What is Apple Pay?

Category: Finance

Apple Pay has arrived, and it's the purportedly perfect way to get rid of your money in a jiffy without even thinking twice about it. Just what you’ve always wanted, right? Well, it’s what merchants, banks, and credit card companies want, so Apple wants to make you want it, too. Let’s see what Apple Pay is and what you can (and can't) do with it...

Will Apple Pay Replace Your Wallet?

As you might imagine, Apple Pay is a way to use your iPhone or iPad to pay for stuff, without the hassle of digging into your purse or wallet for a plastic credit card. But you can't use Apple Pay to buy an iPhone 6, iPad Air 2 and iPad Mini 3, because you need one of those in order to use Apple Pay. Apple Pay was enabled on the newest crop of Apple mobile devices on October 20, and will be rolled out later to other iOS devices.

Apple Pay is a contactless mobile payment service and digital wallet. The digital wallet is a metaphor for a place in the Apple cloud where your credit card and bank account information is securely stored (just like Jennifer Lawrence’s private photos). But at least the card and account data never leave Apple’s vault, so they will be less exposed to thieves.

What is Apple Pay?

When you need to pay for something, you just wave your compatible iPhone or iPad near an NFC terminal that communicates with the embedded Apple Pay software. That software generates a unique transaction token for one-time use and transmits it to the server that holds your card and bank account data. The token bears all the data about the specific transaction that Apple Pay must know in order to charge the transaction to the card or account that you specify.

Apple Pay on the iPhone 6 uses the built-in Touch ID fingerprint scanner to authenticate the user. Alternative authentication methods will be rolled out for the Apple Watch, iPad, and older iPhones that lack Touch ID. These may include PINs like old-fashioned debit cards. As I understand it, older iPhones and iPads will be able to use Apple Pay only if they are paired with an Apple Watch, which won't be available until sometime in early 2015. Now you want an iPhone 6 even more, don’t you?

Virtually all of the major credit card companies have collaborated with Apple and are ready to support Apple Pay. So are over 500 large banks. Big retailers who will accept Apple Pay include Walmart, Home Depot, McDonald’s, Bloomingdale’s, Macy’s, and more. But initially there will be only 220,000 point-of-sale terminals where you can use Apple Pay in the whole United States, which is home to millions of places to spend money.

Will it Fly?

The first few months of Apple Pay transactions will occur between a tiny fraction of merchants and a tiny fraction of consumers. But that's probably by design. That type of rollout should minimize the incidence of any embarrassing glitches in the system.

But I am still betting that some ingenious “white hat” hacker will crack Apple Pay before the clock strikes midnight on October 31st. History offers favorable odds, which is scarier than a trick-or-treater arriving at your doorstep in a hazmat suit.

Tech media pundits who got to test Apple Pay early report that it takes “only five to ten seconds” to make a purchase with the new system, not counting merchants’ interruptions to demand your loyalty card or a donation to some worthy cause. (I’m looking at you, Walgreen’s.) That’s not significantly faster than swiping a card, but an iPhone 6 may be easier to find than a card; I hear that many iPhone 6 owners keep them always in hand lest the pricey phones bend and catch fire in a pocket.

There have been other attempts to get consumers to switch from plastic cards to phones for payment purposes. Google Wallet never really got off the ground. Paypal is still trying. I see the Paypal logo on credit card terminals in Home Depot, but I've never been tempted to try it out. The Starbucks app lets you make payments via your smartphone, which is nice because it takes the sting out of having to pay $6 for a latte.

We can expect more digital wallet and contactless payment systems now that Apple has gotten the card services and banks on board. But two big inertial bodies remain: merchants and buyers. Every new payment system requires expensive upgrades of point-of-sale terminals. Apple and its financial services partners are hoping to motivate merchants with incentives and penalties. But millions of merchants will resist upgrading as long as plastic still works. And even though Apple promises that they will not collect information about what users purchase with Apple Pay, that claim is likely to be seen with skepticism, whether it's deserved or not.

The security benefits of Apple Pay (or any other card-free mobile payment service) are becoming better known as more databases of card numbers are stolen from large merchants. But consumers may not trust Apple with their financial details, either. Apple-haters will not jump on the Apple Pay bandwagon, and it's doubtful that Apple will provide an app that allows mobile Android or Windows devices to play.

