An Introduction to the Use of Virtual Payments and Apple Pay

Smartphone has fast becoming the standard of how we communicate, think, and even plan our everyday activities. In fact, our wireless devices have become an extension of both our personal and professional lives.

Another avenue where the smartphone is making an impact is in the way we purchase for products and services. Rather than visiting the traditional stores, we can now visit stores that have online presence. From their ecommerce sites, we can select what we want to purchase, and within a few clicks, enter in our credit card information and submit the payment. All good and relatively simple: old fashion. This use case demonstrates of what is known as making a mobile payment.

There is a newer way to purchase for products and services, and this is known as ‘virtual payments.’ Attention early adopters!!! Apple has turned on Apple Pay, its big bet to turn the iPhone into a wallet.

With a software update on the iPhone 6, you can get Apple Pay today, and use it to make credit card payments at some 220,000 retails and restaurants location in the United States. There is still no confirmed launch date for this service in United Kingdom, but Pedro Sousa, Head of contactless payment for Visa, recently said the service would eventually reach Europe next year.

How does it work?

First the client will need to enable the Mobile Wallet. This is the third party application, which is downloaded onto your Smartphone (such as the Apple Pay), and on this app, you can enter in your credit card or debit card information. Then the Near Field Communications Protocol will support, or NFC for short. This is the wireless connection between your smartphone and the NFC reader which is located near the point of sale (POS) terminal at the store. The Trusted Services Manager (TSM) is used to secure the communication between the NFC tag which is located inside of the smartphone, and the NFC reader. In other words, the TSM allows the customer to enter their credit card or debit card information into ApplePay, and authenticates that information with the financial institution whom issued the underlying card.

By the way, the Apple Watch, due in “early 2015,” will also have an NFC chip to support ApplePay, though the new iPads name Touch ID will not!

So, here is how a Virtual Payment would work, using the example of ApplePay and McDonald’s (they were actually one of the launch stores for ApplePay). Suppose you go to buy lunch, and after waiting in line, you place your order. The traditional way would be to pay with cash, but with ApplePay, all you have to do is just interface your Smartphone with the NFC Reader on the POS.

Within just a matter of two seconds, the financial information which is in ApplePay is collected by the store, and from there transmitted to the financial institution who issued your credit card, for final processing. It is just as easy as paying with your credit card, but much more convenient for the client.

In theory, Apple Pay should be more secure than carrying an old-fashioned credit card.

What if I loose my phone? you don’t have to re-issue all your credit cards, Apple allow you to suspend payments via Apple’s Find My Phone app or website. A thief shouldn’t be able to make purchases with your phone, unless they also have your thumbprint. In theory, Apple Pay should be more secure than carrying an old-fashioned credit card. So far, ApplePay is being used in many retail outlets such as Macy’s and Walgreens, and it is even being used in taxicabs in both New York City and Boston, in order for the customer to pay for their cabfare quickly and easily.


Tim Cook discusses his thoughts on retailers that refuse Apple Pay, at the WSJD Live conference in Laguna Beach, California.


While there isn’t anything particularly revolutionary about Apple Pay, the company certainly has the experience to give the mobile payment market a shake. Provided it’s done right, it could also set new precedents for other companies wishing to offer payment services too, as Apple is reportedly putting privacy and security front and centre. Apple Pay proclaim not learning how much you spend, or what you buy, though it does get a small fee from the banks for helping with the transactions. So far, at least, Apple is treating payments as a way to push sales of hardware—not as a stand-alone business or way to get more data to target ads.

We’ll wait and see what happens to our US cousins before getting too effusive though.