Apple Pay Hit The USA Monday – It’s Pretty Cool

I’m betting that not one single reader used Apple Pay for a transaction yesterday. To use Apple Pay right now, you’ll need either an iPhone 6, 6 Plus, iPad Air 2, or iPad Mini 3. It’s strange how Apple always works like that. When the new Apple Watch is available in early 2015, Apple Pay will be expanded to the owners of an iPhone 5, 5C and 5S when used in conjunction with the Apple Watch as it has the required Secure Element chip used to securely encrypt a user’s data.

Place your phone near the scanner and use the TouchID fingerprint scanner

One of the requirements for using Apple Pay is downloading iOS 8.1 (not to be confused with the previous iOS 8.0.1) released yesterday. I did that but it won’t help me at all because Apple Pay currently works only in the USA. Maybe you don’t care about Apple Pay and think you’ll never use it even if you could. If you use a debit or credit card and are concerned about fraud then once you learn a bit about Apple Pay’s new security features you might be pretty impressed with it. I know I am.

Here’s a simple non-geeky description of how Apple Pay works

To pay, just hold your iPhone near the the special contactless reader (similar to what you use at Starbuck’s) with your finger or thumb on Touch ID so it can read your fingerprint. There’s no need to open an app or even wake your display thanks to the innovative Near Field Communication antenna in iPhone 6. You don’t even have to look at the screen to know your payment was successfully sent. A subtle vibration and beep let you know. Only Apple has fingerprint security like this.

What makes Apple Pay so unique and groundbreaking?

First of all, every time you have to hand over your credit card to pay, your card number and identity are visible. With Apple Pay, instead of using your actual credit and debit card numbers,a unique Device Account Number is assigned, encrypted, and securely stored in the Secure Element, a dedicated chip in iPhone, iPad, and Apple Watch. These numbers are never stored on Apple servers – i.e. the iCloud. You can use your iTunes credit card or simply add a new one using Passbook.

Here’s a quick, simple explanation of the 3 gobbeldy-gook tech systems used:

Touch ID	Biometric Finger Print Scan	Apple iPhone’s Fingerprint Touch ID
NFC	Near Field Communications	a type of short-range, secure wireless communication
Secure Tokens	Visa Token Service	Tokens replace the 16-digit account information found on plastic cards with a numeric substitute. Tokens use a digital account number and it can facilitate payment transactions without sharing sensitive personal account information.
Secure Element	A Chip in new iPhones	Used to store encrypted Device Account Numbers

Apple Pay uses Near Field Communication chips inside the phones that are read by NFC readers available in an estimated 220,000 stores nationwide. Here’s what’s unique about this: when you make a purchase your account information, including the 16-digit card number, is not stored on the phone or with the merchant. Instead, Secure Token technology allows a unique digital Device Account Number to be generated that becomes a proxy for your card number, and that number is then used in payments. How cool is that?

Here’s another big advantage to Apple Pay for us RVers who travel:  If a phone is lost or stolen, the Device Account Number can be disabled without needing to reissue you a new Credit or Debit card. How cool is that?  And, unlike our plastic debit and credit cards, the iPhone’s Apple Pay is useless to anyone other than you because it requires your “fingerprint” on the TouchID to validate a payment. Crooks would have to cut off a finger or thumb when they robbed you!  That’s not cool!

Apple doesn’t save your transaction information.

The Device Account Number helps keep each payment private, so that only your bank has access to billing details. The number is created, encrypted and stored in what's known as the Secure Element (a separate chip in a phone), which Apple insisted is "walled off from iOS and not backed up to the iCloud."  Apple Pay doesn’t store the details of your transactions so they can’t be tied back to you. Unlike our friends at Google, Apple doesn’t need your data for Search! How cool is that?

Banks on board with Apple Pay

How much does it cost?

Apple is taking a small payment-processing fee from the banks. The amounts aren't huge, but Apple may immediately gain $27 million added income on existing iTunes purchases with the arrangement. It costs us nothing. Given that fees charged for credit/debit card transactions in the US amount to $40 billion annually even a small percentage is still big bucks. After all, Apple needs the money, right?

 

The Future:

Many analysts are predicting that Apple Pay and similar systems to come could eliminate debit/credit cards in time. Other’s also say it could replace our wallets. Before that happens though there will have to be a massive expansion in the number of NFC readers in stores, gas stations etc. The current 220,000 represents only 5% of merchants. Apple is confident though that the number will grow significantly by the end of 2015. I hope so – that would definitely be cool.

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