Article first published at

You’d think an A-list celebrity had shown up when Apple Pay launched in the U.K. in July. As the first market outside the U.S. to get the service, the country has been buzzing about the mobile wallet ever since. Our clients were eager for us to explain how to enlist their products in Apple Pay, with many queries about how it works and its prospects. Here’s a snapshot of what we told them.

How it Works

Apple Pay is a digital wallet that enables you to make payments at the POS as well as in-app payments on the handset. It uses an embedded secure element (SE) that stores encrypted card data similar to the way the EMV chip on your card holds secure data. But only issuers that have signed up with Apple Pay can access the SE.

Once issuers have an indirect licensing agreement with Apple via the schemes, this will allow the relevant physical-to-virtual primary account number mapping to occur—which is at the heart of the solution—so their customers can add their payment card details to the mobile wallet. Apple Pay users then can make purchases classified as card-present transactions at stores, restaurants, Transport for London (TfL) and other locations using an iPhone 6, iPhone 6 Plus or Apple Watch. Apple Pay also works on newer iPads to buy products online, in apps and ads on Apple’s iAd platform for card-not-present transactions.

The Welcome Mat

With 2.9 million Apple Pay-compatible devices in use in the U.K., according to research firm Kantar Worldpanel, Apple Pay has a large base of prospective users. Consumers with an Apple Watch and older handsets also can use the service.

Visa, MasterCard and American Express are on board, along with several financial institutions, such as Nationwide, NatWest, Santander, MBNA, HSBC, the Royal Bank of Scotland and Ulster Bank. Barclays has plans to participate and many others are considering it. Major merchant backers include Boots, Lidl, TfL and Marks & Spencer. Merchants only need contactless terminals to accept it.

Many of our GPS clients ask if Apple Pay can be used abroad, but so far acceptance outside the U.K. is inconsistent. Apple will resolve this issue as it rolls out into more countries, but it requires consumer education in the meantime.

Transit Speed Bumps

TfL, which has been championing the use of Apple Pay for transit riders, has a page on its Website devoted to educating Apple Pay users on avoiding problems. Apple Pay may not work for overseas travelers without a U.K.-issued card linked to the app, or users may be charged currency conversion fees. TfL advises passengers to check with their issuers.

Apple’s Slice
When Apple Pay launched in the U.S. in 2014, the Financial Times reported that Apple had convinced U.S. banks to let it keep 0.15 percent of each transaction. What U.K. banks are paying hasn’t been made public yet.

Apple planned to roll out Apple Pay in Australia, which has a high penetration of contactless cards and NFC terminals. But reports suggest the tech giant has hit a snag as the country’s largest banks, some of which have or are developing their own wallets, so far are refusing to pay Apple’s fees.

If the phone or watch battery dies in transit, passengers may have to pay the maximum or penalty fares, TfL notes. Other problems surround receiving a call before tapping the reader, which requires re-authentication. TfL also advises users to pay with the same device for each TfL ride. Users with an iPhone and an Apple Watch must beware of being charged twice.

Speed is another issue for transit riders using any mobile phone-based payments—not just Apple Pay. Even when pre-authorized, smartphone contactless payments are somewhat slower than contactless cards, according to The Guardian. For passengers that haven’t pre-authorized the payment, the process takes longer, leading to irate commuters and queues at the gates, the report said.

Will it Change the Payments Landscape?

Contactless payments have been available in the U.K. for many years, always with the promise of significant growth. Until recently, most of these promises were empty. Four years ago, I made the prediction that TfL would be the tipping point for contactless payments by opening up its system to any NFC-enabled device. I’m happy to have been proven right. The U.K. now has 410,000 contactless terminals and 630,000 contactless journeys are made every day on the TfL network. That means 1 in every 10 contactless transactions in the U.K. is made on TfL.

As consumers embrace contactless cards for transit, it’s driving behavioral changes in the wider use of contactless. Contactless cards have become the cards of choice for U.K. consumers. More than £2.5 billion (US$3.8 billion) was spent using contactless cards in the first half of 2015, new data from the UK Cards Association shows. Given this groundswell of contactless payments activity, Apple Pay is entering the market at an opportune time.

In the past, prepaid issuers and program managers were reluctant to encourage contactless payments because of the low-value spend. But enabling your cardholders to make contactless payments makes your card top of wallet for all spend, which will increase revenue.

The slow take-up of contactless in the U.K. also was due, in part, to poor user experiences and lack of training for cashiers. Merchants weren’t excited about it. The launch of Apple Pay is very different. Merchants are clamoring to be associated with Apple. They all want to be part of this exclusive club.

Yes, there have been some speed bumps in transit and international acceptance, and Apple faces competition from domestic wallets, with more rivals coming. No matter how you feel about Apple Pay, if you’re in payments, you simply can’t ignore it.

Suresh Vaghjiani is executive vice president, card services, for Global Processing Services, which is a 2015 Paybefore Awards Europe One to Watch company. The former head of issuing at Optimal Payments PLC, Suresh also launched the first-ever contactless watch in the U.K. and first app-controlled NFC iPhone solution in Europe while at Kalixa Pay. He is based in the London office and may be reached at

In Viewpoints, prepaid and emerging payment professionals share their perspectives on the industry. Paybefore endeavors to present many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.

Use these links to share this specific page within your social networks

Article Summary

  • Published 1 October 2015