Apple Pay

Everything You Need to Know about Apple Pay

Earlier today Apple announced their newest product, a mobile payment system called Apple Pay. This new feature aims to revolutionize the “fairly antiquated payments process” using a near field communication (NFC) antenna, Touch ID, the Passbook application, and something called a “Secure Element”, a dedicated chip that stores encrypted payment information.

According to industry experts, this product has been in development for several years and could be the future of how we pay for everyday items. Tim Cook, Apple’s CEO, took the stage at a media event earlier today to announce the new system. “It’s going to change the way you pay for things forever,” Cook said.

With all the recent hacking and credit card breaching stories in the news these days, the announcement could quite possibly not come at a better time. Apple says that this new method of payment will revolutionize the payment process, and “fix” the existing system that can be easily compromised.

So what exactly is Apple Pay? How will it help you? Here is an ultimate guide with everything you need to know about this new Apple feature.

What is Apple Pay ?

Apple Pay is a program that will be built in to all new iPhones as well as the new Apple watch products which are set to be released early next year. It is a mobile wallet of sorts that allows you to pay for many of the everyday items you already buy with a simple wave of your hand (or phone).

This new method of paying for things could be the answer to many security concerns that are facing Americans today. By utilizing the Apple Pay system for completing transactions, customer’s credit card and banking information will be kept safe and secure from hackers.

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How Does it Work?

It’s actually very simple. If you have an iTunes account, which millions of people already have, chances are your banking and credit card information is already saved in your profile.

A transaction using the new Apple Pay system works by communicating a security or authorization code from your phone to the receiving terminal at the check-out stand. This transfer of information occurs because of a device called a Near Field Communication (NFC) antenna that is built into the device itself. This antenna allows you to simply place your phone near the receiving terminal, and with that one simple action your transaction is completed.

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How secure is Apple Pay?

In a recent survey, security and convenience were the top two reasons cited for not using digital wallets, with approximately 46 percent of the survey’s respondents pointing to security concerns.

One of the big selling points that Apple is promoting, is the fact that this new method will eliminate the possibility of security breaches that are occurring all too often these days with big retailers and credit card companies. The existing method of credit card payments (using credit card numbers) leaves our accounts open and exposed for possible thieves to steal.

“We’re totally reliant on the exposed numbers, and the outdated and vulnerable magnetic interface — which by the way is five decades old — and the security codes which all of us know aren’t so secure,” said Cook during the announcement this morning. “It’s no wonder that people have dreamed of replacing these for years. But they’ve all failed.”

Each card that is added from your iTunes account will get a device-only account number, so the actual credit card number is never stored on either your phone or Apple’s servers. This means that credit card theft as we know it can be avoided, and using Apple pay is a more secure alternative.

When you wave your phone in front of a receiver, it generates a one-time authorization code confirming the transaction as complete. That means your credit card number is not left in the stores computer system or on a receipt for someone to steal later, and offering an additional level of security for the consumer.

In addition to keeping your payment information safe and secure, Apple also promises that it won’t track what you buy or how much you paid. This has been another big concern raised by consumers recently.

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What are the other programs or apps that Apple Pay uses to make transactions work?

Apple Pay will be built into the new iPhone 6 and the new Apple watch, set to be available early next year. It will work by using several other Apple apps already in use today, including iTunes and Passbook, and a microchip built into the phone called the Secure Element.

iTunes is a media player originally released over a decade ago, and is available in 23 different languages around the world. There are over 800 million iTunes accounts in use today, and at one point Apple was adding 500,000 new accounts every day. It only made sense for Apple to take advantage of this, one of the largest and most widely used apps in the world.

Passbook is a convenient application that was released by Apple in 2012, that allows you to store coupons, loyalty cards, membership bonuses, airline boarding passes, event tickets and similar items. While this is still a relatively new app, it is becoming more popular and growing with the number of partners who offer “passes”.

By expanding this program to include the new Apple Pay app, they are essentially “piggy-backing” on an already established and secure system. The Passbook application, recently announced the Touch ID fingerprint scanner and an API being added to their list of features.

Secure Element, which has actually been around for a few years now, is a piece of hardware built into the phone that stores your financial information as encrypted. When you make a purchase, it generates a one-time transaction number or authorization code, protecting your financial info from being shared with the merchant. With Secure Element, your card number is not stored on your phone or in a “Cloud”, but rather is disguised by using this secure encryption method.

