iPhones will become credit card readers


Apple is set to turn iPhones into contactless credit card readers and payment processors later this year.

Why is this important: The next “Tap to Pay” feature – announced Tuesday — could make it easier for merchants to conduct business and accept contactless payments without any additional equipment.

The big picture: With Tap to Pay, Apple will also support Google Pay, Samsung Pay and other contactless payment methods on Android devices.

How it works: Tap to Pay is powered by near field communications, or NFC, which is used today by contactless credit cards and in payments made from phones to point-of-sale terminals.

  • The technology has been present in the iPhone since 2014. However, merchants will need an iPhone Xs or later to receive Tap to Pay payments.

The actual processing of payments will be managed by Apple partners, the first of which will be the fintech start-up Stripe.

  • Stripe plans to make Tap to Pay available to third-party developers who use its Terminal SDK to build their own point-of-sale products, and has begun accept registrations today for the launch of the program.
  • While Stripe will be the first partner to enable Tap to Pay, Apple says it expects other developers and platforms to follow.

By the numbers: The launch comes as contactless payments have exploded, partly out of convenience and partly because of the Covid-19 pandemic.

  • According to Visa, there were more than 400 million contactless cards in circulation last year.
  • Meanwhile, there are nearly 2 billion Apple devices active now, CEO Tim Cook told investors last month. About a billion of them are likely iPhone.

The plot: Shares of Block, the parent company of Square, which makes a credit card reader dongle popular with small businesses, fell slightly after the news broke.

  • Although the company was a pioneer in the space, this latest development ultimately doesn’t have to be bad news.

Our thought bubble: After all, it’s in Apple’s interest to allow Square and other app developers to offer this functionality to merchants through their payment platforms.

  • Additionally, payment processing is only a small part of Square’s value to merchants. They also offer loyalty rewards, banking, payroll, and inventory features.
  • And while Apple may be able to onboard new merchants who currently don’t have a point-of-sale system, a company already deeply entrenched in the Square ecosystem is unlikely to change.

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