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Discover Card Completes Apple Pay

August 15, 2014 / by Peter Suciu / In E-commerce / News

Discover last week announced that it would allow its card-members in the United States to make contactless payments in participating stores through Apple Pay. Users will be able to pay for goods and services beginning this fall via iPhone 6, iPhone 6 Plus and Apple Watch, as well as the iPad Air 2 and iPad mini 3. With this new partnership, Apple Pay will have support from all the major U.S. credit card companies, having previously struck deals with Visa, MasterCard and American Express. Since those deals were inked last year, Apple has continued to work with banking partners to build its mobile payment network. Discover was the last holdout among major credit card companies. "As the mobile payments landscape matures, Discover remains committed to giving cardmembers secure options for using their cards and mobile devices," said Diane Offereins, Discover's president of payment services.

Discover Options

Under the agreement, Discover cardmembers will continue to receive their current benefits, including cashback bonuses. Among new benefits is the Freeze It security tool, which allows users to stop any new purchases, cash advances or balance transfers if a card is temporarily misplaced. In addition, Discover Network will enable eligible financial institutions, including Discover Debit issuers, to let their respective card holders utilize Apple Pay. As with the other credit card companies that have partnered with Apple Pay, the actual card numbers and information related to the cards will not be stored on devices or on Apple's servers. Instead, Apple Pay utilizes a unique Device Account Number, which is encrypted and stored securely on the device. Each card transaction is authorized with a one-time unique dynamic security code, as opposed to the security code that is on the back of most credit cards today. Discover wants to be at the forefront of mobile payments. The company "is working to make mobile commerce a reality in the United States," said Jon W. Drummond, a Discover spokesperson. "Apple Pay is one offering for our cardmembers, and we already participate in multiple wallets as both an issuer and network," he told the E-Commerce Times. "We want Discover cardmembers to be able to use their cards in ways that suit them best."

The Last Holdout

It's not clear why Discover was the last holdout for Apple Pay. While Apple does earn a small fee for every purchase, its service isn't trying to replace credit cards. Proponents view it as a benefit for credit card companies, because it provides an easy alternative for those who routinely make purchases with their cards. "Discover has been the elephant standing in the room when it comes to Apple Pay," said Jordan McKee, senior analyst for mobile payments at 451 Research. "The company likely had its hands guided to join forces with Apple Pay due to the risk of negative brand sentiment if it eschewed compatibility any longer," he told the E-Commerce Times. In a recent 451 Research survey, of those likely to use mobile payments in the coming 90 days, 45 percent planned to use Apple Pay, added McKee. "More so, of mobile payment users, 66 percent indicate they are very satisfied with Apple Pay, compared to 45 percent for PayPal and 33 percent for Google Wallet," he noted. "For Apple, the advantage is apparent; it now has the big four U.S. card networks partnered with its payment service."

New Benefits

While Apple vigorously sought the Discover deal, its advantage may be greater for Discover card users than for the company. "This new deal doesn't measurably affect Apple Pay," said Greg Sterling, vice president of strategy and insights for the Local Search Association. "However, every time the circle for mobile payments expands, it is really beneficial to everyone," he told the E-Commerce Times. "The usage of Apple Pay is modest and hasn't broken through as a mainstream phenomenon. However, like the recently launched Apple Watch, it is a signal that this market has arrived," Sterling pointed out. "A substantial number of payments is going to be made through apps, and this ensures that Apple Pay is at the forefront of this technology shift," he said.

Advantages Over Google

Discover's support for Apple Pay won't arrive until fall, and it is possible -- even likely -- that it will announce a similar deal in support of Google Wallet by that time. This is really the beginning for the mobile payments market, and adoption of payment methods is still low, but growing.

"None of this is going to be exclusive to one payment app," Sterling said.
"The card companies will want to be agnostic. If supporting Apple Pay required an exclusive deal, it would be a stupid move to make."