Without that huge segment of the consumer population, I doubt that most merchants will make the necessary upgrades to enable Apple Pay. Time will tell. Are you and your shiny new iPhone 6 planning to use Apple Pay?

Your thoughts on this topic are welcome. Post your comment or question below...

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Most recent comments on "What is Apple Pay?"

Posted by:

21 Oct 2014

You forgot to mention that this payment method exists in most other advanced countries in the world, and has for years.

EDITOR'S NOTE: I mentioned that it has existed for years in the form of Google Wallet, Paypal, Starbucks app, etc. I didn't think I had to specify which countries.

Posted by:

21 Oct 2014

I guess I'll have the answer to this duh question shortly (my iPhone 6+ is winging its way down from the cloud to my doorstep -- any day now), but if I use Apple Pay, do I have the option to tie it to my, say, Chase United Airlines VISA card so I continue to get my miles? Or have I lost the ability to generate miles (at least those miles)with my purchases? Cuz, guess what? If that's the case, I'm sticking with plastic.

Posted by:

21 Oct 2014

I have some knowledge here. (Galaxy Nexus)
Google Wallet works OK at our McDonalds.
PayPal at Home Depot is best experienced by buying on-line; then picking up at store.
If initiated at the store, it is a PITA that sends you to the Customer Support desk to participate. eVisaPay and Amazon Pay are widely effective for on-line purchases.
VisaPaywave is another NFC contender.

Posted by:

21 Oct 2014

...(just like Jennifer Lawrence’s private photos)...haha! Good one, Bob.

Posted by:

21 Oct 2014

I'm perfectly satisfied with plastic and, yes, even cash. Hard to overspend using cash!

Posted by:

21 Oct 2014

I have an iPhone 4S, and no need to move to 6 or anywhere else. It makes calls, takes pictures, sends and receives emails, etc. It still works. And so does my ATM card and PIN. I have no intention of or need to try iPay.

Posted by:

21 Oct 2014

I do not have an iPhone. I do not really trust Apple with much. I do not think that Apple Pay will catch on like the credit card did.

Posted by:

22 Oct 2014

Not for me - even if I wanted an iPhone (which I don't - I use only a basic PAYG mobile for emergencies). I find basic plastic more than adequate for my needs.

Posted by:

Ms. N.
22 Oct 2014

Softcard by American Express works well and Paypal works at Office Depot at the cashier. You can also use PayPal Credit at Office Depot (I did) but you must pay online and pick up in store. Google wallet sent me a card. It works on the internet for music, videos and other data purchases in the Play Store. So far no problems, except that "Softcard" was first called "ISIS" and they quickly changed the name.

"softcard" gives you $1 every time you swipe it.

Posted by:

22 Oct 2014

iPay fail: special terminals are required, only available for a small segment of the population. Softcard / ISIS works nicely, and works with any terminal that supports tap-to-pay cards (which is probably a majority of all terminals in the near future). I think Paywave, does, as well. Most newer phones have NFC capability. iPay will surely be successful in certain markets, but will never be widespread, unless they make it work with the standard NFC protocols. Requiring terminals to have iPay specific support will kill it before it starts.

Posted by:

23 Oct 2014

I am amazed that such a beast exists.
I have a non-smart cell phone that I use for outgoing calls only.
I use cash or plastic; yes, I do buy online, but not via a phone! Huge security issue, seems to me.
On the other hand, I was born in the 20th century and likely cannot relate to such so-called sophistication.

Posted by:

24 Oct 2014

I have an iPhone 6+and was curious about whether I even wanted to bother with trying out Apple Pay. The only place I shop regularly that would make it useful is Walmart (don't judge me) and everything I've read online has said that Walmart (and Best Buy) will NOT let Apple Pay join in on their reindeer games. Is that still true or do you have new information that I haven't come across yet?

EDITOR'S NOTE: This page has a list of stores that accept Apple Pay. (https://www.apple.com/apple-pay/) I don't know if Best Buy or Walmart will be joining the list.

Posted by:

25 Oct 2014

I lost my phone recently, an Android. If I were foolish enuf and rich enuf to buy an iPhone, what would happen if I were to loose it? Or if it were stolen? It strikes me that most first world business is all about extracting money from people and being virtually uninterested in providing reliable service or offering dependable, high quality goods. Perhaps it's my age that is showing.

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