Apple is betting that people want to pay with a tap of the phone rather than a swipe of the card -- a new approach endorsed by an executive at one of Long Island's largest credit unions.
The technology company on Tuesday introduced a new digital wallet service called Apple Pay that is integrated with its Passbook credential-storage app and its fingerprint ID security system. The launch puts Apple in direct competition with services like PayPal and Google Wallet.
John Deieso, chief information officer at Westbury-based credit union NEFCU, said that Apple's initiative will go a long way toward making traditional credit cards with magnetic strips a thing of the past. He said the change will push a mobile technology for transactions called near-field communications into the mainstream.
"There are other players who have had this technology for a long time, but it hasn't driven adoption," he said. "Without Apple, there wasn't a huge rush to change it."
Apple Pay can be used now at more than 220,000 locations, according to Apple CEO Tim Cook. But that represents a small sliver of the millions of merchants who accept credit cards. Cook said that major retailers like Walgreens, Subway and McDonald's have agreed to add Apple Pay in their stores.
Citi Investment Research analyst Mark May said mobile proximity payments could grow from $1 billion in 2013 to $58.4 billion by 2017.
Still, consumers will have to weigh the convenience of waving their phones to make a payment against the risk of storing important financial information on their phones that could be lost or stolen.
In stores, Apple Pay users will make purchases by holding a phone close to a contactless reader with their finger on the touch ID fingerprint system. It's also set to work with the Apple Watch when that debuts in 2015.
Major credit cards, including Visa, MasterCard, American Express and Discover, have created a separate standard, dubbed EMV, to advance contactless payments. Unlike Apple Pay, EMV embeds the chips inside credit cards. Major EMV members set an October 2015 deadline for merchants to upgrade their equipment to accept the new cards or face expanded liability in case of credit card fraud.
Deieso said Apple Pay's adoption will rise in concert with the broader EMV rollout.
"Apple's timing was perfect," he said. "One year from now, all those merchants will be going through potential equipment upgrades."
Recent massive data breaches at Target and Home Depot will only add to the urgency, he said.
Still, some expect merchant resistance to Apple's system.
In a research note, Gartner analyst Avivah Litan said that Apple's security features may not offer sufficient inducement for many of the more than 30 million merchants that accept credit cards to upgrade.
Eddy Cue, Apple's senior vice president of Internet software and services, said credit card information will be stored on the phone via a secure chip, and payments will use a one-time security code. The Find My iPhone service, available online and on Apple devices, can erase the data if the phone is lost or stolen.
Apple Pay service will be available beginning in October.