What is Apple Pay?

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.

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?

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