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How Does Apple Pay Work? What Security Measures Are In Place?

Apple Pay is a new mobile payment technology that was released simultaneously with the iPhone 6 and Apple Watch.

Like earlier mobile payment solutions, Apple Pay uses near field communication (NFC) to establish a connection between a customer's smartphone and a merchant's terminal. Rather than have the retailer swipe traditional credit card plastic, Apple Pay allows the shopper to wave his or her device across a dedicated NFC reader to complete a contactless payment.

NFC technology is similar to Bluetooth — except connections only happen over extremely short distances (usually within inches). This security feature makes it harder for criminals to steal sensitive financial data. They must be physically close to a customer's Apple Pay-enabled device.

In addition, Apple Pay transactions only go through if a user manually initiates payment. The device must be on. The customer must also enter a special personal identification number (PIN) or supply a biometric fingerprint scan (Touch ID). Even if a would-be hacker is close enough, this manual authorization makes it difficult for thieves to "passively" steal credit card information.

However, Apple Pay comes with a few additional security features, making it one of the safest mobile payment solutions on the market:

1. Credit Card Tokenization

Apple Pay uses a special security technology known as tokenization.

When users upload credit card information into their devices, their personal details get replaced by randomly generated IDs ("tokens"). The merchant never receives things like 16-digit credit card numbers, expiration dates, billing addresses or CVVs. The only data that enters a retailer's payment environment are these device-specific tokens and a single-use security code.

Only the payment processor can decode these tokens. And once the transaction is complete, the single-use security code becomes obsolete.

In other words, no financial data ever gets stored within the retailer's system. And with nothing to store, there's nothing to steal.

2. Lost Mode

NFC, Touch ID and tokenization are all powerful theft deterrents. But what if a criminal manages to get his hands on an iPhone or Apple Watch? He could theoretically initiate payment after unlocking the device and figuring out the user's personal identification number.

However, if and when an iPhone falls into the wrong hands, the original owner can put that phone into "lost mode" and freeze any future transactions on the device.

This same feature comes standard with most credit cards. You simply call up your issuer and cancel the card — but it sometimes takes a while to discover that a single credit card is missing from your wallet. A misplaced iPhone, however, is far more conspicuous.

3. Find My iPhone

In addition to “lost mode,” Apple iPhones also come with a geo-targeting feature that allows customers to locate their missing devices.

Not only can customers stop future payments, but they can also enable law enforcement officials to physically track down thieves.

Adding Apple Pay to Your Payment Infrastructure

Apple Pay is already wildly successful, with nearly a quarter million retailers and restaurants accepting this new mobile payment solution. Millions of customers across the country have already embraced this convenient and secure payment technology.

Topics: Mobile Payments, PCI Compliance and Fraud Prevention

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