Pushing Pay by Phone: Apple, Google Add New Features

The tech industry has been saying for years that smartphones would make traditional wallets obsolete. But most people still use cash or plastic when they shop in stores.

That could change later this year when three leading tech companies are promising to give shoppers more reasons to use “digital wallets.”

Apple said last week that it’s adding store-issued credit cards and store rewards programs to Apple Pay (seen here), the mobile payments service it launched last fall. Google is readying a similar service for millions more smartphones to run on its Android software . And Samsung promises a service for its newest Galaxy smartphones will be accepted in more stores than both Apple Pay and Google’s Android Pay.

“Our ultimate goal is to replace the wallet,” Apple vice president Jennifer Bailey told software developers last week.

The new options come as numbers show mobile payments are still in their infancy: About 16 million U.S. shoppers used smartphones to pay for $3.5 billion in store purchases last year, according to the eMarketer research firm. That includes payments with Apple Pay, other services like PayPal and apps from merchants like Starbucks and Dunkin’ Donuts.

While that’s a tiny slice of the $4.3 trillion spent in stores overall last year, eMarketer expects mobile payments will grow to $27.5 billion in 2016.

“We’re still in this very early stage of laying the groundwork to be able to make this happen,” said analyst Brian Yeager at eMarketer. “But there’s progress being made.”

The progress follows years in which the industry has struggled to get digital wallets off the ground as major players failed to agree on technical standards, security measures and financial terms. Some big merchants have balked at services developed by Apple or Google, saying they’d rather build and control their own system.

Still, Apple opened the door for widespread adoption of digital wallets last year when it launched Apple Pay with endorsements from major banks and retail chains. With Apple Pay, which only works on the latest models of iPhones and the Apple Watch, users link a credit card or bank account to their iPhone.

Once that’s done, a user only has to hold the phone next to a device at a store counter. The phone and the store device communicate wirelessly, prompting the user to authorize payment by pressing the phone’s fingerprint sensor instead of swiping a plastic card. Apple Pay uses encrypted codes to protect shoppers’ financial information.

Apple says shoppers and merchants have embraced Apple Pay, although it hasn’t released usage details.

One early fan is Allison Lucas, a 35-year-old tech worker who tapped her Apple Watch to pay for a box of breakfast cereal and other items at a Walgreens store in San Francisco’s Financial District last week.

“You don’t realize how much freedom it gives you until you try it,” said Lucas, who used her watch to pay for lunch on another day when she accidentally left her wallet at home.

But not everyone is convinced they need Apple Pay.

“I might come around and try it at some point, but I haven’t really seen a reason,” said Amalia Bornstein, a 29-year-old data analyst. Though she carried her iPhone 6 in hand as she walked along a busy San Francisco sidewalk, Bornstein said she still uses cash or plastic for most purchases.

Apple says it’s offering more reasons this fall with its next software update, which will let shoppers charge store credit accounts and redeem loyalty points from major chains. Forrester Research analyst Sucharita Mulpuru said frequent shoppers see loyalty rewards as an important benefit, and they want an easy way to use them.

Walgreens expects more customers will pay with smartphones or watches when 80 million members of the chain’s Balance Rewards program will be able to use their loyalty points with Apple Pay, said Ben Weiss, Walgreens mobile products manager. J.C. Penney also is betting iPhone users will want to use their store-label credit cards. Spokeswoman Daphne Avila said the store’s own credit card is used on more J.C. Penney transactions than any other payment card, because customers earn points for every transaction.

Google, which had struggled to win support for its earlier Google Wallet service, says major banks and retail chains have signed on to its new Android Pay. The service will work similarly to Apple Pay when released later this year.

Google says it will incorporate store rewards, but won’t work with store credit cards to start. Android Pay will work on a variety of phones running the two latest versions of Android software — or about half of all Android phones in use.

Samsung, meanwhile, says it’s addressing another hurdle with a service called Samsung Pay, due for release this fall. Unlike rival services Apple Pay and Android Pay, Samsung says its technology will work with traditional store credit-card readers.

Apple Pay and Android Pay only work in stores with equipment capable of receiving data from smartphones via “near-field communication” or NFC radio. But new models of Samsung’s Galaxy smartphones will transmit two kinds of signals — one for NFC readers and one that works with older equipment that merchants use to read the magnetic stripe on credit cards.

Many smaller stores don’t have NFC readers. But Visa and MasterCard are pushing retailers to meet an October deadline for installing new terminals that read cards with embedded microchips, which are more secure than magnetic stripes. While the technologies are separate, many chip-card readers will accept NFC signals too.

Some experts are hopeful the changes will draw more shoppers to use digital wallets. But there remain some big challenges. For instance, Wal-Mart has declined to accept Apple Pay and is part of a consortium working on its own mobile payment system.

“It’s a chicken-and-egg problem,” said Yeager, explaining that shoppers won’t embrace a service if stores won’t accept it, while many stores want to know consumers and banks are backing a system before they invest in new check-out terminals.

CIO Today

Wearables for workplace wellness face federal scrutiny

Federal regulators are weighing reforms to widespread workplace wellness programs that could affect how personal data from consumer-grade fitness bands and smartwatches is kept confidential.
The U.S. Equal Employment Opportunity Commission (EEOC) issued a proposed rule that would amend regulations in Title 1 of the Americans with Disabilities Act (ADA) of 1990 as it relates to employer wellness programs used by as many as 580,000 U.S. companies. Public comments are being accepted online through today.
The proposed rule and supporting documentation, while lengthy, don’t directly refer to worker data obtained from fitness bands like the Fitbit or smartwatches like the Moto 360 or Apple Watch. Still, the data gathered as part of a company-sponsored fitness program could fall under the proposed rule, depending on whether it is deemed “medical information,” according to an EEOC spokesman.


