Apple Pay vs Credit Card – What’s the Difference?

According to a September 2017 publication from the Canadian Bankers Association[i], Canadians transacted over $419 billion dollars in 2016, using approximately 75.3 million Master and Visa cards. While these statistics bode well for our credit card economy, there’s one other grim statistics that should worry us all.

According to the Association, Canadian bank’s credit card fraud reimbursements for the year totaled over $900 million!  It’s no wonder then, that alternate – and more secure – forms of payment are slowly making their way into the Canadian economy. Apple’s Apple Pay is just one of many such technologies.

What’s the difference?

Apple Pay, Visa, MasterCard…what’s the difference? Before we answer that, let’s take a moment to understand how Credit Cards and Apple Pay work. That’ll give us a better understanding about their differences.

Credit Cards

When we tap or swipe our credit cards at a checkout terminal, we wait patiently, and then walk away with our receipts. However, there’s a lot that takes place behind the scenes between swipe and receipt printing.

Here’s a high-level preview of what happens:

1. You (A) tap – if your card has a Near Field Communication (NFC) chip – or swipe on the Merchant’s terminal/payment device (B)
2. The device decodes information from the magnetic strip/embedded chip on your card, and sends it as a request to the Merchant’s bank (C)
3. That information is then routed through the credit card’s network, which then communicates with the bank that issued you the card (D)
4. This network acts as the traffic cop, transmitting information between the Merchant’s bank (C) and your bank (D)
5. The activity ends (hopefully!) with your bank (D) okaying the transaction, and that OK is routed back via the network, to the Merchant’s bank (C), and ultimately to the payment device (B)
6. The payment device spits out a receipt…and you walk away happy!

And all of this happens within 6 to 8-seconds!

Apple Pay

For the less technically-oriented user, the Apple Pay payment process may look eerily similar to that of the traditional (NFC-equipped) payment process – except it may appear slightly faster:

1. You flash your iPhone or Apple Watch (or other supported device) in front of a payment device
2. Information is exchanged between your device, your bank and the merchant’s bank, similar (but not entirely identical – more on that later!) to the traffic cop scenario explained above
3. The transaction is approved

So, what’s the difference between the two processes?

According to Apple’s own admission, Apple Pay is not positioned as a payment intermediary (like Visa or MasterCard). Instead, through Apple Pay, Apple is aiming to brand itself as a “payment medium”. But that’s the same as a credit card, isn’t it? Well, one could argue that it is – but with credit cards so tightly inter-connected with the payment intermediaries, Apple Pay stands out as a medium of payment unlike the credit cards.

Here are some key differentiators between the two modes of payment:

1. According to the Apple Pay support site[ii], “Apple Pay doesn’t collect any transaction information that can be tied back to you”. This differs from traditional payment processers who maintain detailed history of your credit card usage
2. In a typical credit card transaction, your credit card details (albeit encrypted), including a Primary Account Number (PAN), are exchanged between your bank and the merchants’ institution, via an intermediary – the payment network
3. Apple Pay does not invoke any contact with a payment network (like MasterCard’s – as described earlier). Instead, it connects directly with your bank and gets a device-specific Device Account Number (DAN), which is substituted for your actual credit card number. The merchant never sees your credit card number, and the DAN is never stored on any of Apple’s servers nor backed up on a cloud. It resides on what’s known as the Secure Element (SE) on your device
4. With advanced biometrics, Apple Pay can authenticate a transaction with your fingerprint – a feature that’s currently unavailable with conventional credit cards

Having understood the differences between the two payment methods, you might still be wondering: Which of these two is right for me? And the right answer is: It depends!

Convenience: If you are someone at ease with technology, like most millennials are today, then Apple Pay might be the payment method for you. The key to making it work lies also in how you add and configure credit cards to your wallet – something that the less techno-savvy user may not feel comfortable doing.

Additionally, if you have an NFC-enabled credit card, it will likely do everything that Apple Pay does – so it may not be worth the effort to switch. Apple Pay also has a $100 CAD limit per tap-and-pay transaction. Above that, you still need to enter a PIN – which doesn’t add to the convenience value!

Broad access: While Apple Pay is slowly gaining traction, the company has just a tiny sliver of the payment marketplace. Entrenched players, like Visa and MasterCard have many more banks and merchants signed up with them. It might just be possible that your access to Apple Pay is limited because the stores you shop at, or the institutions you bank with have not yet signed on with Apple. Additionally, your device might not yet be “Apple Pay-ready”

If you want broader access, then stick to your credit cards!

Fees and Charges: Apple claims that it does not charge merchants or users to use Apple Pay. Obviously, the credit card issuers and financial institutions lining up to offer Apple Pay to their clients/customers are paying for the service. How long it will take to pass those charges to you – the user – is anyone’s guess. So, if you suffer from fee-fatigue, then Apple Pay may not be something you should use!

And if you still wish to stick to the tried-and-trusted credit card, you should learn more about which one is best for you before applying for one.

How Secure Is Apple Pay?

One of the biggest differences, between traditional credit card-enabled transactions and Apple Pay transactions, is the element of security that the latter offers. To invoke a transaction, you first need to log into your device – which offers the first layer of protection. Next, if your Apple Pay is configured with biometric validation, your transaction will need to be authenticated with a fingerprint – which offers a second level of security.

Given that Apple Pay doesn’t transmit your “actual” credit card number, but instead uses a system called “Tokenization” to obfuscate a lot of your personal information, likely adds yet another layer of security for mobile payment transactions.

Finally, in case of a lost device, you don’t need to go through the hassles of cancelling each of your Apple Pay-linked credit cards. Instead, using “Find My iPhone” mode on your device enables you to remotely suspend Apple Pay-linked cards (no cancellation needed!) by putting your device in “Lost Mode”.

And if you’re still wondering about security surrounding Apple Pay – you needn’t be! Apple indeed takes security very seriously. In fact, they are so serious about protecting your data when you use Apple Pay, that CNet reports the company is offering hackers $200,000 to anyone who successfully hacks the system!

Now that’s really putting your money where your Apple Pay is!

[i] https://cba.ca/Assets/CBA/Files/Article%20Category/PDF/bkg_fraud_en.pdf

[ii] https://support.apple.com/en-ca/HT203027