Apple Pay

Overview

Apple Pay lets mobile devices make payments at contactless points of sale and in iOS apps and On the Web. It digitizes and replaces the credit or debit card chip and PIN or magnetic stripe transaction at point-of-sale terminals. It is similar to contactless payments already used in many countries, with the addition of two-factor authentication. The service lets Apple devices wirelessly communicate with point of sale systems using a near field communication (NFC) antenna, a "dedicated chip that stores encrypted payment information" (known as the Secure Element), and Apple's Touch ID and Wallet.

Device Compatibility

The service is compatible with the iPhone 6, 6 Plus, iPhone 6S, 6S Plus, 7, 7 Plus, iPhone SE, iPad Air 2, iPad Pro and the Apple Watch. Users with iPhone 5, 5C, 5S, 6, 6 Plus, 6S, 6S Plus, 7, 7 Plus and iPhone SE can use the service through an Apple Watch, though it lacks Touch ID security. Instead, Apple Pay is activated with a passcode and will remain active for as long as the user wears the Apple Watch.

Technology

Apple Pay uses the EMV Payment Tokenisation Specification.

The service keeps customer payment information private from the retailer by replacing the customer's credit or debit card Primary Account Number (PAN) with a tokenized Device Account Number (DAN), and creates a "dynamic security code [...] generated for each transaction". The 'dynamic security code' is the cryptogram in an EMV-mode transaction, and the Dynamic Card Verification Value (dCVV) in a magnetic stripe data emulation-mode transaction. Apple added that they would not track usage, which would stay between the customers, the vendors, and the banks. Users can also remotely halt the service on a lost phone via the Find My iPhone service.

To pay at points of sale, users hold their authenticated Apple device to the point of sale system. iPhone users authenticate by holding their fingerprint to the phone's Touch ID sensor, whereas Apple Watch users authenticate by double clicking a button on the device. To pay in supported iOS apps, users choose Apple Pay as their payment method and authenticate with Touch ID. Users can add payment cards to the service in any of three ways: through their iTunes accounts, by taking a photo of the card, or by entering the card information manually.

In the United Kingdom, payments using contactless cards are limited to £30 (previously £20 until August 2015) as they have only one-factor authentication. Although payments using Apple Pay have two-factor authentication and no transaction limit, they are in practice subject to the previous £20-30 transaction limit until retailers upgrade the software in their terminals to support the latest network contactless specifications.

Apple assumes some liability for fraudulent use of the service. Banks are expected to carry the burden of the service, and Apple is said to have negotiated smaller transaction fees. In turn, the banks hoped to capture purchases that were formerly handled without credit. Financial Times reported that Apple receives 0.15% cut of US purchases made with the service, but, following the UK launch, reported that Apple's cut is much lower in the UK. This is largely because Regulation (EU) 2015/751 capped interchange fees in the European Economic Area at 0.3% for personal credit cards and 0.2% for personal debit cards with effect from June 8, 2015. In Russia Apple receives 0.05% for debit cards and 0.12% for credit cards of each purchases, in addition, the bank pays 45 rubles a year for each card added in the service.

Consumer Device Cardholder Verification Method (CDCVM)

In EMV-mode transactions, Apple Pay supports the use of the Consumer Device Cardholder Verification Method (CDCVM) using Touch ID, or the phone's or watch's passcode. The use of CDCVM allows for the device itself to provide verification for the transaction and may negate the requirement for the cardholder to sign a receipt or enter their PIN. Additionally, in certain markets which have a 'no verification contactless limit' using contactless cards (such as the current £30 limit in the United Kingdom and the $100 limit in Canada), the use of CDCVM can enable merchants to accept transactions higher than these amounts using Apple Pay, providing their terminal software is updated to support the latest network contactless specifications.