“If the information the employer is obtaining is considered ‘medical information’ (e.g., a person’s heart rate over a period of time), then the information would be subject to the ADA’s confidentiality requirements regardless of how the employer obtains this information,” said EEOC spokesman James Ryan in an email. “By contrast, information that would not be deemed medical information (e.g., how many steps a person takes per day, number of active minutes or calories burned) is not subject to the ADA’s restrictions on disclosure.”

It isn’t clear how often such medical information is gathered by companies from employees participating in wellness programs and wear fitness devices that transmit data to seemingly confidential databases. However, recording a person’s heart rate over a workout or several workouts is a feature of many new smartwatches and fitness apps.

At data management company Iron Mountain, 1,600 workers use a variety of consumer-grade wearables to collect data, such as steps walked over a year, that is used in a company wellness program called LiveWell. There’s been a concerted effort to keep employees’ fitness data confidential and out of company hands. The data is stored in the database of a third-party wellness software company called Limeade, said Scott Kirschner, director of benefits strategy at Iron Mountain.

The fitness wearables used at Iron Mountain are “in the early stages and they are offering an indicator of fitness levels, but still they are not taking biometric markers,” Kirschner said in an interview. “They are not being used to tell somebody they have symptoms like asthma or diabetes, and those things fall into protected health information under HIPAA,” also known as the federal Health Insurance Portability and Accountability Act of 1996.

EEOC rule could mean the end Iron Mountain’s wellness plan

In public online comments, Kirschner objected to the EEOC’s proposed rule, saying if the proposed regulation is made permanent, “our recourse would probably be to eliminate this [wellness] plan or dramatically increase employee cost-sharing for it…”

Kirschner argued the EEOC proposed rule would not be in line with health care insurance eligibility rules that are linked to voluntary wellness programs like the one at Iron Mountain.

The state of Kentucky, which also filed suggestions to the EEOC, operates a LivingWell wellness program used by more than 137,000 employees who agree to undergo a health assessment or biometric screening, with the data kept confidential with HumanaVitality, a third party. Participants in LivingWell earn Vitality points, which can be redeemed for prizes such as movie tickets, digital cameras and hotel stays, with values of up to $300.


The proposed EEOC rule has generated controversy. Of more than 80 online comments, most asked the EEOC for more information, raised objections or made suggestions. Part of the EEOC’s intent is to offer guidance to companies on the extent that employers can use financial and other incentives to get workers to participate in wellness programs so that they are truly considered voluntary and not coerced.

“I’m concerned about the proliferation of employee wellness programs that seem to be coming ever-more intrusive and coercive,” wrote one commenter to the EEOC, identified only as Ann Kelly. “If employers may lawfully discriminate against people on the basis of intimate, personal health matters, where will that end?”

Compelled to join a wellness plan?

Concerns have been raised that if a company offers a worker a free fitness band, the worker might feel compelled to join the company’s wellness program. Half of all U.S. shipments of fitness bands, such as those from Jawbone and Fitbit, are sold to companies, which often use them to promote wellness plans, said JP Gownder, an analyst at research firm Forrester.

“There may be instances where people are ostracized for not participating in a wellness plan, and they may pay more for insurance,” Gownder said in an interview. “Wearables have a lot to offer, and it’s fantastic if an organization improves the health of its employees and engineers discounts with lower rates for the firm. But the dark side of this is that if enough people cede their rights to privacy and part of a system is tracked … it could put those who didn’t participate at a disadvantage.”

Gownder said an employee might have a legitimate reason not to be physically active, because of a disability, including a mental illness, for example. “We’re moving down this road in the absence of regulation,” he added. As more employees join a wellness program, he said, it switches from offering advantages to active people to becoming a requirement for everyone.

Bottom of Form

Employers ‘up in arms’

Timothy Collins, a lawyer specializing in employee benefits with the law firm Duane Morris LLP, said businesses are widely concerned that the proposed EEOC rule will impose more federal regulation on top of non-discrimination rules that are already part of HIPAA and the Affordable Care Act.

“Employers are up in arms about this proposed rule,” Collins said in an interview. “I hink wearables would be subject to the rule, especially if employers are handing them out for free and using them to gather data on the habits of workers.” He predicted the EEOC will take time to study public comments and concerns and won’t act until well into 2016.

Employers don’t want to have more hurdles to overcome, Collins said. “Businesses would like it to be easier to weed out the workers who are raising health care premiums. So I’d expect you’ll see challenges from employer organizations as well as individuals challenging wellness as discriminatory.”

Irina Raicu, director of the Internet Ethics Program at the Markkula Center for Applied Ethics at Santa Clara University, said concerns about the use of wearables in company wellness programs are understandable.

“Even if wellness programs are voluntary, if a high enough percentage of workers opt-in, then the ones who don’t are marked, in a way,” Raicu said. “It’s a valid concern, and we should avoid thinking about the rosy P.R. scenarios associated with using a device like a new Fitbit.

“For some people, a free Fitbit would encourage them to get fit,” Raicu said. “Yes, some people think new technology is interesting, but there’s even a backlash now. Tech people love these new devices and assume everybody does, but there are some people who try them and stop later. They say things like, ‘I just rode my bike and I don’t know how far I rode and how many calories I burned, but it really was fun.’ ”