Apple Pay may be getting a lot of buzz, but the act of waving your smartphone at the register to make a payment is old news. Some Android smartphones have had the ability to transmit payments at the store for years using near-field communication (NFC). But with the kind of fanfare that only Apple can produce, Apple Pay has put contactless payments in the spotlight.
To some extent, the hype surrounding Apple Pay is warranted: It provides the most fluid and secure experience yet for paying with NFC--partly due to the added step of requiring a fingerprint to complete the transaction. Apple Pay has also done a lot to get the credit card networks and merchants to work together on mobile payments, says Doug Brown, senior vice-president for FIS Mobile, a provider of banking and payment technology. And the attention it has brought to mobile payments, which have struggled to gain users, is giving them a boost and spurring competition.
I recently tested Apple Pay as well as several other mobile-payment applications. Apple Pay (in conjunction with Passbook, an app that stores boarding passes, coupons, tickets and more), Google Wallet and Softcard all use NFC and store such items as loyalty and gift cards, too. PayPal offers mobile payments at a number of stores, but it doesn't use NFC technology. The Starbucks and Subway apps let you pay in their stores using QR codes.
Based solely on the ease of setting up and making payments, Apple Pay glides to a win over its mobile-payment competitors. And setting up Apple Pay is easy. It works with an iPhone 6 or iPhone 6 Plus and relies on your fingerprint to complete a transaction with the much-vaunted Touch ID feature. I spent a few minutes logging my print into a borrowed iPhone 6 with Apple Pay installed. Then I opened the Passbook app (already loaded on new phones) and scanned in a photo of my debit card with the phone's camera. (Apple Pay supports credit and debit cards from only a handful of major banks and card networks, but more are on the way.) The scan recorded the card number, and I entered the expiration date and security code.
In an e-mail, my bank informed me that the virtual version of my card was assigned a number separate from that of my physical card as a security measure. An icon of my card showing just my physical card's last four digits lined up next to those of two cards that the phone's owner had previously loaded. After I tapped on my card's icon to make it the primary payment choice, I took a spin through a few merchants in my neighborhood that accept contactless payments (about 220,000 retail locations nationwide take Apple Pay and other NFC payments).
At my first stop, Walgreens, I held the phone to the section of the terminal designated for contactless payments and pressed my thumb to the phone's Touch ID sensor. The terminal quickly recognized the payment, prompted me to punch my debit card PIN into the terminal's keypad, and the cashier handed me a receipt. The transaction was a snap.
When I later pulled out the iPhone to pay for two meals I'd ordered at Panera Bread, the cashier called over a manager for help. The manager promptly cleared the total price from the register. "We're still working on the phone system," he said. "Dinner's on me." A hiccup, but I couldn't complain about free food. At Macy's, I returned a hat I had bought with Apple Pay. I handed the clerk the paper receipt. She scanned it and told me the money would be returned to my checking account. (The process for returns was similar with other payment applications I tried.)
Using loyalty and gift cards was another matter. I tried to scan in my Panera Bread loyalty card, but the Passbook app didn't accept it as a compatible "pass." To redeem a gift card at Whole Foods, I had to download the Gyft app, which holds information from your collection of gift cards, and enter the number and PIN of the gift card. The app displayed a bar code and number that I showed to the cashier
With Google's system, the payment process is pretty streamlined but slightly more involved than Apple Pay's--and when it comes to competing with the simplicity of swiping a credit card, every bit of extra work counts. For each transaction, you have to enter the passcode protecting your phone's home screen (assuming you have that security feature set up) as well as a Google Wallet PIN, which you must set up when you start. But Google did the best job of accepting and compiling my loyalty and gift cards directly into the wallet. I scanned in the barcodes of a few gift cards and manually entered their PINs. Similarly, I stored information for some loyalty cards.
The setup for Google Wallet was just as easy as it was for Apple Pay: Using my NFC-ready Samsung Galaxy S4 Mini, an Android phone, and the phone's camera, I scanned my debit card and a credit card into Google Wallet, which also displays the last four digits of each card. (Google says that the wallet is compatible with "major credit and debit cards.")
On my test run, I ordered a burger and fries at McDonald's, and the process was seamless. At Whole Foods, I paid with a gift card that I had loaded into Google Wallet; no problems there. At CVS, I used the wallet to flash my loyalty card's barcode, which the cashier scanned without a hitch. But when I held my phone to the terminal to pay, the transaction didn't take. The cashier had no explanation, and neither did the app, so I swiped my credit card instead. Later, I learned that the failed payment was a victim of politics: Just days after Apple Pay launched, CVS and Rite Aid Pharmacy switched off all NFC functionality--likely because their partnership with other big retailers to create a comÂpeting mobile wallet, CurrentC, prohibited them from playing nice with Apple Pay. (CurrentC is scheduled to launch nationwide sometime in 2015.)
