Why Apple Pay could be a big deal for you and Apple
On Tuesday 9 September Apple theatrically announced the latest versions of its iPhone – the iPhone 6 and 6 Plus – along with a brand new smartwatch. But alongside the gadgets Apple also announced a digital wallet system called Apple Pay. Here's the Moneywise lowdown on what it is and how it works.
What are digital wallet and electronic payments?
Electronic payment methods are by no means new – Google has been working on its "Google Wallet" for a number of years.
The big credit card companies and banks worldwide have long been searching for a more secure "global" payment system that can move beyond the antiquated security methods employed on all the plastic cards we carry in our wallets. All our cards still have the card number emblazoned on their front for all to see, as well as holding the card data on the magnetic strip on the back of the card too.
Scammers have been known to clone cards in a matter of seconds from this strip when you hand over your card at a shop or restaurant or when you use a cash machine that has been tampered with.
Signing for purchases has been mostly replaced by chip and pin in the UK and large parts of Europe, and while this has cut card fraud in stores over the last decade it has done nothing to prevent the ever-growing problem of online shopping fraud. In the UK fraud involving remote card purchases – which includes online, telephone and mail order – rose 22% to £301 million in 2013, according to the UK Cards Association.
What is Apple Pay?
Apple's new system offers a number of security improvements which might see it gain acceptance when other payment systems have stalled.
Apple Pay's solution is to use the "touchID" hardware built into its recent iPhones. The home button on these phones is a fingerprint reader that can be used to verify that the purchase being made has been authorised by you. You can "load" your credit and debit cards onto the phone by taking a picture of the card with the phone's camera.
So when you tap your iPhone on the instant card readers in shops and cafes, Apple then contacts the card issuer and ensures the card belongs to you before linking it to your phone.
Why is this more secure?
None of your card details or numbers are stored on the phone. Instead, Apple uses a system of dynamic authentication codes, which change every time you make a purchase.
Apple claims that neither the vendor nor Apple get to see any of your details, making purchases anonymous. This prevents fraudsters from getting hold of your bank or credit card details either online or in-store.
Even if your phone should be stolen there are no card details stored on the device, and you can use Apple's Find my iPhone software to block the phone from making purchases, that's even if the thief can get past the touchID lock. This means you wouldn't have to rip up your cards if the phone gets stolen.
When will this be coming to the UK?
Apple claims to have signed up the three credit card giants: American Express, Visa and Mastercard to support its new system. It also reports agreements with 84% of US banks. Apple stated that hundreds of major US retailers would accept Apple Pay from its launch date in October, using contactless payment terminals in store.
How quickly Apple would be able to rollout Apple Pay in the UK would seem to depend on how successful they are in the US in cutting down fraud. As most banking and credit companies are global entities, it would seem reasonable that the system could quickly spread worldwide.
Pedro Sousa, the company's head of mobile proposition, said that he is not expecting the digital wallet service to arrive in European territories until 2015.
Should I buy Apple shares if Apple Pay takes off?
If Apple Pay does take off it would prove to be yet another massive revenue stream for Apple. They will be paid a fee for each transaction from the card issuer, a service that could add up to billions per year. Add to that the fact that once set up on Apple Pay iPhone users would be even less likely to switch brands when replacing their mobile, and you have a compelling argument for why Apple shares might appreciate.
Whether you should buy shares, of course, depends on your personal circumstances, risk profile, and existing investments. If in doubt, speak to an independent financial adviser.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.