Apple unveiled two iPhones, a watch, and a new mobile payment platform at an event in Cupertino, Calif., today. The mobile payment system, called Apple Pay, has been rumored for years now and aims to change the way consumers pay for goods. Tim Cook, Apple’s CEO, introduced the Apple mobile payment system, saying businesses rely on a “fairly antiquated payment process” in his presentation. With Apple Pay, owners of the new iPhone 6 will be able to use their phones to pay for everyday purchases.
“This whole process [of paying for things now] is based on this little piece of plastic — whether its a credit or debit card,” said Cook during his presentation. “We’re totally reliant on the exposed numbers, and the outdated and vulnerable magnetic interface.”
With Apple Pay, the tech giant aims to bring mobile payment into the mainstream like no other company has been able to.
How does the Apple mobile payment system work?
Users can add a new payment card, use their existing card on file with their iTunes account, or scan their credit cards with their new phones. Once that information is filed with Apple Pay, users can purchase items at participating stores by placing their smartphone to a sensor. Users will also be able to touch their thumbs against the phone’s ID sensor to authenticate the transaction. One quick beep means a transaction has been processed.
Apple’s mobile payment system uses wireless technology known as near field communications to transmit payment information from a consumer’s mobile phone to the store’s checkout system.
When a user buys something at a participating store, a one-time payment code is generated. Credit card numbers will not be stored on a user’s phone. Apple also says it won’t know what you’re purchasing because it promises not to track transactions. If an iPhone is lost or stolen, a user can suspend payments from the device without canceling their credit card by using Find My iPhone. Visa, MasterCard, American Express, as well as banks like Chase and Bank of America are all on board.
The technology will be built into each iPhone 6 and iPhone 6 Plus. Among the more than 200,000 participating vendors is Subway, McDonald’s, Disney, and Walgreens. Online transactions will work in a similar way. Uber, Groupon and Target have enabled Apple Pay to work with their apps.
Is it safe?
Despite reassurances from Cook that Apple Pay is safe and has built-in security measures — such as Touch ID, a Secure Element chip, a dynamic security code for each transaction — recent cyber attacks might leave consumers in doubt.
About 3 million consumers were victims of smartphone theft in 2013. Smartphones, of course, carry important information, such as photos, contacts, email accounts, and banking apps. In the wrong hands, that type of data can wreck havoc.
It’s true that there are ways consumers can protect themselves nowadays. You can secure your phone by setting up a screen lock with a 4-digit PIN, backing up data to a computer or via a cloud, installing an app to locate the phone or downloading an antivirus app. You might even use less common methods to secure your phone, like using a PIN longer than 4 digits or a password, installing software that can erase your smartphone’s contents, or using security features other than screen lock.
Despite the availability of these security measures, data breaches have only grown in breadth and scale over the past few years. From Target to Home Depot, data breaches aren’t an anomaly anymore, they have become the norm. Apple itself recently made headlines for suffering a breach with its iCloud storage service where numerous nude celebrity photos were stolen and published online. Though the tech giant denied that the breach was a result of a security flaw on its end, the company did announce plans to beef up security measures. Still, it’s a reminder of how easy consumer data can be stolen.
Mobile payment hasn’t gained enough traction over the years
The mobile payment market has been lingering in the background without really crossing over into the mainstream over the past few years. Starbucks, Google, PayPal, Square, and countless other startups have aimed to popularize mobile payment systems. Many of these companies have failed to gain traction in the mobile payment market because merchant acceptance was spotty and paying by phone wasn’t as convenient as it might seem. A survey conducted in 2013 by electronic transactions consultancy Consult Hyperion showed that 64 percent of U.S. consumers say they would never use a mobile wallet.
“The survey shows that issuers need to do a better job of conveying what mobile wallets are and what benefits they bring,” said Consult Hyperion Global Ambassador Dave Birch.
Of course, age makes a difference. Half the men between 25-34 who were surveyed said they might consider using a mobile wallet. Meanwhile, 78 percent of women between 45-54 said they’d never use a mobile wallet.
Despite public reluctance to mobile wallets and payment systems, Apple can push the pay by phone market into the mainstream like no other company. With its clout and “cool” factor, Apple might be able to make major inroads with its new mobile payment system. The question is: Should the public jump on board the mobile payment train?
Caution over mobile payment
These days, you could conceivably leave your wallet at home and use your mobile phone to pay for every transaction. Whether you’re seeking a place to park you car (you could also use Uber or Lyft) as you head to work, looking to pay for your coffee and buy a sandwich with your phone, or purchasing groceries and heading to the movies at night — you could use your smartphone for each of those transactions.
But centering your life around your mobile device is a dangerous proposition. Sure, pay-by-phone might offer convenience, but with questions surrounding the security of this type of technology, it might not be such a bad idea to wait and see how things unfold. The CTIA, an association that represents the wireless industry, announced that in 2015 smartphones sold in the U.S. will include an ability to wipe data if the phone’s owner authorizes it. This past February, Congress introduced an act requiring all mobile phones to have a kill switch to erase data remotely. But neither the CTIA’s move nor the legislative bill addresses mobile issues in the short term.
It’s a scary thought to think that today’s youth could grow up paying for goods more with their phones than with cash or a debit card. Paying for something with cold, hard cash teaches youth about the value of money. And with a debit card, teens can learn about money management. Parents can obtain prepaid debit cards for their kids and use them to teach lessons about good money habits. While mobile payments won’t render cash, debit or credit cards obsolete, it might make teaching these lessons more difficult, if it becomes truly mainstream.
For now, we’ll have to wait and see how much of a game changer Apple Pay really is. Consumers have shown reluctance to use their phones as wallets in the past and despite Apple’s security reassurances, some folks might remain uncomfortable. We’ll see what happens when Apple Pay launches in October.
Daryl is a staff writer at MyBankTracker.com who specializes in consumer spending, student finances and debt.