Apple Pay – Everything you need to know

What is apple pay?  Apple Pay is the newest form of mobile payment.  Consumers can now use their iPhone 6 or 6 Plus (and the soon to come: Apple watch) at participating merchants in stores and online to pay for their purchases.  Apple’s ultimate goal is to replace our wallets with our phones. We will no longer be weighed down by our plastic credit/debit cards because our wallet will be stored in our phones.

How does it work?  – The first step in using Apple Pay: Load your credit/debit cards into Passbook (the “mobile wallet” for storing tickets, boarding passes, and coupons already on the iPhone). You can simply take a picture of your card to have the data automatically added, or you can type it in manually.

Step 2: Go shopping. When checking out at a participating store, simply hold your phone up to the checkout terminal (the device where you used to swipe a card) and wait for Passbook to automatically open.  Then select the card to use and when prompted hold your fingerprint on the home button until the phone vibrates, beeps, and a check mark appears.  Voila! That’s it, you just paid for your groceries with your phone and a fingerprint.

Screen Shot 2015-01-21 at 4.25.36 PMSo how does it really work though?  Apple Pay works through NFC, or near field communication. Many point-of-sale terminals in stores are already capable of receiving NFC, and Apple Pay works with all of them. NFC technology has been around for many years now, but now that it is touted by the big Apple, it is becoming more mainstream. To get a bit technical, here’s how it works: The iPhone has a built-in antenna that broadcasts an electromagnetic field roughly the same size of the antenna. The NFC capable point-of-sale terminal has a similar antenna set up for receiving your active signal. This near field proximity structure is what helps make NFC so secure. Because for someone to “hack in” or “listen in” on your signal they would have to have a receiving antenna within a phones length away from your iPhone while your fingerprint is being read.

Is it safe/secure?  Actually, yes it is. Some say it is more secure than using a traditional plastic swipe credit card. Here’s why: the security starts when you load a card into passbook. Each card is given a unique Device Account Number (DAN) which is stored in the phone in place of the real card number. This DAN is never uploaded to the cloud and is only stored on your iPhone in what Apple is calling “the secure element.” When making a transaction, the DAN is transmitted via NFC along with a onetime “dynamic security code.”  Basically, this unique “dynamic security code” works as the 3 digit security code on the back of your card except it changes every time.

The credit card companies are in full support of this technology as it will dramatically reduce fraud from large scale data breaches. The merchants will never see a costumer’s actual credit card number, name, CCV, or expiration date and will therefore never store it on their systems. So, no more Target or Home Depot data breaches. The Device Account Number and Dynamic Security Code cannot be reproduced or dissected to reveal the actual credit card information. It is a win for the consumer, because if we see wide-spread adoption of Apple Pay’s NFC technology, we will also see a dramatic decline in overall credit card fees, since those fees are primarily used to cover fraud. 

Screen Shot 2015-01-21 at 4.32.51 PMWhat makes apple pay even more secure?    Your fingerprint! All of the secure processes mentioned above about DANs, DSCs and NFC require your unique fingerprint for every transaction.  And, if you lose your phone there is no need to cancel all of your cards.  Simply activate the Find My iPhone feature and suspend all payments.

Should you use it?  Yes. It’s safer, more convenient, and will reduce costs for merchants, which will reduce prices for you.

Will it be a success?  To be a success, Apple Pay needs to be convenient, easy to use/set-up, and widely adopted. And in typical Apple style, I believe they have met those requirements. So yes, Apple Pay will be a success, if it is not already.  At launch there were 220,000 participating vendors. After the first three days, there were over 1 million credit cards registered on the service.

The number of merchants has grown daily and includes stores such as:  Whole Foods Market, McDonalds, Subway, Nike, Macy’s, Bloomingdale’s, Foot Locker, Duanereade, Walgreens, Wegmans, Petco, Chevron, American Eagle Outfitters, and many more…

And apps like: Groupon, houzz, Lyft, Opentable, Panera, Staples, Uber and many more…

I look forward to seeing the progress and innovation from both Apple and its’ competitors as they strive to make mobile payments a success.

By | 2015-01-21T17:29:54+00:00 January 21st, 2015|Categories: UI Journal|Tags: , |0 Comments

About the Author:

Bryan Sanford is Vice President and Investment Officer of Charter Trust Company. He joined the firm in 2009 and is based in our Concord NH office.

Mr. Sanford received his Bachelors of Science degree from the University of New Hampshire, Durham. Mr. Sanford has held the FINRA Series 7 license.

Prior to joining Charter Trust, Mr. Sanford served in the United States Marine Corps as an infantryman. He participated in Operation Iraqi Freedom, touring in Fallujah, Iraq.

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