I was in Sydney, Australia, the day that Apple Pay launched. Early that morning, I stopped by a convenience store for breakfast on the way to the office. However, because Australia has adopted the chip and pin system, many terminals no longer support older mag strip cards - like my Chase credit card.
How was I going to get my morning coffee? Well, I decided to load my Chase credit card (which uses a mag strip) into Apple Pay right while I was in the store. I was then able to walk up to the checkout and pay for my breakfast by simply tapping my phone to the terminal.
Instead of having to deal with the difficulty of using my foreign card, requiring a swipe and signature, Apple pay allowed me to use it just as easily as a chip and pin card.
Because Apple Pay uses NFC technology to communicate with Tap & Go enabled payment terminals. Once a participating bank's credit card is added to Passbook in an iOS device, it is usable in any terminal that works with Apple Pay. As an advantage to using this system, cards that do not use chip and pin (instead relying upon magnetic strip) can be used in countries that only accept chip and pin cards.
There are both positive and negative considerations for security with the implementation of new systems. Apple Pay is dependent on the integrity of the device's fingerprint recognition. Additionally, once a credit card is added to Apple Pay, security precautions must be in place to prevent credential falsification and fraudulent purchases. At the same time, however, Apple Pay transactions are more robust because each transaction is tokenized.
With a standard credit card transaction, there is the potential for information (such as the credit card number) to be intercepted. A tokenized version of this information is transmitted using Apple Pay, and this number changes every time a new transaction is made. If the credit card number was ever intercepted, it would be useless since it cannot be used more than once.
Another strength of Apple Pay is the fact that the device's NFC is only active when it is in proximity of a terminal and the user's thumb is placed on the Touch ID fingerprint sensor. If someone was trying to use an NFC/RFID scanner to steal credit card numbers from people's wallets as they walked past, their efforts would be unsuccessful if the person had an iPhone.
In terms of technological progression, a completely digital wallet is the ultimate goal. All important items will be stored in a disposable device like an iPhone. Since everything is backed up to iCloud, the phone can become lost, stolen, or damaged without losing any of these critical items. Loyalty cards, airline frequent flyer cards, and concert tickets will all be secured on a phone and synchronized between all devices.
Security credentials for building access will cease to be dependent on physical ID cards. No longer will people need to carry several cards that are susceptible to being intercepted by malicious actors. Instead, one device will authenticate at all security checkpoints and doors. Apple are in a great position with their model of disposable devices to drive this new model forward.
One of the ironies of Apple Pay is its limited availability. As of now it is only available in the US with US-issued cards. This is a feasible strategy because Tap & Go is very early in its deployment, and Apple has the opportunity to forge relationships with major partners.
At the same time, once Apple deploys Apple Pay in other markets where EMV is already available, the uptake will be much more significant. In the EU and Australia, iPhone users will be able to leave home with credit cards loaded into Passbook and Apple Pay. The user will not have to worry about which cards they have on them—they will all be loaded into their digital wallet.
New forms of payment technology - such as EMV and NFC - are more secure than previous technologies, such as mag strip, but the fraudsters are never far behind. To stay ahead of the game, Banks and payments processers need to ensure that they are able to monitor these new payment types in real time.
Author: John Dunne, VP of Products
How are you preparing for Apple Pay? Do you believe it delivers greater security for payments or opens up a whole new world for fraudsters?