He added that "Walmart wants to know everything about their customers. Apple Pay goes against this."


Reviewing Key Apple Pay Features


When introducing Apple Pay to the world this past September, Apple's CEO Tim Cook presented a slide with a quote from Jenna Wortham of the New York Times which read as follows: "A truly mobile wallet has long been described as imminent. But it remains elusive …most have been a disappointment or have not yet worked well enough for mainstream adoption." Tim Cook then asked the question: "Why is this? – "Because as it turns out, that people who have worked on this have started by focusing on building a business model that was centered around their interests instead of focusing on the user experience."


Cook was correct as this is exactly what the Merchant Customer Exchange, a competing Apple Pay system did. It's a system that's designed to track everything the merchants want on you instead of protecting consumers like Apple Pay has done This is what CVS, Walmart and others want as Bloomberg's Cory Johnson pointed out. It's the very philosophy that Apple Pay was designed to avoid. Privacy isn't just about Apple Pay; it's Apple's position on all privacy matters.


Getting back to Apple's "Apple Pay" introduction keynote, Eddy Cue, Apple's senior vice president of Internet Software and Services added that "We have a new chip called the 'Secure Element' and it's built into every iPhone 6. It stores all of your payment information encrypted and securely."



Eddy Cue then elaborated on security and privacy features. Cue noted that "We've also integrated security; both on the hardware and software in a way that only Apple can. So when you add a new credit card, we don't store the credit card number and we don't give it to the merchant. We create a device-only account number and we store it safely in the 'Secure Element.' And each time you pay, we use a one-time payment number along with the dynamic security code. So you no longer have the static code on the back of your plastic credit card. And if your iPhone is lost or stolen, you can use find my iPhone and suspend all of the payments for that device. And because the credit card number isn't stored on the device, there's no need to cancel your credit card."


3AF Private

Cue added that "Security is at the core of Apple Pay, but so is privacy. We're not in the business of collecting your data." And so when you go to a physical location and use Apple Pay, Apple doesn't know what you bought, where you bought it, and how much you paid for it. The transaction is between the merchant and your bank."


So this argument that "Walmart wants to know everything about their customers," and that Apple Pay won't give them that ability, you have to ask the question, what information is Walmart trying to gather on their customers? Why won't Walmart or CVS give customers the choice of using Apple Pay when their current systems will allow for it?


For retail giants, the cost of doubling their scanners in-store will be made up by keeping Apple customers coming back. Otherwise, they'll lose more money by shunning Apple Pay. If they can't see that now, they painfully will later. As an iPhone 6 user, I will choose to do business with merchants working with Apple Pay whenever I have the choice to do so and so will millions of other iPhone 6 users. 


Most consumers want more of their information, especially financial data, kept private. So Apple and Apple Pay are on the right side of the issue here, not the merchants that are fighting Apple Pay. Tim Cook noted yesterday that "Merchants have different objectives sometimes. But in the long arc of time, you only are relevant as a retailer or merchant if your customers love you."


While that may sound trite, the fact remains that Apple's iPhone users are a powerful base of consumers. They're a base that absolutely love their Apple devices and will go to extraordinary lengths to use new features that Apple carefully builds into them.


This is in stark contrast to Android smartphone users. They had access to Google Wallet well ahead of Apple Pay and just didn't use it in numbers that mattered. Apple Pay is already the number one mobile wallet on the planet which we'll elaborate on later in this report to prove this point.


Yesterday, Bloomberg TV talked about the amazing fact that although Android wins market share, it's Apple that wins mind share because they're the recognized platform for the creative class. That translates to Apple fans being more engaged with technology and use the features Apple provides them with in new hardware. So when Apple fans see the kinds of shenanigans that CVS pulled off as shown below, it's not taken kindly.



(Photo credit: MacRumors)


The fact that a merchant can accommodate a customer with Apple Pay and yet have gone out of their way to ensure it can't be used, just lost future sales – that's for sure, hands down, ballgame over. Why should Apple fans give their business to CVS if Walgreens will allow them to use Apple Pay? Why would I buy something at Walmart who will go out of their way to say no to Apple Pay when I can get a similar item at Target that supports Apple Pay?


This is pretty simple business. Stores should be seriously thinking about providing customers both mobile payment systems and figure a way to make them compatible.  Customers like me, couldn't care less what Walmart wants in order to make their data snooping capabilities better. That's their problem. I as a consumer love what Apple Pay stands for and will support it to the point of changing my buying habits and supporting stores that support Apple Pay.


Apple Pay launched about a week ago and saw more than a million credit cards registered over the first 72 hours. It already totes up more transactions than all other "contact less" payment methods combined," Cook said, citing Visa and MasterCard data.


The proof is already in within record time, so what I've pointed out repeatedly in this report isn't theoretical. A lot of these merchants bent on fighting Apple Pay are going to have to rethink their game plan and not allow their IT heads to form company policy because they're going to lose if they take the tactic that CVS has shown to be taking.


In a report that we posted earlier this month about Apple having LVMH on the run,  we noted that Jean-Claude Biver, head of watch brands (Tag Heuer, Zenith, and Hublot), had stated that "Others have done smartwatches before, but when Apple does it, it will sell." Biver was wise enough to acknowledge Apple's global position and their influence in the right circles. It's a mistake to dismiss Apple and their influential customer base whether we're talking about a smartwatch or a mobile wallet. The results will likely be the same. 


Apple's CEO Tim Cook was in China last week and one of his primary goals was to talk to the Chinese government about Apple Pay. Apple reportedly already has a deal in place with China's UnionPay. When in China last week, Tim Cook also met privately with Alibaba's CEO Jack Ma and we wondered at that time if that could translate into a deal with Apple at some point in time. Who knew it would only take a week to get an answer on that front? Yesterday Ma created a stir at a technology conference when he expressed interest in partnering with Apple on Apple Pay. That would be a huge boost for Apple Pay in China over time and for new iPhone 6 owners buying online as soon as something formal is announced by Ma.


In the end, Apple designed a world-class mobile wallet called Apple Pay with consumers in mind without any kind of hidden data collecting schemes. They went the extra mile to focus on security and privacy.


The Merchants backing alternative systems are embracing Facebook and Google-like philosophies where privacy is no more. To them collecting all manner of data on you is a business right and delusionally believe that we'll swallow the line that it's in our best interest to accept that position.   


For millions around the globe, privacy still matters big time and Apple clearly has the winning formula for the mobile wallet based on security and privacy. These are the key features that consumers will be looking for if they're ever to be tempted to dive into the new digital wallet revolution.


Apple's Tim Cook has already confirmed that a million Apple fans have already jumped on board Apple Pay. The good news is that hundreds of millions of current and future iPhone fans are going to be the pioneers in making this new service a successful reality. And those merchants that are backing Apple Pay today and tomorrow are going to reap the benefits of having loyal Apple Pay fans give them repeat business – which is the lifeblood of any business.


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