(Bloomberg) -- U.S. President Barack Obama arrived in Silicon Valley bearing gifts for Tim Cook: A seal of approval for Apple Pay.
The White House announced Friday that Apple Inc.’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, according to the General Services Administration.
“It has big promotional value” for Apple, Richard Crone, chief executive officer of Crone Consulting LLC, 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 today at Obama’s cybersecurity summit in Palo Alto, California, where he said protecting peoples’ privacy was paramount.
“History has shown us that sacrificing our right to privacy can have dire consequences,” Cook said. “We still live in a world where all people are not treated equally, too many people do not feel free to practice their religion or express their opinion or love who they choose -- a world in which that information can make the difference between life and death.”
User Privacy
Obama arrives 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 Inc. CEO Mark Zuckerberg, Yahoo Inc. CEO Marissa Mayer, and Google Inc.’s Larry Page and Eric Schmidt all were invited but won’t attend the conference at Stanford University, according to the companies.
Ajay Banga, CEO of MasterCard Inc., and Brian Moynihan, CEO of Bank of America Corp., are among the industry executives slated to speak at the event.
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.
Digital Wallets
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 Corp. and Rite Aid Corp., which blocked the technology in their drugstores. Both companies are part of a group of retailers, which include Wal-Mart Stores Inc., 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 today’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.
Secure Money
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 Corp. 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 Co. 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.
Private Data
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. The federal government will transition this year to the chip technology on its payment cards, which are used for a variety of benefits, including Social Security.
Before rolling out Apple Pay, Apple updated its privacy policy in September as it sought to reassure users that their data was safe. The company announced that it would no longer be able to access data, such as photos, stored on devices running its newest mobile operating system called iOS 8.
The changes attracted criticism from James Comey, director of the Federal Bureau of Investigation.
“What concerns me about this is companies marketing something expressly to allow people to place themselves beyond the law,” he said in September. He later said companies such as Apple should be required to build surveillance capabilities into their products to help law enforcement.
Data Safeguards
While Apple faces concerns from law enforcement officials about too much security, other parts of the U.S. government have been questioning whether the company has enough safeguards over user data. In advance of shipping a smartwatch in April, the company has received questions from different levels of government about health data that the watch and iPhones collect.
As the world’s largest company by market capitalization, Apple has been more involved in government issues than under co-founder Steve Jobs. Apple increased lobbying spending 19 percent to $4.1 million last year, and focused on more government departments and agencies, including the Federal Trade Commission and Food and Drug Administration.
On Friday, Cook said Apple Pay will become available in September for many transactions with the federal government, such as at national parks.
