#credit cards

Apple Pay sounds great, but the most surprising thing about the announcement is that Apple doesn’t seem to be taking a cut. Oh wait. The other shoe — Elizabeth Dexheimer:

Under deals reached with banks individually, Cupertino, California-based Apple will collect a fee for each transaction, said one of the people, who requested anonymity because terms aren’t public. While that gives the tech company a share of the more than $40 billion that banks generate annually from so-called swipe fees, lenders expect to benefit as consumers spend more of their money via mobile phones and other digital devices, the person said.

This seems like the type of deal that only Apple could get away with. It reminds me a bit of the deal they struck with AT&T for the first iPhone. But this is with several of the major banks, not just one.

We’ll see how much money this adds up to over time. If Apple Pay is at all successful, it’s going to add up.

Jordan Kahn:

When entering a credit card number into a form online to, for example, make a purchase, Safari already allowed users to quickly select credit cards stored in its Passwords & AutoFill settings. You can still do that, but in iOS 8 you’ll now also have the option to select “Scan Credit Card” and snap a picture of the card. Apple then uses optical character recognition of sorts to input the number into the text field in Safari. There’s also a way to scan and save cards using the camera directly from within the Passwords & AutoFill settings.

Another subtle, but potentially huge feature. Entering credit card numbers, especially on a phone’s small screen, remains a huge pain in the ass. Some services use this pretty basic OCR to make the process easier, but doing it at a system-wide level will be much more powerful.

Tom Gara spoke with MasterCard’s Carolyn Balfany about the new chip-based payment system known as EMV:

Part of the October 2015 deadline in our roadmap is what’s known as the ‘liability shift.’ Whenever card fraud happens, we need to determine who is liable for the costs. When the liability shift happens, what will change is that if there is an incidence of card fraud, whichever party has the lesser technology will bear the liability.

So if a merchant is still using the old system, they can still run a transaction with a swipe and a signature. But they will be liable for any fraudulent transactions if the customer has a chip card. And the same goes the other way – if the merchant has a new terminal, but the bank hasn’t issued a chip and PIN card to the customer, the bank would be liable.

The key point of a liability shift is not actually to shift liability around the market. It’s to create co-ordination in the market, so you have issuers and merchants investing in the migration at the same time. This way, we’re not shifting fraud around within the system; we’re driving fraud out of the system.

That’s an interesting way to make everyone is very much incentivized to update their systems. It sure seems like it will work. We’ll see. It’s ridiculous that the United States isn’t using the chips already.

Kyle Vanhemert spoke with Square’s VP of hardware, Jesse Dorogusker, about their new card reader:

The redesign also gave Dorogusker and company a chance to tweak the feel of the swipe itself, which is a crucial detail that makes the product itself feel trustworthy despite its tininess. By tweaking the design of the spring to which the magnetic read head was attached, the team was able to fine-tune the friction customers feel when swiping their card. At one point in development, they found that the level of contact they needed to successfully transfer data from a card resulted in a swipe that felt too loose. And when the swipe felt too loose, it felt like it wasn’t working, and would thus require another swipe. So they increased the friction above what was actually needed–an adjustment that was overkill from a technical point of view but resulted in a swipe that felt perfect to the hand.

Design is how it works…

Not surprisingly, Dorogusker came to Square from Apple, where he most recently led the development of the Lightning connector.