The complete guide to Apple Pay

Miniature Tim Cook not included.
Miniature Tim Cook not included.
Image: Reuters/Stephen Lam
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Apple launched its mobile payments service, Apple Pay, today in the US. It has the chance—if successful—to become the first mainstream mobile payments service in many markets. We’ve assembled what we think will be common questions (with answers) about Apple Pay—and its potential implications for Apple, its users, and the world of payments.

What is Apple Pay?

Apple Pay is Apple’s mobile payments service, unveiled last month alongside the new iPhone 6 and 6 Plus. It is designed so you can buy something by using your phone instead of swiping a credit card (in a store) or entering your card number (in an app).

What do I need?

First, you’ll need a device that’s enabled for Apple Pay. To pay in stores, Apple Pay works with Apple’s two newest phones, the iPhone 6 and iPhone 6 Plus, which have the necessary NFC (“near-field communication”) chip. To pay in apps, you can also use Apple’s two newest iPads, the iPad Air 2 and iPad mini 3. All of these have the “Touch ID” fingerprint scanner that Apple uses to confirm your identity. (You can also use a passcode.)

Apple Pay will work in the future with the Apple Watch, due in 2015.

Software-wise, you’ll need Apple’s iOS 8.1 operating system—which launched today—or newer.

Next, you’ll need a supported credit card. Apple Pay uses the credit or debit card accounts stored in your iTunes account. To add a new card on an iPhone, open the Passbook app, tap the + symbol in the upper-right corner, and then follow the instructions under “Credit and Debit Cards.”

Apple has already established relationships with many of the largest credit-card services—Visa, MasterCard, and American Express—and US banks, including Citi, Chase, Bank of America, Capital One, and Wells Fargo. You’ll have to accept the terms of service, and in some cases—depending on the bank—receive and enter a verification code.

How does it work?

In a participating store, look for the “contactless payments” symbol—the one that looks like a hand holding up a card to sound waves. It’s the same point-of-sale gizmo that already works with certain contactless cards or rival mobile wallets, like Google Wallet.

Then, to pay, hold your iPhone up to the device with your finger on the Touch ID fingerprint reader. And you should be on your way. (As Apple notes, “You don’t even have to look at the screen to know your payment information was successfully sent. A subtle vibration and beep let you know.”) To use a credit card that’s not your default, you’ll need to open the PassBook app and choose it. (This section has been updated to clarify the payment procedure.)

Paying in an app will depend on how the app integrates Apple Pay, but generally, it will replace the process of entering or retrieving a credit card. You’ll need to verify yourself via fingerprint to pay.

If you want to change settings, select a default card, or add things like billing and shipping addresses, they’re in Settings > Passbook & Apple Pay.

Where can I pay with Apple Pay?

Apple has already signed on many large, national retail chains, including McDonald’s, Walgreens, Office Depot, Whole Foods, Foot Locker, Chevron, Macy’s, Nike, Radioshack, Subway, Apple’s own retail stores, and Panera. It already boasts 220,000 stores. Others will likely join over time. The good news is that merchants don’t need any Apple-specific equipment to work with Apple Pay—it works with standard contactless payment technology.

Apps that support Apple Pay for e-commerce will increase over time, but early participants include OpenTable, Lyft, Fancy, Spring, and the Apple Store app.

Apple Pay is US-only for now. Obviously, to have a broader impact, it will need to launch and succeed elsewhere. That won’t be as simple.

Does it work?

It works! We tested Apple Pay just after it launched, at Duane Reade, a Walgreens-owned drugstore chain in New York. When it was time to pay, we did what we thought we were supposed to, and everything worked on the first try. It took a split-second to scan our thumbprint, and the charge went through on our Chase-issued Visa card. The Passbook app now notes a record of a $1.51 transaction at Duane Reade.

Can I use it to pay a friend or business partner?

No, not yet. So far, Apple Pay is designed to pay for things in stores or apps—not to pay other people the way you might use PayPal, Venmo, or Square Cash. But it is possible a person-to-person payments app will support Apple Pay—potentially with a surcharge to cover payment processing fees.

What about privacy and security?

These are, in theory, two of the strongest selling points for Apple Pay. In short, it’s generally more secure to pay with Apple Pay than to hand your card to a cashier. Apple is designing the process with privacy in mind.

