Confirming rumors and leaks, Apple announced this morning that the new iPhone 6 devices will support mobile payments. The feature, which also uses Apple’s Touch ID, will take advantage of NFC technology. That means users will be able to pay for goods and others services in the real world using the payment information already associated with their iTunes accounts.

That, in fact, is Apple’s biggest advantage in entering the mobile payments market where competitors like PayPal, Google and the mobile operators themselves already offer their own mobile payment solutions, some of which also involve NFC technology.

Today, Apple has over 800 million registered users, some portion of which will upgrade to the iPhone 6 devices. Though that shift may not happen overnight, eventually users will upgrade as their contracts expire and Apple continues to release new features that draw users in.

Apple CEO Tim Cook today said that there are $12 billion in daily U.S. transactions, illustrating the size of this business.


How It Works

In Apple’s payments solution, NFC is located at the top of the iPhone, and users will be able to see all their credit cards in the Passbook application which already includes access to things like tickets and loyalty cards.

The feature works as the rumors predicted: based on NFC, you just need to tap your phone on a payment terminal and put your finger on the home button for Touch ID.

The solution is based on existing credit and debit cards, which are stored on your phone.

Users will be able to use the iPhone’s iSight camera to take a picture of the card and add it to Passbook, after which Apple verifies the card. When you add a new credit card, Apple doesn’t store the credit card or give it to the merchant, explains Cook, and each time you pay you use a one time payment card.

In other words, Apple creates a device-only number so that each payment has a one-time payment number and dynamic security code. Apple also doesn’t collect payment history – meaning it’s not tracking what you’ve purchased – and the “Find my iPhone” feature can suspend the cards.


Merchants also will never see your card numbers, because of the way this solution is implemented – they just get a transaction number and receive the money.

Then you’re able to “pay with Touch ID,” Cook says. “Now, with Apple Pay, you can just checkout with a touch.”

6 U.S. banks are supporting the technology at launch, and users will be able to add their AmEx, MasterCard and Visa payment cards. 220,000 merhcant locations are also supported, including Macy’s, Bloomingdales, Wallgreens, Duane Reade, Subway, McDonalds, Whole Foods, Staples, and of course the Apple Store.

Starbucks is another partner for Apple Pay, which is especially interesting because the coffee chain had previously invested in and was implementing Square’s mobile payment technology in their stores. But that rollout did poorly, and we’ve heard a number of rumors that Apple and Square were in M&A deals prior to today’s announcement, which Square ended up walking away from.