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How does Apple Pay work on the Apple Watch?

Michael deAgonia | March 16, 2015
Given the tight integration between the Watch and the iPhone, it's important to understand how the two work in tandem to enable what seems like a simple and seamless process.

So, it's April 25, 2015 and the delivery man has just delivered your new Apple Watch. Your first instinct: Spend more hard-earned cash trying out Apple's mobile payment system, Apple Pay.

The question is, how?

Although Apple Pay has been available for iPhone 6 and 6 Plus users since October, it works differently with Apple Watch, which arrives in retail on April 24. (Pre-orders for the Watch, which start at $349 and rise into the thousands of dollars from there, begin April 10.)

Here's a rundown on Apple Pay, its use on the latest iPhones and how it will work with the Apple Watch. Given the tight integration between the Watch and the iPhone, it's important to understand how the two work in tandem to enable what seems like a simple and seamless process.

Refresher: What is Apple Pay?

Apple Pay is a digital payment system designed around security, privacy and speedy mobile transactions. Essentially, it replaces traditional magnetic-swipe credit- and debit cards with digital equivalents that can be used for secure in-store or in-app purchases. All purchase information is kept private; Apple doesn't receive or store any purchase details on its servers.

When a card is added via the Passbook and Apple Pay Settings panel in iOS 8 on your iPhone — either by manual entry or by snapping photos of the card using the iSight camera — the account is verified with the issuing bank, which creates a unique device-only account number. (That number is different than the one on the card.) The bank then returns card info as encrypted data that can only be decrypted by the issuing device — in this case, your phone. The information is kept in what Apple calls the Secure Element, a dedicated hardware chip designed to store sensitive data. This happens for each card added.

The Passbook app acts as the front-end for this data, displaying the credit and debit cards that are active, as well as your recent transaction history.

About those security concerns

Every time Apple Pay is used, a one-time payment number and a dynamic security code is generated; your credit or debt card information is never actually transmitted. The data is sent through traditional payment networks, the encrypted device-only number gets matched with the issuing bank's database and the transaction is either approved or turned down. The merchant never sees your account numbers or even your name, and Apple doesn't collect any transaction data (though it does get a percentage of the transaction fees).

If someone managed to hijack the transaction and break the encryption, the data accessed would be meaningless. And if you ever lose your phone, there's no need to cancel any cards because the credit card data isn't on it anyway. (If you do misplace your phone, you can log into iCloud.com and use the Find My iPhone feature to stop Apple Pay.)

 

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