Future money; ApplePay and how it works

Apple Pay, what it is and how it works

A new contactless payment system that lets people use their iPhones to tap-and-pay in high street shops has been launched in the UK. Apple Pay will let iPhone 6, 6 Plus and Apple Watch owners pay for items costing up to £20 by just touching their gadgets to a payment terminal, much like contactless credit cards.

Contactless technology use on the increase
Contactless technology use on the increase

How does it work?

Apple Pay is effectively a digital wallet. It lets users use their credit and debit cards through Apple’s Passbook app. There are two ways to use it: in a physical high street shops and online.

Only those with the latest iPhones, or an Apple Watch, will be able to use it in shops. Apple Pay uses near-field communications (NFC) found in the iPhone 6 or Apple Watch in a similar manner to contactless cards.

Security innovation

Unlike contactless cards, Apple Pay includes an extra security measure known as tokenisation, which ensures that the card details stored on a phone are never passed to the retailer. Instead, the payee receives a one-use “token” allowing them to debit the payment only once.

The payments are secured and verified by the owner’s fingerprint using Apple’s Touch ID system. This might make it slower sometimes when authentication is required compared to using a contactless card but the security-conscious may appreciate the extra check.

Which cards are signed up?

The first wave of banks to support the payment system in the UK include NatWest, Nationwide Building Society, Royal Bank of Scotland, Santander and Ulster Bank and MBNA. First Direct and HSBC are scheduled to join later in July 2015 and a further wave to include Bank of Scotland, Halifax, Lloyds Bank, M&S Bank and TSB Bank are slotted into the Apple schedule for later this Autumn.

Barclays is reported to be still in negotiations with Apple for a greater slice of the commercial action.

Where can the new technology be used?

Most retailers that already accept contactless payments via credit and debit cards will support the new pay system.

Is there a limit?

Most payments will be limited to the £20 cap that is currently in force for contactless payments using credit or debit cards and this limit is set to rise to £30 in September.

Larger limits for Apple users

Apple Pay will be able to support larger payment amounts using updated terminals in shops that verify the user’s payment credentials using Touch ID instead of having to enter a pin.

What’s the competition doing?

Companies such as PayPal, services operated through mobile phone operators such as EE’s Cash on Tap and smartphone manufacturers such as Samsung and Google also have their own payment solutions, but have struggled to gain traction.

Here in Ireland, while the rollout of contactless technology has been continuing apace, the rollout of other proprietary technologies such as Apple Pay has been slow. However, there is little doubt that as the payment innovation gains pace in the UK, especially as banks such as Ulster Bank are in the mix, it is only a matter of time (assuming the U.B. bank system holds up!).

Frank Conway is a founder of MoneyWhizz.org, the financial literacy initiative.

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