During Apple's major press conference−where it announced two new versions of the iPhone 6 (4.7 inches and 5.5 inches), along with the Apple Watch−Apple CEO Tim Cook announced a new category of service that will “forever change the way we’ve bought things.”
Cook officially announced Apple Pay™, which he believes will transform mobile payments with an easy, secure, and private way to pay. Apple Pay works with iPhone® 6 and iPhone 6 Plus through a groundbreaking NFC antenna design, a dedicated chip called the Secure Element, and the security and convenience of Touch ID™.
Apple Pay is easy to set up, so hundreds of millions of users can simply add their credit or debit cards on file from their iTunes Store® accounts. Apple Pay will also work with the newly announced Apple Watch™, extending Apple Pay to over 200 million owners of iPhone 5, iPhone 5c and iPhone 5s worldwide.
Instead of storing personal credit or debit cards, there will be a one-time payment with a dynamic security code. Customers can add in the card by taking an image of it. Touch ID will be used to confirm transactions.
“We’ve created an entirely new payment process, Apple Pay,” Cook explained during the presentation. “As it turns out, most people who have worked on this have started by focusing on creating a business model that was centered around their self-interest rather than focusing on the user experience. We love this kind of problem. This is exactly what Apple does best.”
Cook said it’s easy for people to lose their cards or have them compromised. He explained that in January Apple became intrigued by the idea of mobile payments and using Apple’s Touch ID feature as part of the implementation.
He said there are about 200 million daily U.S. transactions that go through a “fairly antiquated payment process. Payments is a huge business. Every day between credit and debit, we spend over $12 billion. That’s over $4 trillion a year, and that’s just in the U.S.”
Cook said his vision is to replace the image of an old, jam-packed wallet by focusing on payments.
“This whole process is based on this little piece of plastic,” Cook said. “We’re totally reliant on the exposed numbers and the outdated and vulnerable magnetic stripe interface, which is five decades old.”
Eddy Cue, senior vice president of Internet software and services for Apple, said Apple Pay is fast, secure, and private.
“We’ve integrated security from software and hardware,” Cue explained. “We create a device-only account number and put it in the Secure Element that no longer has the static code on the back of the card.”
Cue said NFC is the standard for all contactless payments.
“You also have TouchID,” he added. “And we have a new chip called Secure Element. It’s built into iPhone 6 and stores all information securely. We have hundreds of millions of credit cards and debit cards from customers’ iTunes accounts. You can use the card on file. To add another card, take a photo with the phone, go to the bank to verify that it’s your card, and it’s added right to Passbook.”
Cue also explained the privacy element of Apple Pay.
“Apple doesn’t know what you bought, where you bought it, or how much you paid for it,” he said. “The cashier doesn’t see name, credit card number, or security code.”
If the phone is lost or stolen, a customer can use Find My iPhone to cancel all transactions.
“Groupon is incorporating Apple Pay in its app,” Cue added. “Uber has a new feature. Panera lets you order food and have it ready right away. MLB can order tickets. Apple Stores. And Open Table at participating restaurants will be able to use Apple Pay in Open Table app to pay for your check.”
What’s more, Apple Pay will be added to all Disney stores and Disney World in time for Christmas.
Apple Pay supports credit and debit cards from the three major payment networks: American Express, MasterCard and Visa, issued by the most popular banks including Bank of America, Capital One Bank, Chase, Citi and Wells Fargo, representing 83% of credit card purchase volume in the U.S.
In addition to the 258 Apple retail stores in the U.S., some of the nation’s leading retailers that will support Apple Pay include: Bloomingdale’s, Disney Store and Walt Disney World Resort, Duane Reade, Macy’s, McDonald’s, Sephora, Staples, Subway, Walgreens, and Whole Foods Market. Apple Watch will also work at the over 220,000 merchant locations across the U.S. that have contactless payment enabled. Apple Pay is also able to make purchases through apps in the App Store℠.
“Security and privacy is at the core of Apple Pay,” Cue added. “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.”