Apple Jumps into Mobile Payments With Both Feet — Finally

Sept. 11, 2014

Apple Jumps into Mobile Payments With Both Feet -- Finally Years of rumors came to fruition Tuesday when Apple unveiled its Apple Pay mobile wallet as part of the new iPhone 6 and could make it very easy for the more than 800 million consumers who have registered a credit card with iTunes to pay using their device. As expected, Apple will leverage NFC to transmit payment card details which will be linked to the wallet either by scanning a credit card with the smartphone’s camera or keying in the information. Apple Pay will be available on the new iPhone 6 and 6 Plus devices that were unveiled on Tuesday and on iPhone 5 and 5s models if they are paired with the new Apple Watch.

Apple Pay will enable contactless payments at the point of sale and online payments conducted from within apps. At the moment, there is no capability to pay at e-commerce Websites using Apple Pay.

American Express, Visa and MasterCard, which Apple partnered with to develop the wallet, took part in the announcement, ensuring that all three can be imported into the wallet. Apple also has reportedly cut deals with most of the major card issuers including American Express, Bank of America, Capital One Bank, Chase, Citi and Wells Fargo, which the company said represents 83 percent of cards issued in the U.S.

Visa said in a separate announcement it would help in securing the transactions by providing Apple Pay with its tokenization service. In-app purchases conducted online also are secured by the fingerprint touch pad that replaced the home button in the iPhone 5s and also appear on the new versions. But, while mobile payments have long been considered by experts to be more secure than traditional magstripe card payments, there is no “hack-proof” system, and as mobile payments scale, vulnerabilities could be exposed.

“Previously mobile payments were usually done via an app or third-party add on, and only very few of these were targeted,” said Mike Park, managing consultant at security firm Trustwave. “With the introduction of this type of functionality into a platform, it makes every device a possible target. It’s still very early, but with this new feature attackers are likely looking to steal identities and mass harvest payment card information as they do in other platforms and verticals now. With a credit card selling for more than $100 USD in black forums, this is an incentive to go after these new containers.”

In its announcement, however, Apple put a great deal of emphasis on the security measures it will take with Apple Pay. Card numbers will not be stored on Apple servers.

“Instead, a unique Device Account Number is assigned, encrypted and securely stored in the Secure Element on your iPhone or Apple Watch,” the company said. “Each transaction is authorized with a one-time unique number using your Device Account Number and instead of using the security code from the back of your card, Apple Pay creates a dynamic security code to securely validate each transaction.” 

While security is vital, though, the focus right now is on Apple dragging mobile payments kicking and screaming into the mainstream. For at least one expert, Apple Pay isn’t the lightning bolt he was expecting, but the decision to get the card brands and select retailers on board first, along with the advent of EMV in the U.S. has the company better positioned than most both at home and abroad.

“To be honest, I expected a more innovative new mobile payment system, simply because Apple has a track record of doing innovation better than anyone else,” said Ralf Gladis, CEO of German payment services provider Computop. “On the other hand, Apple has a global reach and it’s a clever move to join a global standard like NFC and take sides with global card organizations like Visa, MasterCard and American Express. Otherwise it would be an endless fight to convince and connect merchants to Apple Pay. By using NFC, Apple will be compatible with millions of POS terminals worldwide giving its users the positive customer experience they need to be able to use their iPhones and Apple Watch everywhere they go.”

Most experts believe this is the push mobile payments need to gain widespread adoption – a prize that has eluded other high-profile attempts. Many also believe the move has the potential to disrupt an entrenched payment ecosystem . And, as Apple moves toward a billion credit cards on file before its mobile payment initiative is even launched, it certainly has the consumer base to do so.