Tap to Pay on iPhone expands the options available to merchants that want to accept contactless payments without relying on separate card-reading hardware. By opening the iPhone’s NFC capabilities to compatible payment applications, Apple enables payment providers and fintechs to turn supported devices into payment acceptance terminals. For small businesses and mobile merchants in particular, eliminating additional hardware can simplify setup while creating a more streamlined checkout experience.
The technology does not turn every iPhone into a standalone payment processor. Instead, payment providers must integrate the NFC functionality into their applications and provide the underlying processing services needed to complete transactions. This distinction creates opportunities for payment companies to enhance their merchant offerings rather than simply replacing existing processors. As contactless cards and digital wallets become more widely used, software-based payment acceptance could become an increasingly important component of the merchant payments ecosystem.
The news of Apple’s recent decision to make NFC capabilities for payment cards available to app developers continues to grab headlines as fintech investors ruminate on where disruption in the payments ecosystem will be felt most.
In this clip from “The Future of Fintech” on Motley Fool Live, recorded on Feb. 10, Motley Fool contributors Matt Frankel, Jason Hall, and Will Healy discuss and analyze Apple’s recent announcement that could potentially put a dent in fintech stocks but could also be a big win for small businesses.
A persistent misconception that comes up again in this discussion is that this new feature gives any iPhone user the ability to accept card payments, and facilitates P2P payments just by tapping phones together or tapping a card on the phone. This is not the case; there is no inherent payment processing capabilities in the iPhone. This announcement simply makes NFC card-reading capabilities available to developers that have payment processing apps, and is why Stripe was announced as being the first to integrate this technology with their payment processing app.
This will be a potential win for Square as well. Square was first to market with an innovative card reader that connected to the audio jack on an iPhone and enabled the user to swipe credit/debit cards. Since that time, iPhones no longer have audio jacks, and cards have evolved from magnetic stripe technology to EMV chips and NFC. Square has a Bluetooth-connected chip card reader that works with its payment processing app, but connecting, charging, and managing a separate device is sub-optimal for Square users. The iPhone’s ability to read cards directly, eliminating the need for a separate device, has the potential to increase the utility of Square’s app if they integrate to the new functionality.
Tap to Pay on iPhone represents another step toward making payment acceptance more software-driven and accessible to businesses of all sizes. Merchants using compatible payment applications can potentially accept contactless cards and digital wallets directly on an iPhone, reducing their dependence on dedicated card readers. For payment providers, the technology creates an opportunity to simplify onboarding and deliver more flexible merchant experiences.
The broader impact will depend on how extensively payment processors integrate the technology and how quickly merchants adopt it. Rather than eliminating established fintech providers, NFC-enabled acceptance can give those companies another way to serve their customers. As mobile point-of-sale technology evolves, the combination of smartphones, payment applications, and contactless acceptance could further reduce the hardware requirements traditionally associated with accepting card payments.
Overview by Don Apgar, Director, Merchant Services Advisory Practice at Mercator Advisory Group
