Apple focuses on security with m-payments venture

This article originally appeared in ‘E-finance & Payments Law & Policy‘ journal on 12 September 2014.

Apple unveiled on 9 September
the Apple Pay app for its new
iPhone 6 and Apple Watch,
which enables contactless
payments via an NFC antenna
and stores encrypted payment
information on a ‘Secure
Element’ chip. 

“Apple’s adoption of NFC
seems to underline the longer
term validity of this technology
and that contactless m-payments
are the way of the
future,” said Kate Johnson,
Senior Associate at Osborne
Clarke. “This may also be the
impetus the banks need to
embrace m-payments and
really bring these into the
mainstream.” 

With the Apple Pay app,
consumers set up a credit/debit
card by adding it from their
iTunes account or photographing
it with the iPhone camera.
At the point of sale users
confirm purchases using the
device’s fingerprint sensor, which features Apple’s Touch
ID biometrics technology. 

“Certain security features of
Apple Pay are likely to appeal to
consumers,” said Paul Graham,
Partner at Fieldfisher. “Card
numbers are not stored on the
handset or on Apple servers, or
shared with merchants either.
Instead, for each payment card
designated by the consumer,
Apple generates a unique
Device Account Number that is
stored in the Secure Element on
the handset. This necessarily
minimises the opportunities for
credit and debit card numbers
to be intercepted and used
fraudulently. Secondly, the chip
that comprises the Secure
Element is regarded as highly
secure.” 

Apple has declared that it will
not store consumer payment
details or transaction history. “Clearly, Apple has taken the
view that ensuring consumer
trust in its payment system, by
circumventing the data issue,
will drive transaction volumes,” said Fiona Ghosh, Partner at
Addleshaw Goddard. “This
should also help with the
ongoing campaign to bring
merchants into the 21st century
by securing their investment in
terminals which accept NFC
payments.” 

Apple has
announced partnerships with
card schemes American
Express, MasterCard, and Visa as
well as merchants such as
McDonald’s and Disney. “There
has been a big uptick in
merchants accepting NFC
payments since banks started
issuing contactless plastic cards
and this trend is likely to
continue,” believes Johnson. 

“Apple’s adoption of NFC is
hugely significant for the m-payments
market,” concludes
Graham. “This new development
signals that m-payments
are becoming part of the
mainstream.”