Visa just made it easier for the next iPhone to become a payment platform

Daniel Bader

July 24, 2014 8:47pm

Visa today announced a consolidation of its disparate payments solutions into Visa Digital Solutions, a suite of products, services and developer tools aimed at bringing payments to smartphones and wearables.

Last week, the company launched Checkout, a multi-screen solution for online payments. But omitted from that announcement was an explanation of how Visa plans to tackle the next generation of physical payments, which is made more complicated by the tenuous relationship between merchants, acquirers, financial institutions, government bodies and Visa itself.

As detailed in a release today, Visa Digital Solution tackles the problem of future payments into categories: support for new payment methods; and next-generation consumer protection measures.

The former ties into what is already on the market, and what is likely to come in the near future: wave-to-pay. Canadians can currently use select NFC-capable devices along with special SIM cards with so-called “secure elements” to make payments at merchants with compatible touchless points of sale, but these are limited to Android, BlackBerry and Windows Phones — devices with Near Field Communication antennas.

While only NFC-based solutions for wave-to-pay, or what Visa called payWave, are available at the moment, Apple has been rumoured to be working payment networks like Visa, MasterCard and AMEX to add a secure element to its upcoming iPhone. Coupled with updated points of sale, or additional hardware, these devices will have the capabilities for tap/wave-to-pay as the latest Android or BlackBerry devices.

The next type of payment is QR-code based, called scan-to-pay. Visa recently published a specification for securely displaying customer payment information as a QR code, and should allow Starbucks-like scanning for credit or debit payments. Of course, the information displayed would not directly translate to a user’s payment credentials, and that’s where the next-generation consumer protection measures come in.

Likely the most important change to how payments will be processed in the future is how they will be stored. Tokenization, the ability to replace a customer’s 16-digit credit card number with an equivalent set of random numbers that represent the real thing, allows third-party vendors to safely handle transaction information without the same security concerns. Because tokens represent, and replace, the actual payment information credentials, they can be safely stored on a smartphone or wearable, or on a company’s cloud. If a device is stolen, or a server breached, not only is there limited concern that the token can be decrypted, but in such an event it can be remotely disabled and a new one issued. This avoids a small breach necessitating a physical card replacement.

Indeed, tokenization is so important that Visa is working with all of its merchants, acquirers (point-of-sale providers) and issuers to make them quickly an industry standard.

While this ties into the likely NFC-deficient iPhone 6 in many ways, tokenization also points to another technology that Visa has been working on over the past year: Host Card Emulation A secure element is great because it ensures that payment credentials are securely stored in something physical, but it also necessitates the purchase of something physical, too — in this case, a SIM card. Host Card Emulation, or HCE, recreates a smart card, in this case a Visa card, in software. While HCE is only available on Android 4.4 devices and above, it will, along with the implementation of tokenization, allow for a greater number of devices — and wearables — to facilitate payments.

According to The Information, Apple has been speaking with Visa and other payment providers on bringing a wallet feature to the iPhone 6. According to Amir Efrati, “Apple has told some partners its system would involve a so-called secured element in the phones—a piece of hardware where sensitive information such as a phone owner’s financial credentials can be stored. The company also aims to run the system without giving up any control to wireless carriers.” Whether this would come in the form of a dedicated app, or an expansion of Passbook, remains to be seen, but Apple products have heretofore been left out of the NFC-based mobile payment game, something of which Tim Cook and co. are keenly aware.

As for Visa Digital Solutions, the effort will roll out early next year in the US, followed by a Canadian launch shortly thereafter. Expect Visa Checkout to be far more ubiquitous long before then.

  • Columbo

    So Visa had to invent a whole new method of paying just because iPhones can’t get with the times and add NFC?

    • It’s Me

      Nope, visa had to come up with a whole new system because the current ones are all lacking. This is a payment system. NFC can and likely will be a part of the system. But only a part and not a critical or mandatory part from the sounds of it.

      For instance, the new system includes online payments within the same tokenization infrastructure.

    • Columbo

      I was mostly kidding..

    • Karl Dagenais

      No, you were trolling and got your a*s handed to you.

    • pomplamoose


    • Columbo

      Haha nope. I was making fun of the ridiculous title of this article, which implies that this is a new mobile payment system for “Apple” just because they’re the only major platform that doesn’t currently have NFC. This tokenization solution can be used on any major platform very easily. There’s nothing uniquely “Apple” about it. But re-read the article and see how many times “Apple” and “iPhone” is mentioned as if it was made just for them. That’s the joke.

      Come on, was it really so complicated?

    • It’s Me

      You’re right, the article does lean too much toward this being an iPhone story. Mainly that’s because their source article did the same. But in the case of the original it was made sense because it was focused on the broader story that Apple has been working with visa and others. Aside from NFC, Apple wants a system that doesn’t risk compromising account info once the payment is made. Current systems don’t guarantee this, so Apple has apparently been designing such a system and may have been the catalyst for Visa suddenly dropping their current in development system and going in this direction.

      So while the MS story is too focused on the iPhone tie in, the source story may revolve closely to the iPhone but not because of anything related to lacking NFC.

    • Columbo

      In principle I totally agree with you (although I think every platform wants more security and if Apple was really a catalyst in this, the story does a poor job of elaborating on that.) But to your “nothing to do with NFC” point, I was making fun of lines like the this, quoted directly from the MS article:

      “Canadians can currently use select NFC-capable devices … but these are limited to Android, BlackBerry and Windows Phones”

      “While this ties into the likely NFC-deficient iPhone 6 in many ways…”

      “Apple products have heretofore been left out of the NFC-based mobile payment game, something of which Tim Cook and co. are keenly aware.”

      But anyway yeah I do agree with you, never disagreed actually.

    • Dapper

      Who exactly gets NFC mixed up as a payment solution? NFC is a portion of an existing solution that also includes an ultra secure back end. NFC alone is simply Near Field Communication. I’ve never heard anyone get it mixed up as a stand alone payment solution.

    • It’s Me

      Umm, it’s a part of lots of different back ends, none are perfect.

      Please, tell me about the ultra secure back end…

  • Dapper

    This is an add on solution so iphone users are included in digital payments. It’s by no means the best solution or the one with the highest level of security. So it is to be an iPhone user!

    • It’s Me

      That’s like saying your house is an add-on for your bathroom. No, it’s an entire infrastructure for various end points, including smartphones, with and without NFC.

      Did you read the article at all? Read it closely to see what this system actually is. The iPhone could not exist and Visa would still be pushing this system because it helps make payments more secure. Not because NFC may or may not be secure but because it still works like every other account based payment system we’ve had for the last century. You pay, your account gets recorded and passed on to the payment processors. They’ve secured this until now quite well, but it’s not perfect (see the Target breach). This system adds more security by completely changing how accounts are identified by point of sale system, by the retailer system and the backend. It never sends or records your account info, just a token. So, even a device that has NFC can and will benefit as much as any other as long as they can securely store and pass on the token. A discussion of NFC or not NFC is not really relevant here at all.

  • Dapper

    Only an iPhone user would state that NFC equipped phones. That can be used as a means of payment are lacking in some way. It’s the iphone that’s lacking.

  • Chris Wutherich

    Or you can just download a Bitcoin wallet and then your iPhone will be a mobile payment platform and you won’t be funding visa that ripps off merchants with that 3% of fees.