As expected, Apple has revealed its hand at mobile payments with a new wireless payment system called Apple Pay. The system uses a dedicated near field communication (NFC) chip called the Secure Element.
Apple Pay supports credit and debit cards from major payment networks, including Visa, American Express and MasterCard. Major banks in the US that represent 83pc of card purchase volumes in the US will use it first.
Describing the current credit and debit card systems as “antiquated”, Apple CEO Tim Cook pointed out that the magnetic strip technology on the back of most bank cards is now five decades old.
As well as 258 Apple stores across the US, retailers including Walgreens, Whole Foods Market, Macy’s, Bloomingdales, McDonald’s and Walt Disney will accept purchases from the Apple iPhone 5, iPhone 5s and iPhone 5c, as well as the new iPhone 6 and 6 Plus smartphones.
The technology also integrates with the new Apple Watch that Apple revealed in Cupertino, California, today.
Cook said the new payment system is totally secure. “Apple doesn’t store the credit-card numbers, just the device numbers.”
He said Apple Pay will only be available in the US for the present but added the consumer tech giant is working hard to bring it to the rest of the world.
How Apple Pay works
Apple explained that when you add a credit or debit card with Apple Pay, the actual card numbers are not stored on the device nor 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.
Each transaction is authorised 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.
“Security and privacy is at the core of Apple Pay. When you’re using Apple Pay in a store, restaurant or other merchant, cashiers will no longer see your name, credit card number or security code, helping to reduce the potential for fraud,” said Eddy Cue, Apple’s senior vice-president of Internet Software and Services.
“Apple doesn’t collect your purchase history, so we don’t know what you bought, where you bought it or how much you paid for it. And if your iPhone is lost or stolen, you can use Find My iPhone to quickly suspend payments from that device.”