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Apple Pay Wants To Be Your Mobile Wallet

STEVE INSKEEP, HOST:

Apple unveiled new products yesterday, including the latest-model iPhones. Apple also announced a shiny new watch. It said this watch can be used to read Twitter. It also tracks your heart rate. This watch is so amazing, it even tells time. Another Apple announcement is meant to change the way we pay for products when shopping. Instead of reaching for a credit card, you would store your credit card information on your phone and wave your phone near the register when it's time to pay. The technology is known as the mobile wallet. NPR's Aarti Shahani reports.

AARTI SHAHANI, BYLINE: You might be very happy with your plastic credit card or happy enough with it. Swiping doesn't take that long, and Americans do it round-the-clock. But Apple's CEO Tim Cook says it's got to stop.

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TIM COOK: That's 200 million times that we scramble for our credit cards and go through what is a fairly antiquated payment process.

SHAHANI: Cook says it's time for a world without plastic, without 16 digits for all eyes to see and a magnetic stripe.

COOK: Which, by the way, is five decades old.

SHAHANI: A world without those security codes on the back.

COOK: Which, all of us know, aren't so secure.

SHAHANI: Cook unveiled a new product that he says will forever change the way we buy. It's not called iPay. It's Apple Pay, and starting next month, it'll let iPhone users tap just once to buy headphones online, a purse at the mall, or a Big Mac at the McDonald's drive-through. Apple is partnering with Visa, MasterCard and American Express as well as the biggest banks, which together cover more than 80 percent of credit card purchases in the US. And Apple is opening up a new revenue stream because it'll get a small cut from the transactions.

BEN MILNE: It's actually kind of an entrance into a market earlier than Apple usually makes. Mobile payments is still a relatively new thing.

SHAHANI: Ben Milne is CEO of the mobile payment company Dwolla. Lots of companies like his and Square and PayPal have tried to make online shopping easier. But Milne says the credit card giants have been really slow to adapt to the realities of the Internet. They keep expecting customers to type a lot, and customers end up abandoning their shopping carts. Apple could be big enough to jolt the payment networks into making it easier, maybe getting rid of physical credit cards altogether.

MILNE: Apple's one of the few companies in the world that can do that, not only because they understand user behavior but because they have such a mass of existing customers that are not likely to jump ship and go to another platform.

SHAHANI: The new payment system could also help fix a lingering security problem. Carl Livitt, a security researcher with the firm Bishop Fox, says if Apple does a solid job of implementing this new mobile wallet, which he believes they can, it'll block the kind of credit card hacking that's hit Target, Home Depot and other major retailers.

CARL LIVITT: The existing type of hacks that we're seeing rely on breaking into the merchant, compromising the swipe card machines that take your credit card information.

SHAHANI: Google has a mobile wallet that stores credit card information. But Apple does not do that. Apple Pay stores a unique ID that's scrambled up with encryption inside a locker in the phone. If the phone is stolen, you just suspend the service, and there's no need to replace your cards. When you want to make a purchase, the phone communicates with the bank to get a token. The phone gives that token to the merchant.

LIVITT: And then the merchant would be able to send that token back to the bank as confirmation that you had said, yes, I honestly want to buy this item, thereby completing the circle. And nobody, at any point, actually gets to see your credit card data.

SHAHANI: And even if the token gets stolen, it's just for one-time use. It's not good for your next purchase or for the black market. Aarti Shahani, NPR News, San Francisco. Transcript provided by NPR, Copyright NPR.