Apple Pay: The Solution to the Data Breach Problem?

I don't think that anyone could ignore this week's announcements from Apple. One of those announcements involved Apple Pay. Before we talk about Apple Pay, I think that we need to define a few terms that have been discussed recently.

The first of these terms is NFC, or near field communication. NFC is a radio frequency that was designed to allow phones and other devices to transmit payment information to point of sale or other compatible systems. Many of our cell phones today are already equipped with NFC, and many payment terminals are too. NFC isn't necessarily a new technology, but it never really took off.

The next of these terms is EMV, which stands for Europay, MasterCard, and Visa according to Wikipedia. Here in the United States, the transition to using EMV credit cards has been pretty much non-existent; but if you travel over to Europe, you would see the technology in both their standard credit cards and payment terminals. EMV technology allows credit cards to store additional information in chips that are embedded in the card, which increases the security of the cards and how they are used. Cards that are embedded with chips usually require the cardholder to enter a pin number at the point of sale, which also increases security.

Now that we've gotten those out of the way, let's talk about Apple Pay. Other people have tried the same thing that Apple is - such as Google Wallet - and haven't been so successful. But, Apple is changing the game with a new spin on the same payment processing.

Apple Pay will allow you to store your credit cards in a virtual wallet on your iPhone by taking a photo. Then, you can select a primary credit card to be used. When you want to make a payment, you can place the device within range and payment data will be exchanged using NFC. Doesn't sound much different, right?

The game changer here is that Apple has made the process more secure, without adding any additional burden on either the user or the merchant. Apple Pay will work with existing systems, but will provide a one-time use credit card number for making purchases. This way, if a card number is stolen or recorded in some way - it can't be used again. Additionally, Apple verifies that you are the authorized user before storing the card, and requires the use of TouchID, which verifies that you are the owner of your device using your fingerprint.

Other merchants have unsuccessfully tried to implement virtual wallets by trying to be too involved in the process. Apple has tried to carefully place itself in the process, and doesn't require anyone to make changes while making the payment processing more secure at the same time.

Time will tell if Apple Pay will be a success - but with the backing of several different entities in the payment world, it seems like it might be the new and more secure way to make purchases at your favorite retailer.