Apple Introduces Apple Pay to Try to Replace Your Wallet

Apple is aiming to revolutionize the way we pay for goods, both in-store and online.

The tech giant launched Apple Pay today, a mobile payment service incorporated into its latest iPhones and the newly announced Apple Watch. This service allows shoppers to make purchases at checkout terminals by tapping their phone or watch, removing the need for physical credit cards or cash. Users of Apple Pay can also buy products in apps with one quick touch using the credit card registered with iTunes. This places Apple Pay in direct competition with established online payment companies such as PayPal.

Apple Pay will be compatible with a broad range of well-known retailers including Whole Foods, Macy’s, McDonald’s and Walgreens, Apple announced. Plus, apps such as Target, Groupon and Instacart will incorporate Apple Pay as a payment method, meaning new users won’t have to input credit card information manually if they opt to use Apple Pay. The service is set to roll out in October.

Apple CEO Tim Cook commented at Apple’s major product event in Cupertino, California, “Most people who have worked on this have started by creating a business model centered around their own interests. Instead, we focus on the user experience. We take great pleasure in this kind of challenge. This is quintessentially what Apple does best.”

Apple Pay could become a significant new source of revenue for Apple, which consistently relies on new products to drive sales. Apple could potentially profit from a percentage of each transaction and/or a small fee for each stored card in the digital wallet. In the long run, a successful digital wallet could attract new customers to Apple and retain current ones contemplating a switch.

Users of iPhone 6 and 6 Plus will authenticate the transaction by pressing their thumbs against the phone’s Touch ID fingerprint sensor as they tap. This system employs NFC, a wireless technology, to transmit payment information. The new iPhone models and the Apple Watch will be the first from Apple to include this technology. However, details on how Apple Watch payments will be authenticated without a fingerprint sensor remain unclear.

Customers will be able to add their Visa, Mastercard or American Express debit or credit cards into Apple Pay by taking a photo of their card, or they can use the account currently associated with iTunes or the App Store. It remains unclear whether Apple will allow users to easily switch from one card to another after they have selected their first card account.

Apple emphasized the security of the system in response to its iCloud celebrity photo scandal and substantial security breaches at retailers such as Target and Home Depot. Apple’s head of software and services, Eddy Cue, stated at the event that the iPhone does not store actual card information. Instead, the phone stores an encrypted placeholder ID which is matched up with account information held by the card company or bank, ensuring no checkout personnel can view it.

Despite these advancements, questions remain. Given payment with cash or card being straightforward, mobile wallets haven’t offered significant additional benefits to warrant behavioural change. How will Apple shift that paradigm? Additionally, despite the promised security of Apple’s mobile payment system, some customers might feel apprehensive using it after the recent iCloud hack.

Mobile payment schemes like Google Wallet haven’t gained much traction among U.S. shoppers till now, but analysts believe Apple could change that scenario. A key distinction is Apple’s control over both the hardware and the operating system making it difficult for wireless carriers to block usage of Apple’s mobile payment technology, unlike their actions with Google. Apple’s mobile payment system will be completely integrated into its phones. Any attempt to block the technology would require carriers to stop selling new iPhones altogether, which is highly unlikely.

*This article was updated in 2022 to reflect modern realities.*