Apple Pay: How Does it Work and What Cards Are Supported?

By Christine / January 5, 2016
How does Apply Pay work and what cards are supported?

The world of payments is changing rapidly. Consumers want both more security from fraud and more convenient forms of payment. These changes are driving the introduction of new credit card terminals. And new payment options from PayPay to our phones. And no phone is leading this charge more than the iPhone. So let’s take a look at how Apple Pay works and what cards are supported. After all, Apple thinks that mobile devices are the future of payments.

Launched in late 2014, Apple Pay is designed to change the way you shop by pulling debit card, credit card, and other payment data from your Passbook app to turn your device into a wallet at checkout. Now it is early 2016, and Apple continues to roll out features and supported cards for Apple. 

What is Apple Pay?

Apple Pay is a digital wallet and mobile payment service offered through Apple that lets you use the Near Fields Communications (NFC) chip in your iPhone 6, 6s, iPhone 6 Plus, 6S Plus, or Apple Watch to make payments through contactless payment terminals.

If you want to pay for something in an app, you can do so by choosing the “Pay with Apple Pay” option. Apple Pay charges will go directly to the debit or credit card you have set up.

Apple Pay works through partnerships with financial institutions or the banks that issue debit and credit cards. Like others in the payments space, Apple takes a cut equal to 0.015% of every transaction.

So, to start using Apple Pay, you need a newer iOS device, a credit or debit card that works with the system, and a retailer that accepts Apple Pay with a ready POS terminal. Ready to get started? Here’s what you need to know about how it works and where you can use it.

Getting Started with Apple Pay

To set up a card with Apple Pay, you just take a picture of your card using a supported Apple device.

This picture goes to your bank, which sends the smartphone a special key. This key is stored on the phone. When you checkout, the key generates a unique, one-time-use code which the bank then verifies. This means that retailers and Apple do not get data about your transactions.

Apple Pay works by sending information using short-range radio waves. Messages go from a chip inside the phone to the register. This technology is called NFC (Near Field Communication) and it’s already featured in many Blackberry, Windows Phone and Android devices. NFC technology works with many other payment services like Softcard and Paypal.

Many consumers are still hesitant about using mobile payment systems, mostly out of fear of getting hacked. Many also consider it a chore, as it isn’t really faster than using a credit card. There is also a lack of a single mobile payment system, with different stores using different apps, and not all apps not accepting every type of card.

Apple Pay offers more privacy when you shop. Your personal information like your email address, phone number or name will not appear on store receipts, and stores will not receive your credit card information. Neither will Apple for that matter. Apple has said that it will not be able to trace specific transaction details back to Apple Pay users.

Apple Pay’s TouchID System

Apple Pay uses Apple’s TouchID system to safeguard each transaction. You will need to use the Touch ID fingerprint sensor to confirm your purchase. Supported iPhone devices include a fingerprint scanner which is faster than signing a receipt or typing in a PIN. It is also faster than the current chip and dip system recently rolled out in the U.S.

This feature has the potential to backfire, however, as the fingerprint scanner is occasionally known to reject stored fingerprints.

Are Mobile Payment Systems Safe?

Along with the fingerprint system for an additional layer of security with Apple Pay, mobile payment systems in general are safer than using a credit or debit card if you are worried about your information being stolen because it removes retailers from the card information loop. Right now, retailers collect credit card data, which is sent to banks. This makes retailers a target for hackers. Apple Pay does not give retailers your credit card information and the smartphone never stores it.

Apple Pay also uses a special key on your phone that generates a unique code for each transaction, which the bank verifies. Even if a hacker could steal the codes, they can’t be used because they only work once.

What Cards Work with Apple Pay?

Apple Pay is bundled with the Passbook app on the iPhone and you can store up to 8 cards with Apple. Apple Pay works with American Express, Visa, Discover, and Mastercard. The following is a short list of partner financial institutions. You can view the full list of more than 600 banks and credit unions on Apple’s website.

Currently Supported Cards:

  • American Express
  • Bank of America
  • Barclaycard
  • Capital One
  • Chase
  • Citi
  • Discover
  • Fifth Third Bank
  • HSBC
  • Huntington Bank
  • Navy Federal Credit Union
  • PNC Bank
  • SunTrust
  • USAA
  • US Bank
  • Wells Fargo

And more are coming almost weekly!

An interesting note: When your credit card expires, the replacement card’s data is automatically sent to Passbook. You will not need to take another picture of the new card or re-enter information.

Where Can I Use Apple Pay?

Great! You have several cards that support Apple Pay. But where can you use it?

Well, Apple Pay is accepted in more than 1 million stores with an ever-growing list of partner companies. Of course, you can view the full list of retailers that accept Apple Pay by clicking here.

Apple Pay is accepted at:

  • Bloomingdale’s
  • Macy’s
  • Duane Reade
  • Disney Store and Walt Disney World
  • McDonald’s
  • Subway
  • Walgreens
  • Whole Foods Market
  • Staples
  • Sephora
  • JetBlue
  • Staples
  • Trader Joe’s

Apple Pay can also be used in many apps including Best Buy, Etsy, Groupon, Priceline, Zulily, and Target.

Peer-to-Peer Payments: The Next Horizon for Apple Pay

The Wall Street Journal reports that Apple is in talks with banks in the U.S. to develop a mobile peer-to-peer service.

Peer-to-peer payments that allow people to pay other iPhone users with a phone call or text is likely the next step for Apple Pay as it continues to expand across the world. Apple recently filed for a patent that suggests the company will add a button to texts that allow people to send money to other people. This system will likely use Apple Pay.

While a launch won’t be coming soon, Apple’s move into the peer-to-peer arena will likely challenge Square and Venmo, both of which are popular with young adults.

Why is this cool?

Because you can use Apple Pay to repay friends who lend you money. Or let just one person pick up a dinner bill, and the other parties can just forward payment to that person (rather than waiting for the restaurant to make up separate checks).

Final Thoughts on Mobile Payments

Sometimes ask for both greater security and convenience at the same time is not possible. I only need to see how slow the new chip and dip terminals are to see this. But Apple Pay does offer the promise of providing both – thanks to Touch ID.

But as much as I love being able to leave home with fewer things, we are not quite at a wallet-less society. (I still need a physical drivers license, after all.) And if I misplace my phone or my wallet – well that is bad. If they are one and the same, I increase my chances of misplacing both at the same time.

So, it remains to be seen whether this technology ends up being widely adopted by consumers. And if we end up better off over all. But it is exciting to see some positive innovations in payment systems.

And the next step I would like to see is a reduction in processing costs as fraud declines. That should provide the biggest boon to society.