Global Acceptance

Apple Pay implements the Contactless EMV standards from the major payment card networks and should work at any merchant that supports contactless payments worldwide, regardless if they specifically advertise Apple Pay acceptance or if Apple Pay support is offered by card issuers in that country. However, due to provisioning differences between countries (and even between issuers), users may encounter acceptance issues when travelling to a different country. Some current known issues include:

History

The service was announced at Apple's iPhone 6 event on September 9, 2014. At its announcement, Apple CEO Tim Cook described the magnetic stripe card payment process as broken for its reliance on plastic cards' "outdated and vulnerable magnetic interface", "exposed numbers", and insecure "security codes". The iOS 8.1 software update accompanying the service's launch activated Apple Pay on compatible devices. The company announced an API for app developers to build Apple Pay checkout into their apps.

The service was in preparation for "a long time", as Apple acquired startups, hired executives and filed patents related to payments. Apple partnered with American Express, MasterCard and Visa. Their joint project began in January 2013, though they had discussed Apple's potential involvement for years. Their joint solution was a system where single-use digital tokens would replace the transfer of personal information. A Visa executive said that 750 people at the company worked on the anonymized "token" system for a year, and the other partners had similar teams in collaboration. MasterCard began work on the project in 2013 and hoped that their joint work would become a "standard for mobile payments". The announcement of the service came at a time when MasterCard and Visa policy created strong incentives for upgrading to mobile payment-compatible point of sale systems. Apple then approached several big banks in mid 2013 and did not divulge the names of the other banks. To maintain secrecy, JPMorgan set up a windowless "war room" where the majority of the sensitive work was done. Of their 300 people on the project, about 100 knew that the partner was Apple. Others close to the project did not know it was named "Apple Pay" until the announcement. The company's participation remained a secret leading up to its announcement.

The service initially supported US-issued payments cards. An international roll-out is ongoing, beginning with support for UK-issued payment cards in July 2015. On December 17, 2015, Apple announced that it will launch Apple Pay with 15 major banks in China, and Chinese users can use Apple Pay since February 18, 2016.

In October 2015, Apple Pay vice president Jennifer Bailey confirmed that KFC, Chili's, and Starbucks would launch Apple Pay in 2016.

On March 8, 2016, ExxonMobil officially launched Apple Pay support within its Speedpass+ iOS app, letting customers pay for gas or car washes directly from their iPhone, eliminating the need to use the ExxonMobil's physical NFC Speedpass keychain token at the point of transaction.

On April 27, 2016, ANZ made Apple Pay available to their American Express and Visa cardholders in Australia.

On May 4, 2016, Kohl's became the first retailer allow the use of Apple Pay with Kohl's Charge Cards or other credit or debit cards enrolled with Apple Pay and simultaneously earn Yes2You Rewards loyalty points with a single tap using Apple Pay. J. C. Penney announced that they will be rolling out the same in the near future.

On May 10, 2016, Apple Pay was expanded the service in Canada to customers of RBC, CIBC, ATB Financial and Canadian Tire Bank. The expansion includes varying support for Visa, MasterCard, and Interac, covering most major debit and credit cards in Canada. Apple Pay was previously only available in Canada for non-bank-issued American Express cards. Apple Pay will be further expanded to TD Canada Trust, Scotiabank, and the Bank of Montreal in the "coming months" to complete the rollout across the Canada's Big Five financial institutions. Apple Pay support is also coming soon to Air Canada, Aldo, Domino's, Pizza Pizza, Zulily, and the TTC transit system in Toronto. Additionally, the payment service is integrated into the iPhone and iPad applications for the Apple Store, Delta, Etsy, Fancy, Groupon, Kickstarter, Priceline, Starbucks, Ticketmaster, Uber, and Zara starting in June 2016.

On May 19, 2016, Chime Banking initiated its support of Apple Pay.

Apple Pay launched in Singapore on April 19, 2016 with American Express issued cards. On May 25, 2016, this was extended to support Visa and MasterCard credit and debit cards issued by Singapore's five major banks, translating to about 83 percent of credit and debit cards in the country.

BMO, Scotiabank, and TD Canada Trust, which make up three of the five largest banks in Canada, rolled out Apple Pay support on June 1, 2016.

On June 1, 2016, KFC has announced that it now accepts Apple Pay at some of its U.S. restaurants, with nationwide adoption to be completed by the end of the summer.

