A Guide To Apple Pay For Merchants

Brendan Harkness

Brendan Harkness | Blog

Sep 18, 2014 | Updated Apr 27, 2016

Apple Pay is a new mobile wallet and NFC payment system, available on both versions of the iPhone 6 and the upcoming Apple Watch.  It was announced in early September, 2014. When the Apple Watch is released, Apple Pay will be available on the iPhone 5 series (5s, 5c, and 5) when the device is paired with the watch via Bluetooth.

This program and others like it enable contactless payments, letting shoppers tap or wave their phones near the checkout terminal to pay.

As A Merchant, How Can I Accept Apple Pay?

Apple Pay uses a Near-Field Communication (NFC) terminal to take customer credit card information.   If you have NFC terminals installed, customers will be able to pay for purchases with Apple Pay.

How Does Apple Pay Work?

Apple Pay works by substituting credit card account numbers with new numbers, protecting personal information.

When a customer loads his credit cards into the program, Apple Pay creates a tokenized number, known as the Device Account Number, to replace the card’s permanent account number (PAN). Each payment provider has its own service to create tokens: Visa Token Service, American Express Tokenization Service, or MasterCard Digital Enablement Services. The token is stored in the Secure Element of the iPhone 6 or Apple Watch, which separates this data from the main processor. These token numbers are never stored on the Apple servers.

When a customer makes a purchase with Apple Pay a unique dynamic security code will be created for that transaction. This security code is paired with the tokenized Device Account Number, and, when the customer authorizes the payment by fingerprint with the TouchID button, this information is sent to your NFC terminal. The use of the TouchID sensor acts as the Card Holder Verification Method, replacing the PIN number.

Then, the information is sent to the acquiring or merchant bank you use, and from there it is sent to the tokenization service. The service will de-tokenize that number and also validate the dynamic security code; then the PAN (the actual credit card number) is sent to the credit card issuer for approval. When the transaction is approved, the authorization information is sent back down the line in reverse order, ending with the Secure Element of the phone receiving a confirmation of successful payment.

Who’s Using Apple Pay?

As of September 18th, Apple Pay is partnered with Visa, MasterCard, and American Express, and their cards are available to use. Discover cards are not yet compatible with Apple Pay, but the two companies are in discussions to make Discover cards available in the future.

Updated June, 2015: Discover has announced that they will be partnering with Apple Pay, but their cards are not yet compatible with the system.

Most available credit cards are covered, but relatively few merchants currently accept Apple Pay.

With fewer than 10% of merchants currently using NFC technology at checkout, new payment systems have a high hurdle to face. Apple Pay is accepted at over 220,000 stores, including McDonald’s, Macy’s, Walgreens, and Whole Foods, but this number is expected by some to grow rapidly based on Apple’s previous success with introducing new, more convenient technologies. Others, however, believe that the lack of support from merchants will doom this venture to slowly fizzle out, citing the expensive price of upgrading to NFC terminals: up to $500 per device.

Two large retailers have already announced that they will not be accepting Apple Pay, Walmart and Best Buy. Best Buy used NFC terminals in many stores but stopped doing so in 2011 due to high maintenance costs. Both Walmart and Best Buy have announced that they plan to use a different kind of mobile wallet/payment system, provided by the Merchant Customer Exchange (MCX) group, of which they are members.Retailers that are a part of the MCX will eventually be using an upcoming app called CurrentC, which will not make use of NFC technology and currently has no plans to incorporate traditional credit cards.

Apple Pay can also be used in apps to help simplify in-app purchases.

An Example Transaction Using Apple Pay

Here’s a breakdown of the steps involved in an Apple Pay transaction, using a Chase Freedom® Visa card for the credit card and Chase Paymentech Credit Card Processing as the acquiring bank for the merchant.

  1. A shopper taps their iPhone 6 on the NFC terminal while touching the TouchID sensor, authorizing the transaction.
  2. A unique dynamic security code is created for this transaction, and paired with the Device Account Number.
  3. The two codes are sent to the NFC terminal.
  4. This information is sent to Chase Paymentech for processing.
  5. Then, the information is sent from Chase Paymentech to the Visa Token Service, which de-tokenizes the Device Account Number and retrieves the original PAN. The dynamic security code is also validated and unencrypted into the payment data.
  6. From there, the PAN and payment data are sent to Chase Bank for approval.
  7. When approval is granted, the transaction is authorized and this data is sent back to the Visa Token Service.
  8. The Visa Token Service sends the authorization to Chase Paymentech.
  9. Chase Paymentech sends the authorization to the merchant and NFC terminal, where the transaction is completed.
  10. The NFC terminal sends confirmation of the successful transaction to the Secure Element in the iPhone.

This system prevents merchants from handling any real credit card numbers, instead just passing along the tokenized and encrypted information. Security and privacy are improved, reducing the risk that merchants take when accepting credit cards.

Who Pays for Apple Pay?

Besides the cost of buying and implementing NFC systems, neither merchants nor customers will have to pay for the use of Apple Pay. Instead, the card issuers (Capital One, Citi, Chase, Bank of America, etc) will pay 0.15% of the cost of every transaction to Apple.

There is currently no information on how offline transactions will be completed or if they will be available at all, or if low-value payments will be distinguished from very high-value payments.

Apple Pay is one of many mobile wallets/payment systems; learn more about accepting credit cards as a merchant and some of the best options available to you.

Apple Pay In Action

Check out Apple Pay in action, as demonstrated by an Apple representative on an iPhone 6:

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  • Brian

    The idiots over at Walmart will be behind the eight ball yet again. Their last boondoggle was when you had to have a Sams’s club credit card to use a mastercard at all. That didn’t work out too well.Best Buy is still (years later) trying to push they’re crappy rewards card. They still have one of the slowest checkout processes in the business.

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