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Friday, October 31, 2014

Inside Apple Pay, courtesy of Clover

The Oct. 20, 2014, launch of Apple Inc.'s near field communication (NFC)-enabled mobile wallet, Apple Pay, has shaken up the payments industry. Apple Pay's two-pronged approach – enabling in-store, contactless NFC payments and in-app, cloud-based purchasing – makes Apple's mobile wallet an exciting integration proposition for many payment firms.

One such vendor is Clover Network Inc., the First Data Corp. business unit and POS system-app marketplace provider. Clover's POS system allows merchants access to Clover's own proprietary app marketplace, where merchants can pick and choose which apps they want to help run their businesses more efficiently.

"A small business running a restaurant or retail or services businesses has been somewhat trapped in the past with essentially closed systems – terminals you can't really modify very easily or add new features to," said Leonard Speiser, President and co-founder of Silicon Valley-based Clover. "The entire philosophy of Clover was to allow those small business owners to expand and change the features and functions of their register to enable new features for their customers, to enable new features for their employees and inventory management and so forth."

The Clover App Market is populated with apps from third-party app developers, with Apple and its mobile wallet becoming the biggest developer in the mix. "Apple Pay represents the perfect example of a third-party developer that wishes to start to really interact with merchants," Speiser said.

Payments at your fingertips

First Data and Clover were among the select few payment businesses that worked closely with Apple in pre-launch development of integrating Apple Pay with payment systems. "We had been working with [Apple], as was First Data of course, on building integration between Apple Pay and the merchants and the issuing side, the banks themselves," Speiser said.

The two main aspects of that integration involved NFC and in-app purchasing. First Data and Clover worked with Apple to connect NFC-enabled POS devices on the front end to the back-end payment networks of Visa Inc., MasterCard Worldwide and the American Express Co. Not surprisingly, a large portion of the 220,000 U.S. merchants that can accept NFC Apple Pay transactions today are First Data merchants.

Clover offers NFC functionality through a First Data PIN pad that plugs into the Clover Station via a USB port. "It is an extremely magical experience to be able to just put your phone right up to the NFC reader [and] the fingerprint then gets activated," Speiser said. "So none of this unlocking your phone, selecting an app, selecting a card. It is extremely fast."

But the second aspect of the Apple Pay experience is more exciting for Speiser. In-app purchasing via Apple Pay renders the payment experience nearly invisible – no more waiting in line to pay for purchases in store, just pick up your purchase and go. In the restaurant market, Apple Pay may revolutionize the dining experience.

"From their app, you'll just select the items you'll want to order," Speiser said. "It will literally pass it through the Clover system to the cloud without ever touching anything. On the systems it will go right to the exact same receipt printers that are in the kitchen and the bar. And then it will automatically let the servers know where to bring the food out to. And, when you place that order, you are going to be paying at the same time."

The day Apple Pay went live, First Data-Clover merchants had in-app payment functionality at their fingertips. "Because we have all of our data available via APIs, and because there are already app builders building these apps that will let you order from your phone, right when Apple Pay launched, we have enabled many many Clover merchants to take in-app payments," Speiser said.

A new kind of 'vaulting'

Apple Pay's security architecture – the biometric fingerprint reading technology, the tokenization of the payment data and the "vaulting" of that data by the card brands – has been touted as the new industry standard for mobile payment data security. An Oct. 8, 2014, Clover blog post provided insights into the back-end security that has convinced bank issuers that Apple Pay will reduce fraud.

In "How Apple Pay works and why it matters for developers," Clover co-founder and President of Engineering John Beatty wrote, "Apple Pay marks the first time a popular operating system is making payments a platform service for real-world, non-digital-good transactions, in a broad, inclusive manner that is compatible with the mainstream payments processing industry.

"At Clover we're particularly excited because we believe it opens up lightweight apps that can interact and transact with small-and-medium brick-and-mortar restaurants."

Beatty noted that app developers, gateway operators and other third-party merchant services providers won't need to store and maintain user databases and payment details, which reduces technological and security burdens tenfold. "I expect a huge amount of innovation in real-world mobile commerce as a result over the coming years because of the revolution that Apple Pay is starting," Beatty wrote.

Mark Schulze, Vice President, Business Development at Clover and manager of the Clover App Market, said the innovation in back-end security involves how the transaction data is vaulted – or securely stored, encrypted and tokenized – by "moving the vaulting of a card way upstream as opposed to downstream. It's no longer the app developers' responsibility now. It's way upstream at the issuer level."

The vaulting infrastructure was created by the card brands. "Elegant" is the term Speiser used for this new method of vaulting. "That infrastructure will be made available to a lot of people to have this elegant vaulting method where cards can be stored in a Visa, MasterCard, AmEx vault to allow for that security and privacy is that other piece that made the solution so much more elegant," he said. end of article

Editor's Note:

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

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