On June 3, 2016, Grubhub, the nation's leading online and mobile food-ordering and delivery platform began accepting payment from its customers using Apple Pay on its two applications; Grubhub and Seamless. The company is keeping up with its rivals in adopting the payment service as Caviar, DoorDash, and Postmates.

Apple announced at its WWDC 2016 keynote on June 13, 2016, that Apple Pay will be entering three new markets; France, Hong Kong, and Switzerland over the following months in partnerships with Visa, MasterCard, and American Express. Visa and MasterCard cards will be supported in all three markets, while American Express will also be available in Hong Kong. The specific credit, debit, and prepaid cards that can be used in each country vary depending on the participating issuers

A month after Apple Pay launched in Hong Kong, the service has expanded to The Bank of East Asia (BEA) and Hong Kong Telekom (HKT)'s Tap & Go contactless payments network. BEA customers can add eligible MasterCard and Visa credit cards to Apple Pay and receive 5,000 bonus points between the launch and August 22, 2016 while the first 30,000 customers that complete three or more Apple Pay transactions between the launch and October 31 will receive a 25% cash rebate of up to $180. Also, HKT Tap & Go customers that add prepaid cards to Apple Pay, and complete three or more Apple Pay transactions between the launch and August 31, will receive a cash rebate of up to $50.

Under a partnership with American Express, Hong Kong and Spain will also get Apple Pay support in 2016.

Bank of America is outfitting some of its ATMs with Apple Pay support and the ability to withdraw cash using it. The new Apple Pay enabled ATM is outfitted with the NFC reader and logo that Apple Pay users have become used to seeing since the service launched. The NFC reader is located directly to the left of the card reader, although unlike the card reader, the NFC reader does not light up. Bank of America has launched a new website detailing the simple process of withdrawing cash with a smartphone (Android Pay, Samsung Pay, or Apple Pay). Currently, Bank of America says that "Consumer Debit Cards, U.S. Trust Debit Cards, Small Business Debit Cards (owner card only)" are supported. Wells Fargo and JPMorgan Chase are both working to integrate Apple Pay support into their ATMs.

On August 18, 2016, Apple announced it has added Apple Pay support for customers of Yorkshire Bank and Clydesdale Bank in the United Kingdom.

On August 29, 2016, ANZ Expanded their support for Apple Pay to support MasterCard holders in Australia.

On September 7, 2016, Apple announced that iPhone 7 and Apple Watch Series 2 users in Japan can now add both local credit cards and FeliCa cards to their Apple Pay wallets. As of now, only Suica cards are supported by Apple Pay, which now can be used at subway stations, convenience stores, etc., just like regular Suica cards. Apple Pay also supports payment via all QUICPay enabled terminals that are already popular in Japan.

Taiwan's Financial Supervisory Commission began accepting applications from the country's banks offering Apple Pay to their customers on September 28, 2016. This includes the banks; CTBC Bank, Cathay, United Commercial Bank, E.SUN Commercial Bank, and Taishin International Bank.

On October 13, 2016, Apple Pay rolled-out in New Zealand, available to customers with Visa credit or debit cards issued by ANZ Bank New Zealand.

On December 1, 2016 Apple Pay started operating in Spain available to customers with cards issued by American Express, Banco Santander, Ticket Restaurante and Carrefour.

On January 28, 2017 Credibanco and Redeban Multicolor enabled Contactless payments such us Apple Pay, it's available by virtual prepaid card service like Boon Payment by Wirecard, Square Cash by Squareup and Yandex Money. Also Apple Pay enabled bank cards are accepted.