First, security. Because of the way Apple Pay works, your credit-card number is only entered once, during setup. From that point onward, your phone does not store or transmit your card number—it uses a different number that’s tied to your device. This means that if you lost your phone, or if the transmission were somehow intercepted, your actual card numbers would still be safe. (You can suspend Apple Pay using “Find my iPhone” by putting your phone in Lost Mode.) You wouldn’t need to cancel your cards or get new ones, because your card numbers are not stored.

Second, privacy. Apple doesn’t tell retail cashiers anything about you, and you can potentially use it in apps without having to sign up for an account. Indeed, some retailers find Apple Pay too anonymous. And when we used Apple Pay at Duane Reade, we still had to separately scan our loyalty card. If you order something that needs to be shipped to you, of course, that information will need to be shared with the merchant.

Here’s what Apple says about the information it collects: When you pay in a store, Apple says it “doesn’t collect any transaction information that can be tied back to you.” If location services are on, Apple may anonymously collect your location and the time. When you pay in an app, “Apple Pay retains anonymous transaction information including approximate purchase amount, merchant and app identifiers, approximate date and time, and if the transaction completed successfully.” This is in sharp contrast to other mobile-payment services, where collecting and using data is a key part of the model.

How did Apple get this to happen?

In part by being Apple, the largest technology company in the world. But also by changing as little as possible about the payments system to start off. Apple got the biggest credit-card companies and banks to sign on by making them as integral to the Apple Pay service as they are to normal payments. Plus, if Apple Pay’s increased security can reduce the effects of mass-scale card-number hackings or fraud—which seem increasingly common—that’s good for everyone.

It’s possible Apple will disruptively go around the payment gateways in the future, the way it has gradually added things like free text messaging and audio calls to the iPhone. But Apple’s initial approach is certainly quite friendly.

Will Apple Pay be popular?

It’s too early to tell. It will be several months before tens of millions of people have supported iPhones, and it will take time for more merchants and app-makers to add support.

More broadly, most mobile-payments services in the US have failed to catch on—Google Wallet, for example, and a service called Softcard (previously Isis) launched by mobile operators. But timing is in Apple’s favor. Smartphones are now mainstream, a part of normal daily life. And more than half of consumers are already aware of mobile payments, according to a Bain study. Many will try it for novelty’s sake alone.

It’s of course possible that Apple Pay will just be a niche novelty forever. But from a convenience, security, and privacy perspective, it seems like it has potential.

What does this mean for the payments industry?

Not much just yet. If anything, Apple Pay is more friendly to existing payments infrastructure than other services. It’s possible that Apple will move to disrupt the payments industry over time. But Apple’s current incentive is to make Apple Pay as easy and functional as possible, so it can sell more iPhones, iPads, and Apple Watches.

Will Apple make a ton of money from this?

Not directly. Apple is taking a small cut from transactions, and small cuts add up. (Note: Apple is not charging merchants anything—just the banks.) But Apple’s business is selling hardware—iPhones, primarily. If Apple Pay helps sell more iPhones, that’s ideal.

What’s the point?

This is the real question. Why should people use Apple Pay instead of simply swiping a credit card as they’ve easily done for years?

There’s no one great answer yet. Apple Pay won’t immediately, directly save you money. It might save you a little time paying, but not much. (Some of us may be faster retrieving and swiping a card than going through the motions with retrieving a phone from pocket or purse.) If you prevent your card number from being stolen, it might save you time lost updating your number on various auto-billing services. It might save the burden of trying to erase fraud or identity theft.

In apps, it might be easier to buy things, especially if you don’t need to sign up for new accounts, enter payment information, addresses, and the like. That could be great news for mobile-first merchants. But it’s still mostly theoretical time savings.

The utopian mobile-payments future can be summed up as life without a wallet—no more carrying around all those credit cards, ID cards, membership cards, receipts, and even cash. If Apple Pay adoption—from merchants and people—ever becomes truly mainstream, perhaps that will be possible. Or at least a thinner wallet, or at least not needing it all the time. Perhaps mobile payments will make international travel easier, or in aggregate, reduce fraud. It could also become a major feature for the Apple Watch.

But for now, novelty and convenience—plus some security and privacy—seem to be tied as the main reasons to use a service like Apple Pay.