Digital wallet

The use of mobile devices as payment mechanisms is already well established in Europe and Asia and is now exploding in the United States. Near field communication (NFC) is the primary enabling technology for mobile payment systems. NFC is a set of short-range wireless technologies used to share information among devices within about 2 inches (50 mm) of each other.

Technology companies offer variations on contactless payments, often referred to as digital or mobile wallets. Apple Pay is an app that uses built-in NFC technology. Users set up an account and enter their banking credentials — credit/debit card or checking/savings account — as the source of funds. When a customer wants to make a payment, he or she presses the iPhone Touch ID button, which reads the fingerprint, then swipes the device near a merchant's NFC point-of-sale terminal.

The iPhone comes with a hardware-defined secure area on a chip that contains a unique device number and the ability to generate a one-time 16-digit code. Together they form a digital token. The token information is encrypted and sent to Apple servers to verify the authenticity of the device and the person. Credit card information is not shared with the merchant and is not transmitted from the iPhone. If hackers intercept the NFC communication, it would be useless because the message is encrypted and involves a one-time-only digital token.

Android Pay and Samsung Pay are similar NFC-based wallets. Android Pay can store user funds (a prepaid digital card) and is therefore subject to federal banking regulations, whereas Apple Pay does not store user funds and is solely a technology-based intermediary. Samsung Pay prioritises NFC but can switch to magnetic secure transmission when NFC terminals are unavailable.