Apple Pay Promises Easier, More Secure Mobile Payments

Apple made some waves this month with announcements about its new products. But while the iPhone 6 generated excitement, it was the introduction of Apple Pay that had banks, credit unions and payments giants rushing in.

American Express, MasterCard and Visa almost immediately pledge support for the new mobile payment system, as did major credit card issuers including Bank of America, Capital One Bank, Chase, Citi and Wells Fargo.

Navy Federal Credit Union – the largest CU in the world – also jumped on the Apple Pay bandwagon.

What caused them to move so quickly in the affirmative was, of course, Apple’s sheer size. With millions of people already in the Apple ecosystem, it’s a sure bet that Apple Pay will immediately become a player in the mobile payments arena.

But people are also excited about the new system’s potential to greatly improve mobile payments security over today’s increasingly vulnerable networks and systems.

According to Apple, the system achieves greater security by leaving less to chance: when users add a credit or debit card with Apple Pay the card numbers are not stored on the device nor on Apple servers. Rather, Apple pay assigns a unique Device Account Number, which is encrypted and stored in the user’s device.

In other words, your debit or credit account number stays with you; the merchants you purchase things from receive this Device Account Number instead of your card number. Each transaction is authorized with a one-time unique number, which changes for each transaction. Merchants use this system to avoid taking in your card number, and thus avoid the pitfalls of insecure data that lead to identity theft.

It all works well, so long as merchants support Apple Pay. For such a system to work, both the consumer device and the retailer have to “handshake” on these Device Account Numbers, to verify the authenticity of the transaction.

Apple said that many retailers have already signed on, including Bloomingdale’s, Disney Store and Walt Disney World Resort, Duane Reade, Macy’s, McDonald’s, Sephora, Staples, Subway, Walgreens and Whole Foods Market. More will surely follow.

But, what about online shopping? Such transactions – where buyer and seller don’t actually meet – have become the leading target of payments fraud in recent years. In these transactions, card numbers are given without much of a verification process taking place.

Apple said it solves this problem in two ways: first, by using their Device Account Number instead of transferring card data; and second, by using biometric authentication.

Users with equipped iPhones can pay with the tough of a finger, using the company’s in-device Touch ID fingerprint feature.

Perhaps the most intriguing feature of the Apple Pay system is the level of privacy it may allow its users. Because the system doesn’t trade credit card numbers, it doesn’t inherently track transactions as efficiently as other mobile systems do (Google’s, for instance).

If Apple expands on that concept, the company may well appeal to people who are concerned with the world of Big Data keeping tabs on every purchase.

In the meantime, Apple will have a big hill to climb in gaining market share in the lucrative, and increasingly crowded, mobile payments space. However, their approach offers some unique advantages at a time when data breaches are on the rise, and identity theft is very much on people’s minds.