iBeacon Opens Door for iWallet

This week, Apple unveiled the first large-scale integration of iBeacon, a technology that, when coupled with their fingerprint identification system, may be another building block in building a revolutionary new payment system.

What is iBeacon?

Before we go into the details as to how this new frictionless approach to payment will work, let me explain what its component pieces are. In very simple terms, iBeacon is an indoor positioning system. While your GPS can identify where you are, its accuracy can be limited by a number of factors when you are indoors. So iBeacons are little radio transmitters that use very small amounts of electricity and can send information to a smartphone. The technology leverages improvements in the Bluetooth standards called Bluetooth Light Energy and is available on every iOS device since the iPhone 4S and every Android phone that supports Bluetooth 4.0 and Android OS 4.3 or later (that means that popular devices like the Samsung Galaxy S III and 4, the Nexus 4 or later, HTC One, and Droid DNA all support it).

When a consumer gets close to an i-beacon enabled location, information can be pushed to their device via push messages and the consumer’s location is made available to the retailer, which can allow for such uses as in-store specific promotions, payment capabilities, or other use cases to be defined.

This week, Apple rolled out the technology in all its stores, allowing consumers to skip the register lane and purchase items directly from their device when shopping for holiday items. With over half a billion users on iTunes, the company has a large trove of credit card numbers from most returning members, allowing it to optimize the payment process for existing customers.

How they rolled it out is an interesting case in widespread enablement of new technology. In order to understand how such a rollout can happen as quickly and quietly, one needs to delve into the technical specification for what is happening. And that’s where things get interesting.

The following line was buried into the iBeacon specifications for developers (emphasis is mine):

The Objective-C interfaces of this framework allow you to do the following:

  • Scan for Bluetooth accessories and connect and disconnect to ones you find
  • Vend services from your app, turning the iOS device into a peripheral for other Bluetooth devices
  • Broadcast iBeacon information from the iOS device

Objective-C is the programming language that is used by iOS developers. Vending service from an app made it clear that the technology is not just about location. But the last line about broadcasting iBeacon information from the iOS device is the important clue here. With this, Apple has essentially declared that every iPhone, iPod Touch, or iPad sold since the iPhone 4S can turn into an iBeacon.

In a world where an increasing amount of point of sales systems are being replaced by iPads, this is a revolution in the making as Apple can now have local broadcasting in every store using an iPad. But how does that tie to payments?

The iWallet

In order to understand how Apple can do payments quickly, one has to take a step back and think of where Apple stores information: for most users, that information is store in iTunes, gathered the first time they paid 99 cents for a music track, TV episode, movie, or app. That information has quietly added up to around half a billion different customer, a trove of data only match by Amazon in terms of sheer size.

Earlier this year, with the rollout of iCloud Keychain on mobile devices, Apple started taking information from iTunes and mac computers down to their users’ devices. With loyalty cards increasingly being stored into Passbook and credit card information being stored in iCloud Keychain, Apple has been downloading the content of consumer wallet’s onto its devices, leaving only cash as the use case it does not directly compete with.

To secure all this, the company has been leveraging the one unique thing that customers will always have with them when they’re using their phone: their fingers. With the release of the iPhone 5S, the Cupertino giant unveiled the touchID system, which allows users to use their fingerprint to unlock a device. While Apple ensures users that the fingerprint is not stored on the device, it is clear that it has found ways to uniquely tie that fingerprint to information on the device, creating a secure key based on a user’s unique pattern. The net result is that, when combined with iCloud Keychain and Passbook, an iOS device sporting touchID is now more secure than a physical wallet.

And since any iOS phone can turn into a point of sale, the last thing remaining in your wallet can easily be replaced as Apple has turned your phone into both an outbound payment system and a system that could potentially receive money too, with no physical credit card being required.

Winning through reduced friction

With such a large opportunity, it’s obvious that competitors are bound to emerge and they have. Square, for example, was an early mover, offering a credit card scanner that attached to smartphones. Meanwhile Google has been trying to push the Google Wallet, a piece of software that was supposed to replace user’s wallets but has been increasingly moving away from the space; the large mobile companies (Verizon, AT&T, Sprint) have banded together to back ISIS, a solution that is supposed to allow users to pay with their phones.

While Square has focused on leveraging the existing payment systems (credit or debit cards), all the other players have had difficulties trying to enable a frictionless approach to mobile payment. Google wallet required widespread deployment of NFC on both registers and devices, a solution that was too expensive for more businesses; the ISIS conglomerate found its different stakeholders arguing over control, bringing its product to the market in a fashion that requires not only specialized hardware on the device but also a trip to the wireless carrier store to replace one’s SIM card in order to enable the capability.

The net result is that those previous efforts have largely failed because they required too much work on the part of the user. By building the components one by one and providing value around each of them, Apple may be close to assembling a complete payment revolution.

In the past few years, it has gotten user’s payment information by asking them to enter it into ITunes when they bought an app, a video, or some music. This allowed the company to build up a large database of payment details. Then it added iBeacon to every new device it rolled out without asking anything of its users. Later, it pushed users to share their payment information on the device through iCloud keychain by saying it would also synchronize passwords in the process; and finally, it unveiled fingerprinting as an easier way to unlock the iPhone.

Every step of the way, the company focused on reducing friction and providing increased value for the user when its competitors asked the users to do more work. The net result is that users have voluntarily provided all the components Apple now needs to enable a payment revolution. And we’re about to witness the rise of the iWallet, maybe not this year but pretty soon.


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