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all right so Apple's Apple pay lets you place your finger on your phone and then

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like wave it at payment terminals to buy stuff I mean it's basically magic just

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like everything that they do but for folks who want more than the Bippity

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Boppity Boo Harry Potter explanation you might be asking questions about exactly

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how all this works and especially whether Apple's claims with respect to

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transaction security can be believed but

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let's start with a brief rundown of how a regular credit card transaction Works

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whether you swipe chip or wave financial

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institutions apply to join a card Network like Visa or Mastercard putting

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them in the business of issuing cards to individuals and businesses and or the

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business of acquiring merchants or stores to accept payments through the

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network from the aformentioned individuals and businesses when you use

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your credit card your issuing Bank receives the merchant ID card

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information and transaction amount to check for fraud then approve or decline

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the transaction if it's approved the money you just spent flows from your

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account through a payment processor that deducts what is known as an interchange

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fee usually in the neighborhood of 2% for card present transactions and

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significantly more when the card can't be presented like online that is divvied

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up between your bank or whoever your credit card issuer is to cover the cost

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associated with acquiring customers fraud expenses and profit and then a

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much smaller portion to the network like Mastercard or VISA now let's look at how

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Apple pay differs the NFC short- range

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Wireless communication technology is the same as you'll find in millions of

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plastic cards and Android phones already worldwide but the back end is where

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Apple has actually innovated here instead of handing your card and ID to a

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stranger in a random store effectively giving personal information to the

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cashier and financial information to the merchant Apple authenticates your

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personal information with your credit card Network once when you take a

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picture of the card to get it authorized for Apple pay then they get a token

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called a device account number that is tied to your particular phone or watch

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and a key generator that creates the single-use security codes that are

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generated at the time of each transaction to be sent back to your

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issuer to decrypt and authorize your payment Apple sends this token to the

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user's phone that stores it in a special secure memory and execution environment

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called the secure element and according to them once this is done even they

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cannot retrieve the payment details so that's how it works Apple hasn't become

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a bank or anything and they actually never even touch your money or payment

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details during your day-to-day transactions so what's in it for them

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you might ask well unlike the also nfc-based Google Wallet which is more of

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an open yeah you can join if you want or

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whatever uh initiative from Google Apple pay is the product of closed room deals

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with the financial institutions that reportedly entitles Apple to a small cut

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of The Interchange fee because they again reportedly argued that easier

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trans transactions will drive customers to pay electronically rather than with

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cash increasing the total interchange fee bucket for everyone involved and

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they also argue that fingerprint authentication although it's far from perfect will reduce fraud where

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customers are using NFC enabled iPhones or apple watches paired to supported

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devices to make payments meaning that less of that interchange fee will be

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used to reimburse well the victims of fraud so this as fast as possible not

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thorough as possible and while I did mention Google Wallet in this video and

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I did mention that it's also NFC based there are some very significant

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differences between it so let me know if you guys would be interested in seeing a

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standalone follow-up video that also includes some information about the pros

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and cons of uh Apple pay and Google Wallet and then the upcoming currenty so

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just a general one about digital wallets

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love to see your comments guys and speaking of loving to see your comments

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so that was an awkward segue I mean I've got a haircut it's a completely

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different day I probably look entirely different and all that stuff but not

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nearly as awkward as the thing that you're about to see today sponsor is

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fractal design and they have cooked up a humiliating thing for me to do once

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again this is a banana and I think you guys know what those are for

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Fu great

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T cooling fans

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with Des they really good

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sponsorship really

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this all right guys thanks for watching like this video if you liked it dislike

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it if you disliked it leave a comment letting me know if you have suggestions

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for future episodes the fast as possible just like this one and as always don't

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forget to subscribe

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and Josh man really dude