SAN FRANCISCO — President Barack Obama arrived in Silicon Valley bearing a gift for Tim Cook: a seal of approval for Apple Pay.
The White House said Friday that Apple’s mobile-payment system will be enabled for users of federal-payment cards, including Social Security and veterans benefits that are paid out via debit cards. The deal includes the Direct Express payment network and government cards issued through GSA SmartPay, which handles more than 87.4 million transaction worth $26.4 billion each year, the General Services Administration reported.
“It has big promotional value” for Apple, Richard Crone, chief executive officer of Crone Consulting, said. “It makes it look like the federal government is endorsing Apple Pay.”
The administration’s announcement came in advance of Apple CEO Cook’s speech Friday at Obama’s cybersecurity summit in Palo Alto, Calif.
Obama arrived in Silicon Valley at a time when his administration’s relationship with technology and Web companies has grown frosty over government spying and the privacy rights of their users and customers.
Facebook CEO Mark Zuckerberg, Yahoo CEO Marissa Mayer, and Google’s Larry Page and Eric Schmidt were invited but won’t attend the conference at Stanford University, according to the companies.
Apple Pay, which enables iPhone 6 and 6 Plus smartphones to be used as a digital bank or credit card, is one of several new services being introduced by Apple. The company, which gets the bulk of its revenue from the sale of gadgets, uses services and apps to make those iPhones and iPads even more useful and harder to give up for competitors’ products. As people’s lives become more digitized, including health records, the stakes for protecting that privacy become higher.
A key part of Cook’s positioning of Apple Pay has revolved around user privacy.
“We believe that customers have a right to privacy and that the vast majority of customers don’t want everyone knowing everything about them,” Cook said at a Goldman Sachs technology conference held in San Francisco this week. “There is no reason why anyone, or us, that we need to know where you are buying something, what you’re buying, how much you’re paying.”
Apple Pay is being watched closely to see whether Apple can foster wider use of digital wallets, a goal that has eluded tech companies for years. The service began last year and immediately ran into challenges from CVS Health and Rite Aid, which blocked the technology in their drugstores. Both companies are part of a group of retailers, which include Wal-Mart Stores, that are seeking to create their own mobile-payment system.
Major banks and credit-card companies, including MasterCard, teamed up with Apple to develop Apple Pay, which uses the world’s largest payment networks’ tokenization products, a system that replaces some account information with a digital ID for online and mobile purchases.
Visa Inc. CEO Charlie Scharf has said that there will be “an awful lot of things being announced and implemented” in the next year that compete with Apple Pay. The networks have also outlined a road map of standards for how banks and merchants can adopt the technology.
To coincide with Friday’s event, Visa announced an expansion of its token services this year and MasterCard said it plans to spend $20 million on a program that uses biometrics to verify purchases.
As U.S. consumers begin using cards with an embedded chip — known as EMV technology — criminals are expected to move their activities online and to mobile phones. That’s why banks, retailers and card networks are working to adopt tokenization.
Recent data breaches at Target and other retailers have increased pressure on banks, payment networks and retailers to implement more secure systems, including EMV technology. Visa, MasterCard and American Express have given U.S. retailers and banks until October this year to adopt EMV — which requires either a signature or a personal identification number — or assume liability for some fraudulent transactions. EMV is named for developers of the technology, EuroPay International, MasterCard and Visa.
Obama and some lawmakers have called for national standards for database security and requirements for notifying customers when breaches occur. In October, Obama ordered that government cards incorporate EMV technology that includes a personal identification number to verify transactions.
