Apple Pay

Now available in the U.S. in participating apps and more than 200,000 retail locations

At a Glance

Apple Pay is Apple's new mobile payment service, which lets iPhone 6, 6 Plus, and Apple Watch owners make payments using NFC with their devices.

Features

  • NFC Integration
  • Touch ID for Security
  • "Tokenization"
  • Accepted at 200,000 Locations in U.S.
  • Supported by iPhone 6, 6 Plus, Apple Watch

This page is current as of 19 hours ago
Highlight Most Recent Changes

Apple Pay Overview

Apple Pay, aka Pay, is Apple's new mobile payments service. 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 was released to the public through an update to iOS 8.1 on Monday, October 20. Apple's retail partners and several of its app partners were ready to go with Apple Pay support on launch day, allowing customers to head right out to try the new service.

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.

Apple Pay also lets users make one-tap purchases within apps that have adopted the Apple Pay API. Devices capable of using Apple Pay within iOS apps include the iPhone 6, the iPhone 6 Plus, the iPad Air 2, and the iPad mini 3. All of these devices contain an NFC controller where the "Secure Element" of Apple Pay is located, keeping customer information secure.

To keep transactions secure, Apple uses a method known as "tokenization," preventing actual credit card numbers from being sent over the air. Apple also secures payments using Touch ID in the iPhone 6 and skin contact with the Apple Watch.

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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.

According to Apple CEO Tim Cook, Apple Pay will "forever change the way all of us buy things," and thus far, Apple Pay has seen some early success, garnering more than 1 million credit and debit card activations during the first 72 hours after it was released.

Setting Up Apple Pay

After installing iOS 8.1, Apple Pay can be setup in the Passbook app. Tapping the "+" icon in Passbook will allow users to add a credit or debit card to Apple Pay, either selecting a card already on file with iTunes or scanning one in with the camera.

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Credit cards are verified in just a few seconds, but some cards require a phone call, app download, or an email to verify a card before it can be added to Apple Pay. Once a card is verified, it is immediately available for purchases both in stores and within apps. Eight cards can be registered with Apple Pay at one time.

Apple Pay can be managed in the Settings menu, located in the new "Passbook and Apple Pay" section. Each credit card added to Passbook is listed here, along with information like billing address, email, and phone number. Tapping on a card offers specific information like last digits of the card number, last digits of the Device Account Number that replaces the card number in transactions, and it also provides contact information for the bank that issued the card.

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Some cards are also able to display transaction information, offering a list of recent transactions that have been made.

How It Works

Once a credit or debit card has been added to Passbook, Apple Pay is ready to be used in stores and in apps.

In a retail store, when approaching a point-of-sale system compatible with Apple Pay, the screen of the iPhone 6 or 6 Plus will light up and open Passbook automatically, where a user can tap on a credit card to be used or pay with the default card.

A payment is made by holding an iPhone 6 or 6 Plus near a checkout system that includes NFC, most of which look like standard card checkout terminals within stores. A finger registered with Touch ID must be kept on the home button for a short amount of time, after which a payment is authenticated and the transaction is completed. A completed payment is denoted by a slight vibration, a check mark on the screen, and a beep.

Unfortunately, in some stores, users may still be asked for a PIN code or to sign for a purchase, but in other retail locations, checking out with Apple Pay appears to be an easy one-step process.

At times, Apple Pay may not be much more convenient than swiping a card, but it's important to recognize that Apple Pay is still more secure than a traditional card-based transaction. With Apple Pay, a cashier does not see a credit card number, a name, an address, or any other personally identifying information.

Stores are also not given a credit card number (as card numbers are replaced with unique Device Account Numbers) so store security breaches that leak credit card numbers will no longer affect Apple Pay users.

In More Detail

Apple Pay Setup

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.

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The credit or debit card stored within Passbook can then be used to make payments both in retail stores and online in participating apps. 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.

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.

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According to Apple iTunes chief Eddy Cue, Apple expects that most Apple Pay transactions will be made within apps during the first few months that the service is available to consumers. Apple is, however, working to get even more retailers on board to increase Apple Pay's in-store usefulness.

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.

While Apple Pay is limited to the United States for the time being, iPhone 6 owners in other countries have discovered that they can get Apple Pay working with a supported U.S.-based credit card by changing the region in their phones from their home country to the United States. Using a U.S.-based credit card does, however, incur pricy currency conversion fees, making it a solution ill-suited to daily use.

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.

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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.

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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 signed deals with major banks as well, including Bank of America, Capital One, Chase, Citi, American Express, and Wells Fargo, which are responsible for 83 percent of all credit card volume.

In October and November, several additional banks began supporting Apple Pay, including Navy Federal Credit Union, USAA, PNC, Barclaycard, US Bank, Regions Bank, and more. A current list of partners can be found on Apple's Apple Pay site.

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, Office Depot, 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.