Reviews

Journalists noted the multiple previously unsuccessful efforts of other retailers to build mobile payments services, including those of PayPal, Wal-Mart, Target, Google Wallet, and Softcard. They noted that previous efforts did not solve customer inconvenience issues, and felt that Apple Pay potentially did. The Verge's Adrianne Jeffries noted that mobile payment market fragmentation was partially due to Apple's refusal to enter the market. BusinessWeek's Joshua Brustein added that Apple has a history of letting "first movers fail" with an early version of the service before releasing "a more polished version of the same idea". The Verge's Dieter Bohn called Apple Pay the "week's most revolutionary product" and the announcement "a classic Apple moment of simplification and integration", and the partnership between payments services and Apple "a rare piece of collaboration and agreement". He predicted that the service's effect on the mobile payments industry would be similar to the iPhone's effect on the smartphone industry. Nathaniel Popper of The New York Times referred to the banks' level of coordination with Apple as "elaborate" and indicative of mutual "preparation and investment". Some analysts added that the service could reduce the standard credit card transaction fees over time, since fees traditionally cover credit card fraud. The banks were willing to work with Apple in the face of efforts like Bitcoin and the Merchant Customer Exchange, which seeks to work around the card networks.

Early reviews of the service regarded it as easy to use, but were not sure whether the service would become widely adopted. The Verge's Nilay Patel wrote that the product demo was "remarkably smooth" and "a cohesive user experience". Patel said the process took five to ten seconds at a retail card reader, and added that it may be less smooth at stores such as Walgreens, where cashiers prompt customers for loyalty cards and charity donations. The New York Times's Neil Irwin wrote that Apple exaggerated the inconvenience of credit cards. Among the plastic card's benefits, he included how others could make purchases on another's behalf and how dead cell phones could leave the owner stranded.

There are many controversial topics as to whether or not Apple Pay is safe. The answer may vary from different perspectives. However, Apple has taken major steps to make it very secure. Besides the NFC-based chip architecture, Apple has integrated Touch ID and a complex passcode architecture into the mobile wallet system. Apple Pay also keeps your identity a secret throughout the process. Each Apple Pay transaction online or in-app is authorised with a one-time unique dynamic security code, instead of using the safety code from the back of your card.

Adoption

Apple announced that more than 1 million credit cards had been registered on Apple Pay in the first 3 days of its availability, making it the largest mobile payment system in the US at the time. There were 220,000 participating vendors when it launched. Outside the United States and the United Kingdom, Apple Pay can be used with American and British payment cards at compatible NFC-based payment terminals.

In the United States, Apple faced opposition by the mobile payments industry, particularly the Merchant Customer Exchange (MCX) which is trialling a competing system known as CurrentC. Several participants of CurrentC, such as Best Buy and Walmart, had initially stated that they would not accept Apple Pay as a result of exclusivity deals. CVS Pharmacy and Rite-Aid subsequently disabled all NFC payment systems in favor of CurrentC, although due to the exclusivity period ending in August 2015, Rite Aid has begun accepting it August 15, 2015. Best Buy has begun to accept Apple Pay at all stores starting in October 2015. Target's CEO Brian Cornell said that they would be open to accepting Apple Pay eventually after chip and PIN is done, but they remain involved with MCX.

Transport for London, one of Apple Pay's official UK launch partners and one of the largest contactless merchants in the world, became the UK's most used Apple Pay merchant.

As of February 11, 2016, 20% of iPhone 6 users in the United States reported using the service at least once. Apple maintains an up-to-date list of merchants who accept Apple Pay on its website.

On June 2, 2016, according to Fortune, Apple said its mobile payment platform is gaining a million new users each week, yet the company did not reveal the total number of Apple Pay users. Apple also revealed that transaction volume through the service is five times what it was a year ago, and that payment volume within apps more than doubled in the second half of 2015.

With the launch of Apple Pay in China, the service hit three million provisions inside its first three days, while, more generally, it is adding one million new users per week worldwide.

On July 11, 2016 LCBO (Liquor Control Board of Ontario) confirmed that it accepts Apple Pay at all of its over 850 stores in Ontario, Canada. LCBO had been gradually rolling out Apple Pay support since June at its stores, which had NFC-based terminals for contactless payments.

Starting on August 19, 2016, Apple Pay will be available in Chick-fil-A restaurants across the United States, allowing fast food buyers to make their purchases both in-store and at the drive thru using Apple Pay.

On September 7, 2016, Wayfair announced that they will support Apple Pay in Safari on iPhone, iPad, and Mac at launch.