A joint venture among AT&T, T-Mobile and Verizon Wireless, Softcard works only with phones from those carriers and with eligible American Express, Chase and Wells Fargo credit and debit cards, plus the American Express Serve prepaid card. When I opted to load an American Express credit card, the app sent me to the Amex mobile Web site, where I logged in to my Amex account and verified my card's security code. A few minutes later, an icon of the card (with only its first two numbers visible) appeared in the app. Softcard doesn't store gift cards, but I saved the numbers of a few loyalty cards in a designated section of the app--it didn't provide the option of scanning in a barcode.
Paying with Softcard was similar to using Google Wallet: I unlocked my home screen, entered my Softcard PIN and touched the phone to the payment terminal. My payments went through successfully at Chevron, Subway and Whole Foods. When I showed my CVS loyalty card number to the cashier, however, she told me it wasn't sufficient; I had to give her a barcode or my phone number.
The app has a store locator that indicates where you can use the wallet. Softcard's greatest strength may be the rewards and discounts it incorporates. If I'd used the Serve card at Walgreens or McDonald's, for example, I would have received a $1 credit. By adding another compatible credit card to my payment options, I could have scored a $20 Amazon.com gift card.
Because I already had a PayPal account connected to my bank account, setting up the app wasn't too strenuous. My PayPal password served as a lock for the app, which in one of its sections displayed my PayPal balance and the last four digits of my debit card and checking account. To prepare to pay in-store, I had to link my cell phone number to my account and create a PIN that I could enter at checkout. When I made a payment, PayPal would first draw from my PayPal balance, then from my checking account if need be.
I scrolled through the nearby store listings in the app's "Shop" section to see where I could put PayPal to work. A few choices were places I wouldn't visit often (if ever), such as a flooring company and a photography studio; many others were restaurants and shops with which I was unfamiliar. But two businesses caught my eye: Home Depot and Baja Fresh.
At Home Depot, I took about $50 worth of items through the self-checkout lane, chose PayPal as my method, and entered my phone number and PIN in the keypad. Transaction declined. Later, a PayPal representative told me that my past PayPal transactions had typically been $20 or so, and the higher charge raised a red flag. Although I appreciated the layer of security, I wish PayPal had taken more measures to verify my identity beforehand--perhaps by asking what types of transactions I expected to make with mobile pay when I was setting it up. At Baja Fresh, I preordered food with the PayPal app through a service called Eat24 and picked it up later. Bonus: I earned two out of five credits toward $1 off my next purchase--reason enough for me to order through the app again.
Starbucks and Subway
The Starbucks app shines because it carries a crucial element that many payment apps are missing: A strong rewards program that ties in effortlessly for the customer. Each time you use the app to pay for a purchase, you get a virtual "star"--just like using a punch card, minus the trouble of fumbling through your wallet. Redeem stars for free drinks, refills and food. My own foray to Starbucks was painless. Through the app, I purchased a digital Starbucks card for $10 (linking your debit or credit card for direct payments isn't an option). To purchase a coffee and yogurt, I opened the app, hit "Pay" and held my phone screen in front of a scanner, which read the QR code that had popped up on the phone's display. A receipt appeared on the app, including an option to tip within the next couple of hours.
The Subway app has similar potential for uniting payments and rewards. I linked my credit card information and preordered a sandwich to pick up later, allowing me to skip the line at the shop. (Alternatively, you can order as usual in-store and pay by using the app to scan a QR code that the payment terminal produces.) But when I asked the cashier whether I could sign up for the Subway rewards club, through which you can collect points on purchases and redeem them for menu items, he said it wasn't yet active in my state. Bypassing the line was nice, but the ability to easily earn and store points at every Subway location would have been more satisfying.
With a limited number of stores accepting mobile payments, you won't be able to leave your leather wallet at home anytime soon. Experts predict that mobile payments will eventually become mainstream. But first the technology has to endure a lot of growing pains. Many mobile options haven't yet made the most of their medium by offering such perks as digital receipt storage (rather than just listing transactions, as major wallet apps now do) and seamless integration with coupon alerts and rewards programs. Plus, as my failed attempt at a contactless payment at CVS indicates, competition for a piece of the pie among merchants, banks, software makers and wireless carriers has resulted in a fragmented market that isn't always customer-friendly.
"There's a lot that needs to shake out here," says Leslie Hand, vice-president of research for consultant IDC Retail Insights. "The fight certainly isn't over."
One likely step forward: By October, many retailers will upgrade their payment terminals to accept EMV debit and credit cards, which have chips that send payment information with unique codes each time you make a transaction. That makes EMV cards less vulnerable to fraud involving counterfeit cards than are magnetic-stripe cards, which transfer static data (see Credit Cards: From Stripe to Chip). The upgrades provide a prime opportunity for retailers to add contactless-payment capability to their systems, too.
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Lisa Gerstner is Associate Editor at Kiplinger's Personal Finance.