In November 2014, Staples announced that it had begun accepting Apple Pay in its 1,400 retail stores across the United States.

applepayinapp

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 now that the Apple Pay API widely available following the launch of the service.

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.

Issues with Apple Pay

Because Apple Pay is positioned as a brand new service that requires banks, credit card companies, and retailers to all work together, some glitches in the system are inevitable. As time goes on, however, many of the problems with Apple Pay will undoubtedly be worked out as all involved parties grow used to the system.

Shortly after Apple Pay's release, some Bank of America customers that used the payments service found two charges showing up on their credit card statements for every purchase. The error was caused by an issue between a bank and at least one payments processor, and Bank of America pledged to fix the issue as soon as possible and give customers refunds for the double charges.

In addition to the Bank of America malfunction, early Apple Pay testing revealed that many retail employees at companies that were known partners of Apple had little knowledge about the service. Returns at American Eagle Outfitters, for example, were difficult as employees had not been taught to process them.

Currently, a minor glitch is causing some credit cards to display the wrong card design within the Passbook app, but a fix is said to be in the works.

Promotions

Some banks and credit cards have begun offering promotions to entice users to give Apple Pay a try. Wells Fargo, for example, is offering $10 to its debit card customers and $20 to its credit card customers who make a purchase with Apple Pay. All customers need to do is complete a purchase by November 30 using Apple Pay, with Wells Fargo promising to reimburse them for the cost with a statement credit.

Visa is entering all of its customers that share their first Apple Pay purchase on Twitter, Facebook, or Instagram into a daily contest for a $500 Visa gift card. Customers are required to share a picture of their Apple Pay purchase on one of the social networks with the hashtags #sweeps and #visa.

Competition

It appears that Apple Pay's major competition will be the Merchant Customer Exchange or MCX, a consortium of merchants like Walmart, Best Buy, CVS, Rite Aid, Target, Lowe's, and more, that are backing a mobile payment solution called CurrentC.

>Some MCX members like Walmart and Best Buy have publicly stated that they will not be supporting Apple Pay and have no plans to install NFC-based payment systems, while others, like CVS and Rite Aid have disabled NFC access on their in-store point-of-sale systems.

While both Rite Aid and CVS initially accepted Apple Pay payments as NFC is all that's required for Apple Pay to work, both drugstores opted to shut off NFC at their payment terminals in order to prevent customers from using Apple Pay.

While the MCX payments platform CurrentC is in testing in Minnesota, it is not expected to see a wider launch until 2015. Along with being unavailable, CurrentC uses different technology than Apple Pay, relying on customers to scan QR codes to make payments rather than simply using NFC.

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CurrentC has been described as a convoluted system that offers minimal benefit to consumers. The platform aims to do away with credit card processing fees, requiring customers to connect a bank account or pre-paid debit card. CurrentC also has questionable privacy policies, asking for a user's social security number/driver's license number during the sign up process and tracking both health-related data and customer purchases, all of which is stored in the cloud.

Though seemingly less secure than Apple Pay, which replaces card numbers with a Device Account Number and stores the information in a Secure Element on the iPhone, CurrentC is compatible with a wide range of older iPhones and Android devices and it has the capability to provide access to loyalty accounts and discounts, a feature that MCX execs believe customers highly desire.

Rite Aid and CVS's decision to stop accepting Apple Pay payments has brought MCX and its CurrentC payment platform into the spotlight, and much of the attention it's received has been negative. In the App Store, the CurrentC app has garnered hundreds of negative reviews from unhappy Apple Pay consumers, and Android and iOS users on reddit have teamed up to call for a boycott on all MCX partners, as disabling NFC support to prevent Apple Pay purchases also disables Android-based payment solutions like Google Wallet. MCX has already faced its first security breach, with hackers obtaining the email addresses of CurrentC testers.

According to MCX, retailers like Rite Aid and CVS are required to support CurrentC exclusively, but there are no penalties or fines for leaving the program. Participants are not allowed to accept both CurrentC and Apple Pay, though MCX may allow it in the future.

MCX executives have explained that the exclusivity agreements last "closer to months than years" and were put in place to provide "breathing room" for the development of CurrentC. There are reportedly "consequences" for breaking the agreements, with MCX pledging to provide support only for retailers who remain dedicated to the program.

Apple has said little about the CurrentC controversy, stating only that the response to Apple Pay has been "overwhelmingly positive and enthusiastic" and that it is working to get "as many merchants as possible" to support Apple Pay.

Upcoming Features

Rumors have suggested that Apple is working to launch an Apple Pay loyalty rewards program in order to monetize its mobile payment system with iAds. Apple will allegedly take advantage of iBeacons and Bluetooth LE to deliver targeted ads and discounts to consumers as they shop, which can be purchased with a "tap-to-buy" button.

For example, when in a retail store, a user might receive a push notification from Pepsi, letting them know they can get a free case of Pepsi using Apple Pay. Such a system might be launching during the holiday shopping season.

Apple Pay Timeline

  • Roundup Last Updated