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How will it help me?

Using the new Apple Pay system will not only make your transactions more secure, but also more convenient. Gone are the days when forgetting your wallet means you are unable to buy the things you need from a retailer. All you will need now is your phone. This new system makes Apple Pay look like it could very well become the mobile wallet of the future.

Additionally, if you lose your phone, you can suspend the account and all future payments remotely, without needing to cancel your credit cards.

How do I get Apple Pay?

Apple announced that Apple Pay will be officially launched by October 2014 beginning next month. This new innovation will be included on all new iPhones, beginning with the iPhone 6. These and newer devices will have the NFC antenna built into them, which means there will be no need to buy additional equipment or any other add-ons. It will also be built into the new product line of Apple watches that are going to be sold in stores beginning early next year.

Is Apple Pay a replacement to mobile payments?

In a sense, maybe. But it is perhaps better described as a method of mobile payment on a whole new level of it’s own. While mobile wallet applications have been around for some time already, the features that Apple Pay is offering makes it a step above the rest.

Many Android phones have already been built with the NFC technology in them for the past few years, but their mobile payment system never really took off like they had hoped. This is mostly due to the fact that their app used to process those payments, Google Wallet, was not as well received as they had hoped.

But now that Apple has stepped into the game, this may be a new day for all mobile payment or “virtual wallet” enthusiasts. You may have noticed a few of those “Tap to Pay” terminals at local retailers already, but with the marketing power that Apple has now added to the equation, you can expect to see them virtually everywhere.

One key element to the common belief that this Tap-to-Pay method will now be a widely accepted practice, is the fact that Apple not only manufacturers their devices, but also creates and controls the operating system behind them. This means that wireless companies cannot “block” users from using Apple Pay. There are many other products that have faced this difficulty when trying to use the existing technology available through Google.

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Where will Apple Pay it be accepted?

Apple announced that Apple Pay will start in the U.S. with Visa, American Express®, and Mastercard, as well as with several large banks like Capital One, Bank of America, Citi, Chase and Wells Fargo, when it is released next month. They also stated that the new system will work at more than 200,000 merchants across the country. Some of these retailers include big names like Disney, Bloomingdales, Groupon, Subway, Target, McDonald’s, Whole Foods, Macy’s, and Walgreens.

Apple will also be working diligently on getting more retailers to accept this new method of secure payment. The challenge initially will be to get the retailers to agree to installing the equipment needed to receive the secure transactions. Apple is offering many incentives to retailers, including free terminals, in order to get as many on board as possible.

What does Apple Pay mean for retailers?

Payment processors like TransNational have already shown a willingness to embrace Apple Pay. In an announcement, they said that they are giving out free NFC enabled devices to make Apple Pay purchases possible at POPs. But for many of the smaller retailers across the nation, it could be very confusing trying to figure out how to get on board with this new method of accepting payments.

Some retailers are already set up with terminals that operate based on NFC technology. They may have had these terminals installed in hopes that earlier attempts to get “Tap-to-Pay” off the ground would have been more successful. Unfortunately, those earlier attempts were met with some huge challenges, but the fact that Apple is now on board changes things greatly.

If you own a retail location and want to set up NFC terminals to allow your customers to pay via Apple Pay, you can purchase one from most electronic stores. You should contact your existing POS service provider to find out how to get this service started in your establishment.

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How will retailers benefit from Apple Pay?

Retailers can benefit greatly from offering this system of accepting payments from customers. It adds an additional option for consumers which may increase sales, as well as an added level of security to transactions.

Additionally, retailers will now have the ability to create apps that enable an iPhone 6 user to complete purchases by simply pressing their finger on their screen.  This will also boost online shopping sales for many different items since users can pay for physical goods and services with Touch ID. A customer can check-out with a single touch, so there’s no need to manually fill out lengthy account forms or repeatedly type in shipping and billing information. Since card details are kept private and are not shared with the online merchant, there is an added benefit to both retailers and consumers.

Final Notes

While there is much excitement and buzz around this recent development and announcement by Apple, it remains to be seen how much of a difference this new program will actually have on the market. It seems that Apple has the right idea in mind when explaining some of the features of their new mobile payment system, taking into account a lot of the concerns that consumers have today. But perhaps only time will tell if this new system of payment.