Your phone is not yours… except in Germany, thanks to a new law

4 mai 2020

A new law has quietly been passed in Germany that allows payment third parties to now access the iPhone’s NFC chip. This is a boon for mobile wallet companies who previously were unable to access this functionality.

an article written by Daniel Döderlein – the CEO and founder of mobile payments company, Auka.

Mobile payment apps are growing in popularity, with an estimated 1.5 billion users globally*. This doesn’t include users of Apple Pay, Google Pay, Samsung pay or any other NFC based wallet. Paying in-store with your phone hasn’t been the use case to drive popularity of these alternative payment apps, but that may possibly change following a little publicised recent change in German law.

The new German legislation allows third-party access to the iPhone’s NFC antenna and has been applicable since January 2020.

NFC

Near field communication – the ability for your card or phone to “talk to” the payment terminal by simply holding the two units close together, is an old technology (first patented in 1983) that just recently started to gain traction. The traction stems primarily from payment cards being equipped with a chip. This enables people to “tap” their card to pay, rather than having to insert the card into the machine.

An engineer would probably look at this evolution as a natural progression of how you pay with your card. We started with the credit card imprinter machine, then we moved to the magnetic card swipe. After that, we inserted the card’s chip into a terminal. Finally, we now “tap” the card. All of these methods achieve the same thing: exchanging the card’s relevant information to the machine, so that an account or line of credit may be charged the agreed amount. 

The NFC hype is unjustified. It doesn’t really matter how you hand over your card data – it has worked regardless of method since the introduction of the card, albeit it’s more secure and a lot quicker than before. What matters is a person’s ability to do it… And this is where the new law comes in.

Who owns your device?

With new technology comes new challenges and opportunities. Today, when someone needs a new payment card, they order it from a chosen provider. It’s a fair and level playing field in terms of providers’ ability to market their services to their audience and for the market to choose what card they want, more or less. 

People keep their card in their wallet and present it as they please, in fair competition amongst the other cards they might have. But, what happens when a card is no longer a card?  Instead it is simply a virtual card, a piece of information that is stored inside a piece of code, run on a chip, inside a phone.

If that phone is an iPhone, up until recently the chip was locked down by Apple, as if they owned the chip, inside the phone that their customer paid (a high price) for. The rationale behind this lock-down is pure business for Apple. Apple decided to step into financial services – they’ve made their own wallet and provided a credit card, alongside other financial services such as sending money with iMessage. In light of this, Apple isn’t so keen on others using “their chip” to provide services on the phones their customers paid for and own. So, they locked this ability down.

Germany to the rescue

Back in November last year, Germany’s parliament voted in favour of rival payment services being able to access the iPhone’s NFC chip. The legislation needed to pass through the country’s upper house before it could become law. The German parliament has just now become famous in the payments industry for passing the law that unlocks the iPhone chip from the monopolistic grip of Apple. I, for one, think this is amazing! 

What the law means is that Apple is no longer allowed to lock down the chip and has to expose access to the NFC antenna for others to use, including use for payment purposes other than those payments controlled by Apple.

Up until recently, the only way to get a card onto an iPhone was to issue a standard card (following the EMV standards plus some other Apple pay standards) and be certified and accepted by Apple. Of course, the card issuer also had to pay a transaction-based fee to Apple. A card would then be allowed to reside inside the iPhone and customers could present their phone (or watch) to a payment terminal, to pay. This concept has been known as ApplePay and it has been pushed by various banks over the last few years. Starting from January 2020 and just in Germany (for now) anyone can utilise the NFC capabilities of the phone and shall be able to host their own payment instrument on the iPhone. Not only does this challenge the Apple Pay fee regime for Apple, but it also challenges the use of the EMV rails and standards. 

Alternative payment apps

Alternative payment apps, such as AliPay, WeChat Pay, Venmo, Zelle, Swish and Settle are all based on alternative rails, where Visa, MasterCard and the others do not control the transactions end to end. This makes for possibly faster, cheaper and more flexible ways to pay and get paid rather than simply relying on what cards do and do not offer. This flexibility, allowing customers to simply send money to a business, or pay by QR code rather than relying on payment terminals has proven extremely important in the adoption of one of the fastest growing payment trends globally

But, now, with the move to open up the iPhone NFC antenna, we’re likely going to see that, for example, AliPay will allow their iPhone app to hold an NFC initiation method. This means that when someone taps their phone towards a terminal (either a dedicated AliPay terminal or an EMV terminal) they’ll be the ones to trigger an AliPay NFC based payment – not ApplePay.

This could power a massive shift where payments that are carried out today  using a card, or even using an Apple Pay NFC transaction, would be replaced by alternative payment apps. These apps could also use the NFC capabilities to create an Apple Pay inspired experience. But they would completely run outside the grip of Apple and even outside of the grip of the card schemes (Visa, Mastercard, etc.)

All of this is fairly technical and has to do with how transactions are performed, controlled and monetised. For most of us, this means little or nothing in our day to day lives. But for the payment industry, a shift like this means billions worth of payments volume and hundreds of millions in transactional revenue will be shifted from a few “monopolists” to a wider range of players, including newcomers. 

This stems from a small, almost unnoticed change in the law, where the chip inside a phone has been released from what is now an illegal lock-down, to become the property of the device owner – you.
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*combining Alipay, WeChat pay, Venmo, Zelle, Vipps, Swish, Mobilepay and a group of the central European versions, total users add up to approx. 1.5 billion.

About the author

With more than 20 years of entrepreneurial experience, top 200 European fintech influencer Daniel Döderlein is the CEO and founder of award-winning mobile payments company, Auka. Sitting on the Google cloud advisory board, Daniel was the first to develop mobile payments technology in Scandinavia, the first to launch a mobile payment service in Norway (mCASH) and the first to create and run a regulated financial services platform on the public cloud. After Norway’s second largest bank, Sparebank 1, acquired mCash for exclusive use in Norway, Daniel started Auka, which in turn has just announced Settle – mobile payments for Europe.

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Adrian Vasilescu – consilier de strategie al guvernatorului BNR

„O singură provizie am făcut, de card, pentru că nu mai umblu cu banii în buzunar. Banii sunt cei mai periculoși când este vorba de răspândirea unei molimi. Am renunțat la cash. În rest, este o prostie să faci provizii. Dacă vine o molimă și nici nu știi când va ajunge, dacă ar fi să se întindă, pe cât timp să poți să faci provizii? Faci provizii pe trei săptămâni, pe patru săptămâni și mai departe?”, a spus consultantul.

Sondaj

In 23 septembrie 2019, BNR a anuntat infiintarea unui Fintech Innovation Hub pentru a sustine inovatia in domeniul serviciilor financiare si de plata. In acest sens, care credeti ca ar trebui sa fie urmatorul pas al bancii centrale in 2020?