by Jean-Louis Gassée

Payment systems and user behaviors have evolved over the past three decades. In this first of a two-part Monday Note, I offer a look at the obstacles and developments that preceded the Apple Pay launch.

When I landed in Cupertino in 1985, I was shocked, shocked to find that so much gambling was going on in here. But it wasn’t the Rick’s Café Américain kind of gambling, it was the just-as-chancy use of plastic: Colleagues would heedlessly offer their credit card numbers to merchants over the phone; serious, disciplined executives would hand their AmEx Platinums to their assistants without a second thought.

This insouciant way of doing business was unheard of in my Gallic homeland. The French (and most Europeans) think that trust is something that must be earned, that it has a value that is debased when it’s handed out too freely. They think an American’s trusting optimism is naïve, even infantile.

After I got over my shock, I came to see that my new countrymates weren’t such greenhorns. They understood that if you want to lubricate the wheels of commerce, you have to risk an occasional loss, that the rare, easily-remedied abuses are more than compensated for by a vibrant business. It wasn’t long before I, too, was asking my assistant to run to the store with my Visa to make last-minute purchases before a trip.

(On the importance of Trust and its contribution to The Wealth of Nations — or their poverty — see Alain Peyrefitte’s La Société de Confiance [The Society of Trust]. Unfortunately the work hasn’t been translated into English, unlike two of Peyrefitte’s other books, The Trouble with France and the prophetic 1972 best-seller The Immobile Empire. The title of the latter is a deplorable translation of Quand la Chine s’éveillera… Le monde tremblera, “When China Awakes, The World Will Shake”, a foreboding attributed to Napoleon.)

The respective attitudes towards trust point out a profound cultural difference between my two countries. But I also noticed other differences that made my new environment feel a little antiquated.

For example, direct deposit and direct deduction weren’t nearly as prevalent in America as in France. In Cupertino, I received a direct deposit paycheck, but checks to cover expenses were still “cut”, and I had to write checks for utilities and taxes and drop them in the mailbox.

Back in Paris, everything had been directly wired into and out of my bank account. Utilities were automatically deducted ten days after the bill was sent, as mandated by law (the delay allowed for protests and stop-payments if warranted). Paying taxes was ingeniously simple: Every month through October, a tenth of last year’s total tax was deducted from your bank account. In November and December, you got a reprieve for Holiday spending fun (or, if your income had gone up, additional tax payments to Uncle François — Mitterrand at the time, not Hollande).

Like a true Frenchman, I once mocked these “primitive” American ways in a conversation with a Bank of America exec in California. A true Californian, she smiled, treated me to a well-rehearsed Feel-Felt-Found comeback, and then, dropping the professional mask, she told me that the distrust of electronic commerce that so astonished me here in Silicon Valley (of all places), it was nothing compared to Florida where it’s common for retirees to cash their Social Security checks at the bank, count the physical banknotes and coins, and then deposit the money into their accounts.

Perhaps this was the heart of the “Trust Gap” between Europe and the US: Europeans have no problem trusting electronic commerce as long as it doesn’t involve people; Americans trust people, not machines.

My fascination with electronic payment modes preceded my new life in Silicon Valley. In 1981, shortly after starting Apple France, I met Roland Moreno, the colorful Apple ][ hardware and software developer who invented the carte à puce (literally “chip card”, but better known as a “smart card”) that’s found in a growing number of credit cards, and in mobile phones where it’s used as a Subscriber Identity Module (SIM).

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The key to Moreno’s device was that it could securely store a small amount of information, hence its applicability to payment cards and mobile phones.

I carried memories of my conversations with Moreno with me to Cupertino. In 1986, we briefly considered adding a smart card reader to the new ADB Mac keyboard, but nothing came of it. A decade later, Apple made a feeble effort to promote the smart card for medical applications such as a patient ID, but nothing came of that, either.

The results of the credit cards industry’s foray into smart card technology were just as tepid. In 2002, American Express introduced its Blue smart card in the US with little success:

“But even if you have Blue (and Blue accounts for nearly 10% of AmEx’s 50 million cards), you may still have a question: What the hell does that chip (and smart cards in general) do?

The answer: Mostly, nothing. So few stores have smart-card readers that Blue relies on its magnetic strip for routine charges.”

In the meantime, the secure smart chip found its way into a number of payment cards in Europe, thus broadening the Trust Gap between the Old and New Worlds, and heightening Roland’s virtuous and vehement indignation.

(Moreno, who passed away in 2012, was a true polymath; he was an author, gourmand, inventor of curious musical instruments, and, I add without judgment, an ardent connoisseur of a wide range of earthly delights).

Next came the “Chip and PIN” model. Despite its better security — the customer had to enter a PIN after the smart card was recognized — Chip and PIN never made it to the US, not only because there were no terminals into which the customers could type their PINs (let alone that could read the smart cards in the first place), but, just as important, because there was a reluctance on the part of the credit card companies to disturb ingrained customer behavior.

It appeared that smart cards in the US were destined to butt up against these two insurmountable obstacles: The need for a new infrastructure of payment terminals and a skepticism that American customers would change their ingrained behavior to accept them.

In 2003, I made a bad investment in the payment system field on behalf of the venture company I had just joined. The entrepreneur that came to us had extensive “domain knowledge” and proposed an elegant way to jump over both the infrastructure and the customer behavior obstacles by foregoing the smart card altogether. Instead, he would secure the credit card’s magnetic stripe.

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