The world was tuned into Apple last week for iPhone 6 announcements, but CEO Tim Cook ended up showing them something that could prove to be more important than just another smartphone. "Payments are being hacked," he said as he announced general details about Apple Pay, the company's entry into the world of contactless payments.
The scope is vast, the complexities significant, if we ignore it, the potential profits from a billion consumers buying things – Apple will take its share of every transaction – theoretically quite sizable over time.
Cleverly, the company said it won’t take these fees from customers or merchants (who could pass the cost on to consumers), but from banks. We still don’t know how much that fee will be, but it suggests it will be limited and will depend on the scale of profits. We don’t know if banks will be happy with that.
In terms of transaction security, Apple Pay should mitigate the risks. Instead of storing and transmitting a user's credit card number every time a transaction is made, an account number is generated for each device and stored within the "secure element" of the chip in the iPhone 6. It's this unique identifier that passes through the NFC terminal, and if hackers gain access to it, they've essentially got their hands on useless data. Merchants never see the credit card number from which the token was created.
