Apple Pay, aka Pay, is Apple's new mobile payments service, which will be available in October. Like the new Apple Watch Apple has adopted the Apple symbol () followed by "Pay" for the service's name, though the company also refers to it as "Apple Pay."
Apple Pay is designed to allow iPhone 6 and 6 Plus users in the United States to make payments for goods and services with their iPhones, both in stores and within participating apps, using an NFC chip built into the iPhone 6, the iPhone 6 Plus, and the upcoming Apple Watch.
To keep transactions secure, Apple uses a method known as "Touch ID in the iPhone 6 and skin contact with the Apple Watch.
According to Apple CEO Tim Cook, Apple Pay will "forever change the way all of us buy things."
Apple Pay is designed to be ultra simple, and as demonstrated during Apple's keynote event, making a purchase using the service at a retail store requires only a single step -- holding an iPhone near the payment terminal of a participating merchant while a finger is on Touch ID. Online payments in apps are also reduced to a single tap with Apple Pay, also verified via Touch ID.
Apple is aiming to replace the wallet with Apple Pay, and the one-step process prevents people from needing to dig through a purse or wallet to find credit cards. As it is built on existing NFC technology, Apple Pay will work anywhere NFC-based contactless payments are accepted.
After unveiling Apple Pay alongside the iPhone 6, 6 Plus, and Apple Watch, Apple gave media who attended its keynote event a chance to experience the mobile payment system hands-on, and several sites shared initial first impressions.
According to The Verge Apple Pay worked "remarkably smooth," and was described as the "smoothest payment system" the testers had seen. Touch ID was said to add a "real sense of security."
SlashGear also called the Apple Pay process "pretty darn easy" and said that it was much faster than pulling out a credit card, swiping it, and typing in a PIN or signing a receipt.
Apple Pay Setup and Transactions
Passbook is a key element of Apple Pay. Once the service is enabled through an update to iOS 8, the credit card that is attached to a user's iTunes account will be transferred automatically to Passbook, so it will essentially work "out of the box." Additional credit and debit cards can also be uploaded to Passbook using the phone's camera.
The credit or debit card stored within Passbook can then be used to make payments both in retail stores and online. In a retail store, making a purchase is as simple as holding the iPhone up to the payment terminal with a finger on Touch ID for authentication purposes. During the keynote, Apple demonstrated this step as a quick wave of the phone near the terminal, taking just a few seconds.
According to a hidden Settings menu buried within the iOS 8.1 beta, credit cards and debit cards will be managed in the Settings app, in a menu that also lets users alter their billing information, shipping information, email address, and telephone number.
With Apple Pay, there is no need to take out a credit card or confirm the authenticity of a credit card with a driver's license or ID card, because all of that information is stored on the iPhone and protected by several built-in security systems, including Touch ID.
When a purchase is successfully made with Apple Pay, users will feel a subtle vibration and hear a beep to confirm the purchase is complete.
Making a payment online is equally as simple, as it uses the same credit card and authenticates with Touch ID in participating apps that have adopted the Apple Pay API. Using Apple Pay in an app bypasses all of the steps that are usually required when making an online purchase, including entering shipping and payment information.
After an item is added to an online cart and a user initiates the checkout process, Apple Pay can be selected as the payment method. The shipping/billing address associated with the credit or debit card on file is automatically entered, as is a user's name, and the purchase is confirmed via Touch ID. During this process, information like shipping address can be altered, which is useful when ordering a gift.
Within the Apple Pay and Passbook section in the Settings app, users will be able to view credit card details and a list of recent transactions for each card that has been scanned into the phone. This section also allows users to get quick access to a relevant bank application and control push notifications.
In-store returns are almost as simple as payments. As described by Apple, when returning an item purchased via Apple Pay in an Apple Store, users can tap their iPhone 6 or 6 Plus against a payment terminal which displays their recent in-store transaction information. It is likely that other stores will utilize similar return processes.
Online and retail payments are both limited to participating merchants. Apple Pay is only available within apps that have adopted the Apple Pay API and to make a payment in a retail location, the shop will need to support Apple Pay directly or allow NFC payments.
Compatible Devices
At the current point in time, Apple Pay is limited to the iPhone 6 and the iPhone 6 Plus, both of which contain near-field communication (NFC) chips that have not been incorporated into previous-generation iPhones.
Apple Pay will also work with Apple Watch, the company's wrist-worn wearable device that will be available to consumers in early 2015. The Apple Watch, which does not function without an iPhone, will allow owners of older iPhones, including the iPhone 5, 5c, and 5s, to use Apple Pay.
Security
Apple has placed a heavy emphasis on security when advertising Apple Pay, to assure iPhone owners that their payment information is safe, and, in fact, safer on an iPhone than inside of a wallet. According to former credit card executive Tom Noyes, the way Apple Pay has been designed to work makes it "the most secure payments scheme on the planet."
