How Apple Pay Works Under The Hood: A Technical Guide

Understand the behind the scenes on how Apple Pay works, from adding your card to the Wallet app to paying at the point-of-sale terminal

how apple pay works

Whether you’re buying things or sending payment to your friends, there’s a lot happening under the hood when you use Apple Pay.

It can be a little bit technical to understand how Apple Pay works, but don’t worry. This guide will explain everything in plain English.

At the end of this guide, you’ll have a clear understanding of what happens when you add a card to the Wallet app and pay with Apple Pay using your iPhone, Apple Watch, or MacBook Pro.

Before we get started there are some terminologies that you need to understand first.

Payment Processing Terms

Secure Element (SE)

It’s a special microprocessor chip that stores sensitive data such as payment information. The SE is embedded into the NFC chip found in iPhone 6 and newer, Apple Watch and MacBook Pro (newer models only).

It’s essentially the same chip that debit and credit cards use to secure your payment information.

Near Field Communication (NFC)

NFC is a short-range wireless technology that allows two electronic devices to communicate when they’re placed right next to each other (usually 10 centimeters or less).

Think about your iPhone (certain models), Apple Watch, and POS terminal, they’re all NFC-equipped.

Tokenization

It’s a highly secure process that substitutes sensitive data with a one-time algorithmically generated number known as a token.

To put that into context, the Primary Account Number (PAN), or the credit card number is replaced by a token when you add a card to Apple Pay. In short, Token is just a fake credit card number.

A token holds no value. In case it falls into the hands of the bad guys, it’s useless since they cannot reverse it back to the PAN.

How Apple Pay Works

Here’s what happens when you add a card to the Wallet app. Everything happens in a matter of a few seconds.

Adding card to Apple Pay
Illustration when adding a card to Apple Wallet

Please use the code below to use this infographic on your site.

<img src="https://www.gotechtor.com/wp-content/uploads/2020/01/Add-new-card-to-Apple-Pay.png" alt="Add card to Apple Pay"/><a href="https://www.gotechtor.com">Infographic</a> by Gotechtor.

To provide a higher level of security than traditional credit or debit cards, Apple Pay uses the EMVCo’s contactless suite of specifications.

When you add a credit or debit card in the Wallet app for Apple Pay use, it’s assigned a token (but Apple call it Device Account Number or DAN). The token is encrypted and stored on a dedicated chip called Secure Element (SE) on your Apple device.

The DAN is specific to an Apple device. If you add your card to another device, it will have a new DAN. This is critical for identity security and fraud protection.

When you complete a transaction with your Apple device at a point-of-sale (POS) terminal, the DAN along with a dynamic security code (cryptogram) are sent via NFC, using the EMVCo’s contactless suite of specifications.

By creating a new security code with each transaction, it becomes nearly impossible to replicate your code to use with fraudulent transactions.

This infographic below will give you a visual approach of the behind the scenes when someone buys something with Apple Pay.

How Apple Pay works infographic
Illustration of the Apple Pay system

Please use the code below to use this infographic on your site.

<img src="https://www.gotechtor.com/wp-content/uploads/2020/01/How-Apple-Pay-works-infographic.png" alt="How Apple Pay works infographic"/><a href="https://www.gotechtor.com">Infographic</a> by Gotechtor.

Is Apple Pay Safe to Use?

Simply put, Apple Pay provides one of the most secure payment methods available today. However, no payment method is entirely safe from fraud.

Instead of a standard three-digit security code found on credit or debit cards, Apple pay utilizes a dynamic security code. This generates a security code for each transaction preventing someone from stealing your card information to use for their purchases.

Additionally, if you lose your Apple device with Apple Pay activated, you can stop all transactions from the Find My iPhone service. All you need to do is to place your iPhone in lost mode. Anyway, the thief would need your passcode, Touch ID, or Face ID in order to make purchases.

Apple has security measures to prevent sellers and third-parties from collecting your financial information. When you make a purchase using Apple Pay, the merchant never sees your data. Additionally, Apple doesn’t store your credit or debit card numbers on the device or on its servers.

This ensures that any form of theft or fraud is nearly impossible with Apple Pay.

Does Apple Pay Share Your Data?

During the initial release of Apple Pay, Apple stated they would not track any usage of the app. They further promised to keep all transactional information between you, the vendors, and the banks.

This means Apple does not store or sell any of your data related to Apple Pay. They simply have too much at stake for a breach in consumer trust.

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