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Discover ends Apple Pay holdout even as mobile payments adoption remains slow

Discover Financial cardholders in the United States will be able to use Apple Pay at participating merchants starting this fall, opening Apple’s mobile wallet to a larger market as Discover ends its six-month holdout.

Discover had remained absent after Apple Pay launched in October with support from Visa, MasterCard, and American Express. Discover’s agreement with Apple lets Discover U.S. cardholders make contactless in-store payments via Apple Pay using iPhone 6, iPhone 6 Plus and Apple Watch as well as in-app purchases through iPad Air 2 and iPad mini 3.

“Discover is working to make mobile commerce a reality in the United States,” said Jon W. Drummond, director of public relations for Discover, Riverwoods, IL. “So we participate in multiple wallets as both an issuer and network.”

It was not clear why it took Discover so long to sign on given that Apple’s mobile payments service was seen as beneficial for credit card companies.

“We’re not participating until the fall, so we’re not able to walk you through the experience,” Mr. Drummond said. “We just started integrating technology.”

Adding partners
Apple Pay is a mobile payments solution that leverages near-field communications technology and Apple’s Touch ID to enable users to pay for in-store and online purchases quickly and easily from their smartphones. The system has continued to add partners, driving perceived value for consumers and encouraging more banks as well as retailers to jump on board.

Keeping up with rival card companies.

About 750 banks and credit unions had signed on as of March and the service is being integrated into 200,000 vending machines, laundry machines and parking meters.

Among the bank partners are SunTrust, Barclaycard, USAA, TD Bank North America and Commerce Bank.

Apple recently claimed that Apple Pay now supports credit cards representing approximately 90 percent of credit card purchases in the United States.

When Discover card members add their credit or debit card to Apple Pay, the actual card numbers will not be stored on the device or on Apple servers. Instead, a unique device account number will be assigned, encrypted and securely stored in the secure element on a device.

Each card transaction will be authorized with a one-time unique dynamic security code, instead of using the security code from the back of the credit or debit card.

Discover card holders will still receive all of their current benefits, including Cashback Bonus and the new Freeze It security tool that allows them to stop any new purchases, cash advances and balance transfers when they temporarily misplace their cards.

“Discover is making sure it doesn’t get left behind by the other issuers that are already offering Apple Pay,” said Nitesh Patel, director of wireless media strategies for Strategy Analytics. “Failure to enable its cardholders that own iPhone 6 devices to add Discover cards to Apple Pay makes Discover appear a laggard, and the customer perception will be that Discover is failing to support a new channel for payment.

“It’s about Discover making sure it maximizes the total transaction volume that it can take a share of, hedging its bets if Apple Pay does take off, and appealing to its segment of users that are iPhone users and perceived to be more valuable customers,” he said.

Slow adoption
 While Apple Pay’s registration rates and share of contactless payments on mobile are impressive, the reality is that NFC-enabled mobile payments are seeing slow consumer adoption.

Mobile payments are seeing slow adoption.

“Mobile payments must ultimately be more user-friendly than cash or standalone credit cards to take off,” said Neil Mawston, executive director for global wireless practice with Strategy Analytics. “Aggregating multiple credit cards into one mobile wallet, such as Discover with Apple Pay, is one way of differentiating mobile payments from traditional cash or plastic payments.”

Final Take
Michael Barris is staff reporter on Mobile Commerce Daily, New York