At Tuesday's long-awaited event in California, Apple unveiled not one but two new, larger iPhones and three Apple Watch smartwatches in two different sizes. But Apple also announced a new payment platform called Apple Pay, which uses your Apple device to authorize payments in stores and in apps. You may never need to pull out your wallet again.
Convenient and Secure
Apple Pay is built on three pillars. The first is new Near Field Communication (NFC) antennas in the iPhone 6, iPhone 6 Plus, and the new $349 Apple Watch. When you bring your NFC-enabled Apple device near a payment pad at a merchant's point of sale machine, your transaction begins.
Second is an upgraded Passbook app, which can now store digital representations of credit cards alongside virtual loyalty cards and digital tickets. Chances are you've already got a credit card associated with your Apple ID, and you can add it to passbook simply by entering its three-digit security code. You can also input new cards just by taking pictures of them with your iPhone's built-in camera. That's a neat feature.
Third, and most important, is the security that Apple says it will use to ensure your payment information stays safe. Instead of storing your credit card data on Apple's servers, Apple Pay information will remain on your device. But instead of a credit card or debit card number, your iPhone or Apple Watch creates a unique Device Account Number (DAN) and uses that to perform the transaction. The DAN is stored within the steely confines of the device's Secure Element, a dedicated chip for storing valuable information. According to Apple, the Apple Watch also sports a Secure Element and can store your payment information independently.
When you make a transaction using Apple Pay, the device transmits the DAN along with dynamically created security codes. This sounds like Apple Pay makes every transaction unique, and creates a wall between your payment information and merchants (and anyone who happens to be listening in between). Should your iPhone be lifted from your person, Apple says you can quickly suspend its payment functions using the excellent Find My iPhone antitheft tool. No word on whether Find My iPhone will work for the Apple Watch.
Interestingly, you'll need to use the Touch ID sensor on the iPhone 6 or 6 Plus to authenticate a transaction. There seems to be no such requirement for the Apple Watch. Also, the Apple Watch can pair with iPhone 5s and 5c devices, perhaps opening up NFC payments for older devices.
Apple Pay sounds a lot like a virtual credit card, which is linked to your existing debit or credit card but uses a different number and security code. Some virtual credit cards can be configured to expire within a day, or only be used for certain amounts. Services like Abine's MaskMe can even automatically detect that you're making a transaction online, and offer to create a new card for that specific transaction. If Apple Pay is doing something similar, it pushes back against credit card fraud in a big way. Of course, if it's not as robust as Apple makes it sound, then perhaps it will only make fraud easier.
Enhanced Privacy
Surprisingly, Apple played up privacy as part of Apple Pay. "When you're using Apple Pay in a store, restaurant or other merchant, cashiers will no longer see your name, credit card number or security code, helping to reduce the potential for fraud," said Eddy Cue, Apple's senior vice president of Internet Software and Services in a press release. During the company's unveiling, Apple insisted that your information would never be stored on Apple's servers. Nor would the company be able to see your transactions, where they happened, and who the merchant was.
Historically, it's been difficult to find merchants that accept NFC transactions, but Apple seems optimistic, boasting that 220,000 stores will support Apple Pay. These include Babies 'R' Us, Bloomingdales, the Disney Store, Duane Reade, Macy's, McDonald's, Nike, Petco, Staples, Subway, Toys 'R' Us, Unleashed, Walgreens, Walt Disney parks, and Whole Foods. You'll also finally be able to use Touch ID and Apple Pay to authorize payments in third-party apps, including Groupon, Instacard, Mlb.com, OpenTable, Panera, Sephora, Starbucks, Target, Tickets.com, and Uber.