Feb 8, 2022 - Economy

iPhones to become credit card readers

Illustration of a small person at a giant iphone screen with a dollar bill on it, and a person behind the iphone in the dark

Illustration: Sarah Grillo/Axios

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

Why it matters: The upcoming “Tap to Pay” feature — announced Tuesday — could make it easier for merchants to conduct their business and accept contactless payments without any extra 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 payment processing will be handled by Apple partners, the first of which will be fintech startup 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 began accepting signups today for when the program goes live.
  • While Stripe will be the first partner enabling Tap to Pay, Apple says to expect other developers and platforms to follow.

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

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

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

  • While the company pioneered the space, this latest development ultimately doesn’t have to be bad news.

Our thought bubble: After all, it’s in Apple’s best interests to allow Square and other app developers to offer the feature to merchants through their payment platforms. 

  • In addition, payment processing is just a small part of Square’s value to merchants. They also offer loyalty rewards, banking, payroll and inventory functions.
  • And while Apple might be able to onboard new merchants who don’t currently have a POS system, it’s unlikely a business already deep in the Square ecosystem is going to switch.

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