Apple Pay

By Anica Wong

December 29, 2014 4 min read

Our smartphones can do almost anything we ask. They can get us to a specific location the fastest way possible. They can track our fitness. They can remind us to do things at a certain time. They can connect us to friends, family or even people we have never met. These devices are beyond smart.

So what is the next revolutionary thing our smartphones can do for us? They can get rid of our bulky wallets.

With the rollout of Apple Pay (launched in October 2014) and Google Wallet (launched in May 2011), we are capable of storing our credit card information and completing transactions at participating retailers, all with the device that's most likely already in our hand. According to Apple's website, "Apple Pay will change how you pay with breakthrough contactless payment technology and unique security features built right into the devices you have with you every day."

So how does this whole thing work? And how secure is this security?

The first step is for you, the iPhone user, to put your credit card information into the Passbook app, where many people already store boarding passes and concert tickets. Then, when a purchase is made at a participating store (Walgreens, McDonalds, Macy's, Target and Whole Foods are some of the major names), you hold your phone near the reader and put your finger on the phone's Touch ID button. Using near field communication (think a Wi-Fi signal but lower frequency and closer range), your iPhone sends a token to the retailer. This is where it gets a little complicated, but it's all in the name of security.

Your credit card information is never actually sent to the retailer. Instead, Apple Pay sends a one-time use token, linking you with the retailer and that purchase. The token is then passed to your bank, which processes the payment regularly. Using Apple Pay means no one ever sees your credit or debit card or has the chance to write down your card number.

"This consolidation of data eliminates the need for multiple companies to manage your account numbers and keep your information secure," says C. Emre Koksal, an associate professor of electrical and computer engineering at The Ohio State University. He wrote about Apple Pay on Buckeye Voices, a university blog.

Once set up, paying with your iPhone is ridiculously easy. But it has quite a ways to go before it's the dominant payment system. First, not everyone has an iPhone, and the system is only available on the iPhone 6 and 6 Plus. Secondly, not all retailers have signed on. At the time of the launch, only 220,000 retailers work with Apple Pay. That's only about 2.4 percent of all retailers in the United States, leaving the remaining 97.6 percent to upgrade their checkout procedures. Apple's website says that it will be implemented into new retailers, including Starbucks and StubHub, soon, but the list of participating stores remains small.

Jan Dawson, a telecom analyst for Jackdaw Research, told The New York Times that it will probably be several years before Apple Pay becomes mainstream. "Apple Pay is going to be a slow-burn success," he said. "Until then, it will be something of a novelty and something that most consumers use occasionally if they use it at all. That's still enormous progress."

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