During Apple Inc.’s latest product announcement on September 9, 2014, Apple announced a new system for mobile payments that “will change how you pay with breakthrough contractless payment technology and unique security features build right into the devices you have with you every day.” The Apple Pay system is Apple’s first foray into the mobile payment industry. Apple will be partnering with numerous banks and retailers to provide an alternative way to pay, utilizing a nearfield communication (NFC) chip which is a set of standards for smartphones and other mobile devices to establish short-range radio communication (a few centimeters).
Apple Pay purports to offer more security for the consumer. The iPhone 6 will leverage a secure element inside the NFC chip to store sensitive data, on-board new credit cards through the phone’s camera, and use “tokenization” to protect real credit card data during transmission. The system will use a one-time payment number and a dynamic security code to keep user information secure. Apple Pay will support credit and debit cards from American Express, MasterCard and Visa, issued by banks including Bank of America, Capital One Bank, Chase, Citi and Wells Fargo. According to Apple, over 220,000 merchants will accept this new system, including Bloomingdale’s, McDonald’s, Whole Foods, Macy’s, Subway, and Walgreens.
Following the announcement, many questioned whether Apple Pay subjects Apple to oversight by the CFPB. Although not all the details of how Apply Pay works have been made public, Georgetown Law Professor Adam Levitin opined that based on what information has been made available, there is an argument that “Apple is now a ‘service provider’ for purposes of the Consumer Financial Protection Act, which means Apple is subject to CFPB examination and UDAAP.”
The CFPB has already expressed interest in new mobile finance systems. Over the summer, the agency launched an investigation into how technology affects the way consumers are spending.
In a statement released in June 2014, CFPB Director Richard Cordray stated the importance of “mak[ing] sure all consumers are protected whether they are opening their wallets or scanning the screen on their smartphones.”
Apple is not the first mobile device maker to bring smartphones with NFC chips to the market. Acer, LG, Nokia and Samsung already have phones on the market with this technology. However, the breadth of Apple’s network is bringing increased interest to the broad adoption of mobile payment technology, and the federal regulations that may follow.