When a credit or debit card is scanned into Passbook for use with Apple Pay, it is assigned a unique Device Account Number, or "token," which is stored in the phone rather than an actual card number.
The iPhone itself has a special dedicated chip called a Secure Element that contains all of a user's payment information, and credit card numbers and data are never uploaded to iCloud or Apple's servers. When a transaction is made, the Device Account Number is sent via NFC, along with a one time dynamic security code unique to each transaction, both of which are used to verify a successful payment. The dynamic security code is a one-time use cryptogram that replaces the credit card's CCV and is used to ensure that a transaction is being conducted from the device containing the Device Account Number.
Dynamic security codes and Device Account Numbers (aka, tokens and cryptograms) are not unique to Apple and are built into the NFC specification that the company is adopting. In fact, much of the Apple Pay system is built on existing technology.
As described by TUAW in an in-depth report on Apple Pay's security, the payments service is the first implementation of the EMVCo tokenization specification, a newly introduced framework designed to cover emerging payment methods. Credit card industry executives believe that tokenization is a new standard that is going to "shift fraud patterns" in the future, successfully preventing retail hacking incidents that have resulted in stolen user data. With the Apple Pay system, retailers never even encounter a user's actual credit card number and a Device Account Number cannot be reverse engineered to obtain the credit card information.
Along with Device Account Numbers and dynamic security codes, Apple also authenticates each transaction through Touch ID. Whenever a transaction is conducted with an iPhone, a user must place a finger on Touch ID for the payment to go through. With the Apple Watch, authentication will reportedly be done through skin contact . When the watch is placed on the wrist, a user will be prompted to enter a passcode. After a passcode is entered, as long as the device continues to have contact with the skin (which is monitored through the heart rate sensors), it will be able to be used to make payments. If the watch is removed and skin contact is lost, it can no longer be used to make payments.
Both Touch ID and the skin contact authentication method in the Apple Watch will prevent someone who has stolen an iPhone or Apple Watch from making an unauthorized payment.
Because Apple utilizes Device Account Numbers, a user's credit card number is never shared with merchants or transmitted with payments. Store clerks and employees do not see a user's credit card at any point, and they also do not have access to personal information like name or address because an ID is not required for verification purposes.
Furthermore, if an iPhone is lost, the owner can utilize Find My iPhone to suspend all payments from the device, without needing to go through the hassle of canceling credit cards.
Banks are confident in Apple Pay's security, and have opted to assume liability for any fraudulent purchases made both in retail stores and online using the system.
Privacy
In light of recent issues with iCloud, Apple has been careful to point out that it does not store or monitor the transactions that people make with Apple Pay. The company says that it does not know what people are purchasing, nor does it save transaction information.
"We are not in the business of collecting your data," said Eddy Cue during the keynote speech introducing Apple Pay. "Apple doesn't know what you bought, where you bought it, or how much you paid. The transaction is between you, the merchant, and the bank."
Partners
Apple has partnered with the three major credit card companies in the United States: Visa, MasterCard, and American Express. Apple has also signed deals with major banks, including Bank of America, Capital One, Chase, Citi, American Express, and Wells Fargo, which are responsible for 83 percent of all credit card volume.
Deals with Barclaycard, Navy Federal Credit Union, PNC, USAA, and US Bank are also in the works, and Apple has pledged to continue adding more banks.
Because Apple Pay is based on already existing NFC technology, the service will work with more than 220,000 locations that accept contactless payments. In addition, Apple is working with several popular retailers, all of which will accept Apple Pay in their stores.
Initial partners include Macy's, Bloomingdales, Walgreens, Duane Reade, Staples, Subway, McDonald's, Whole Foods, and Disney, with Apple Pay accepted both at Disney Stores and at Disney World. Apple will also be using Apple Pay in its own retail stores, and it is said to have additional deals in the works. Some retailers, however, have expressed hesitancy about Apple Pay and have opted not to support it.
Apple has also worked with several retailers that are developing apps that will accept Apple Pay, including Groupon, Panera Bread, Sephora, Target, Starbucks, Uber, Disney, Instacart, MLB.com, Tickets.com, and OpenTable. All of the apps will be implementing Apple Pay in unique ways, with OpenTable allowing users to make payments for meals in participating restaurants and Uber enabling one-tap rides.
Additional retailers are also planning to release new apps, and Apple's Apple Pay API will be widely available when the service launches in October.
Apple's Cut
Apple reportedly collects a fee from banks each time consumers use the Apple Pay payment solution to make a purchase. According to rumors, Apple has struck individual deals with each bank it has partnered with, including Chase, Bank of America, Wells Fargo, and more.
Apple's cut is reportedly at 0.15 percent of each purchase, which equates to 15 cents out of each $100 purchase.
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