With its latest iOS release, Apple may have charted a new course for the payment industry. On October 20, the company rolled out its new payment service, Apple Pay, to users of the iPhone 6 and iPhone 6 Plus. Apple Pay uses near-field communication (NFC) and tokenization technology with the iPhone’s built-in fingerprint reader to provide what experts say is a more secure payment method than traditional credit cards.

A transaction using Apple Pay essentially works the following way:

  • The user opens Apple Pay on the iPhone.
  • The iPhone connects to a payment terminal using NFC.
  • Apple Pay transmits payment information through a unique token number and a transaction-specific security code.
  • The user approves the purchase using the iPhone’s Touch ID fingerprint reader.

Notably, the merchant does not receive the customer’s credit card information through an Apple Pay transaction. This feature, along with the enhanced security of Apple Pay, presents potential benefits for merchants, including greater security from payment card breaches and a possible reduction in Payment Card Industry (PCI) compliance.

As Apple Pay and similar payment technologies become more prevalent, we will watch to see what legal and regulatory changes these technologies bring to merchants and banks.