Yesterday, Apple announced, to much fanfare, details on its upcoming iPhone 6 and Apple Watch, including that the new devices will be equipped with Apple Pay -- a contactless mobile payment scheme that allows users to make purchases at points of sale with their phones and, more importantly, never communicates their credit card data to the retailer.
Apple Pay will not prevent malware attacks on point-of-sale terminals. It won't stop Backoff from breaching UPS or BlackPOS from breaching Home Depot. What it will do is make the data on those PoS terminals less valuable to attackers.
It also shifts most of the responsibility for payment security off of retailers themselves, and onto Apple.
How it works
As Apple explains:
With Apple Pay, instead of using your actual credit and debit card numbers when you add your card, a unique Device Account Number is assigned, encrypted, and securely stored in the Secure Element, a dedicated chip in iPhone and Apple Watch. These numbers are never stored on Apple servers.
In other words, the only point of failure is on the card-holder's mobile device, not on an Apple server that could be targeted by attackers. (Of course, Apple currently possesses payment card data for iTunes and App Store customers who voluntarily asked Apple to store that data.)
And when you make a purchase, the Device Account Number alongside a transaction-specific dynamic security code is used to process your payment. So your actual credit or debit card numbers are never shared with merchants or transmitted with payment.
In other words, Apple Pay has "tokenized" payment and turned your Apple device into a mini point-of-sale system.
"That's where the wallet opens -- on the device," says Lev Lesokhin, executive vice president of CAST Software. "That makes the authentication an Apple problem, not a [retail store] problem... If [credit card numbers are] what [attackers] want, they're going to have to go after Apple."
Instead of authenticating to a PoS terminal (with a credit card and a PIN number), you authenticate to the Apple device. If you use both a passcode and a fingerprint to secure your device, then every purchase you make uses the authentication trifecta: something you know (the passcode), something you have (the device), and something you are (the fingerprint).
That ultimately makes the Apple device far more important to a customer than the PoS terminal. Plus it gives the customer more control over their own security -- if the device is stolen, all this information could be deleted using remote data wipe.
Even if an attacker uses malware to compromise a store's PoS terminal and take all its data, that data will not include credit card numbers, just tokens from Apple Pay -- which are basically one-time tokens, since they all include transaction-specific codes.
How will attackers adjust?
If retailers no longer require credit card numbers to process payments, just tokens, then attackers won't necessarily need credit card numbers to make purchases either; they just need tokens. So the next questions are: can attackers use those tokens they nabbed from PoS systems just like they would use credit card numbers? Can those tokens be spoofed?
In the short term, the answer is probably no. However, security experts point out that attackers won't give up so easily.
For example, Lesokhin wonders, instead of using malware that compromises point-of-sale systems, attackers may instead create software that can spoof a user's whole iPhone -- fingerprint included. (After all, biometric scanners turn your body into a data file. An attacker doesn't necessarily need your finger; he just needs a way to steal, then input that data.)
There are also questions about what happens outside the interaction between the Apple device and the PoS terminal -- and the answers may vary from merchant to merchant.
"It really depends on the implementation," says Armando Orozco, senior malware intelligence analyst at Malwarebytes Labs. "If no credit card data is passed there's nothing for the malware to capture. So, in theory, Apple Pay users would not have been compromised by the Backoff malware."
Joe Schumacher, senior security consultant at Neohapsis Labs, points out that payment card data may still be communicated, just not in the traditional way.
"For example, we do not know if the store would be sent the credit card number on a different virtual channel and/or if the merchant/store would store this credit or debit card number in their environment or rely on a token to represent the sale or transaction," says Schumacher. "From the information released by Apple and Google, it appears that the merchant/store does not receive the sensitive information over the NFC medium; we do not know if the merchant/store receives the sensitive information through another channel or if Apple/Google will be sending the funds to the merchant/store bank/processor."
From magnetic stripe to NFC
Apple Pay may be just the thing that finally persuades American retailers to move away from magnetic stripe technology to NFC. While NFC (as well as Chip-and-PIN) has been championed as a big security improvement to magnetic stripe, it still doesn't eliminate the problem of malware that goes after point-of-sale systems.
As Chris Strand, Senior Director of Compliance at Bit9, says, "At the end of the day, what's the difference" between magnetic stripe and NFC? "It's a different channel, but I'm still transferring my data into that PoS terminal."
Strand also cautions retailers against focusing too much on the customer-facing side of the transaction. If retailers think that all their problems will be solved by the front-end of purchases, they may get distracted from securing the back-end. "And attackers love distractions," he says.
These caveats aside, security experts are praising Apple -- not just for Apple Pay itself, but for emphasizing the need for multi-factor authentication.
"The more significant announcement," says John Gunn, vice-president of corporate communications for VASCO, "was on Sep. 5 when Tim Cook announced that Apple would step up its security game by broadening its use of two-factor authentication and more aggressively encouraging people to turn on two-factor authentication. When the most influential company in the industry comes out with a strong endorsement of two-factor authentication, that's good news for consumers and bad news for hackers."
Apple Pay will be available on iPhone 6 or Apple Watch, and will be usable at over 220,000 stores accepting contactless payments.