Apple to Use NFC, Tokenization in Payments, Sources Say

canstockphoto10871999Apple will be utilizing near field communication (NFC) technology and tokenization technology in the new iPhone 6 and iWatch as a part of its payments initiative, according to sources close to Apple and with knowledge of Apple’s plans for its new smartphone.

In addition, Bank Innovation has uncovered Apple patents dating back to 2009 related to the tokenization process, confirming the company’s long-standing interest in tokenization.

The iPhone 6 is expected to be released on Tuesday, Sept. 9.

Apple stores already support NFC. This was confirmed by a test in a store and by sources, who told us that the Apple Stores and Apple retail partners are using the Verifone MX 915 terminal for their point-of-sale terminals (not to be mistaken with mobile point-of-sale terminals). As verified by a commercial, the terminals are NFC-ready. Bank Innovation confirmed that Apple Stores (and other retailers like Bloomingdale’s) are using the MX915. (We attempted to take pictures of the MX915 in retail stores, but were stopped from doing so.)

Bloomingdale’s declined to comment for this article.

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Many are familiar with NFC technology, but tokenization may be a different story. Financial institutions — card issuers and networks — prefer token technology because it replaces primary account numbers, those 16-digit card numbers on the front of credit and debit cards. Instead, the tokenization technology uses complex codes that are easily transmittable over the air and between devices, but that are used only once, so even if they are intercepted, are of no use to fraudsters.

Bank Innovation has independently verified that Apple will be including the NFC in the iWatch and iPhone 6 and will be a part of transferring tokens between devices. The Wall Street Journal reported yesterday that the iWatch would be NFC-capable, while Bank Innovation reported that NXP would be supplying at least some of the chips for the iWatch.

“[Tokenization] certainly addresses security and fraud…there’s another part of the story — tokens provide innovators with flexible, purposed, and driven credentials in their customers’ experiences instead of actual data,” said Visa’s vice president of digital solutions, Brad Greene. “If tokens are intercepted by an attacker… [they] would be worthless or greatly diminish.”

Greene said that financial institutions wanted Visa to handle the tokenization process on their behalf. There is no word yet on how Apple will handle tokenization — under current terms, the issuing banks deal with the tokens, according to financial industry expert Tom Noyes.

This seems like a logical move for Apple for a payments initiative that is certainly a long-term play. Current and former executives from competing technology companies involved in payments— who all requested anonymity — agreed that it is extremely plausible for Apple to rely on banks for the token technology, especially since Apple has already been engaged in extensive negotiations with banks on other fronts.. “It’s very Apple-like to use some new combination of these existing technologies,” a source said.

Apple’s interest in the use of NFC technology and tokenization — and using the combination both — has broad, long-term potential with valuable use cases. Apple can potentially use tokenization technology and apply it to “real-life applications, as well as like transit, building access, and hotel keys,” said James Wester, global head of payments at IDC Research.

And knowing Apple, even beyond those.

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