The much-vaunted Apple Pay officially launched this week, and the stories coming out are largely positive. The secure new payment method comes on the back of numerous stories of credit card information being hacked at companies such as Target, Home Depot, and even JP Morgan Chase (which compromised more than 76 million homes) over the past year. With credit card fraud an increasingly-real risk for consumers and corporations alike, many industry analysts are paying close attention to the first few days of Apple Pay, and you should too.
How it works
Apple Pay lets users pay using nothing but their smartphone at compatible POS terminals. Apple allows users to link one or more credit/debit cards to their Apple Pay account to use as payment options. Then, users can simply use the “Touch ID” fingerprint scanner on their iPhone 6 or 6 Plus to approve a payment. Instead of giving the terminal (and by extension, the store you’re shopping in) access to your credit card information, Apple Pay utilizes a “token”, which is essentially a one-time use number that authorizes the one payment but never gives the store any personal information about you.
Why it matters
Apple Pay is a significantly more secure payment alternative that works at a small but growing number of retailers. Unlike previous attempts at near-field communication (NFC) systems like Apple Pay (such as Google Wallet), Apple users have the numbers and influence to finally turn the tide toward making these payment systems mainstream. If Apple Pay turns out to be a success (as it is expected to be), it will radically and permanently change the way transactions are conducted in the United States and eventually worldwide.
What the future holds
As it currently stands, there are actually quite few Apple Pay terminals currently up and running. Estimates hover around 220,000 merchant locations in the United States (the only country in which Apple Pay is currently available) out of more than 12 million card-accepting merchants; which represents less than 2% of all merchants.
However, there were major changes already coming to merchant terminals even before the announcement of Apple Pay. Due in large part to the increased reports of hacked corporate databases of credit card information, MasterCard and Visa are leading a task force to change all terminals in the United States to “chip-and-pin”, a more secure credit card technology that requires new cards and new terminals. It is estimated that by this time next year, more than 500 million cards will have this technology. At that point, terminals that accept both chip-and-pin and Apple Pay will be significantly more commonplace. Hopefully then we will stop hearing so many stories about personal credit card data being hacked from large corporations.