Security questions you should ask about Apple Pay

While promising, the strength of Apple Pay security won't be fully known until it is tested by hackers and security pros

Security pros reacted positively to Apple Pay, but withheld their full endorsement until the mobile payment system could be tested outside of the company’s laboratories.

Apple rolled out the service Tuesday in unveiling two new iPhones, both with larger screens than the previous models. Apple Pay will be available in the U.S. in October on all phones running the latest operating system, iOS 8.

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"My initial reaction to the Apple Pay announcement is pretty hopeful," Christopher Carlis, security consultant at Trustwave, said. "It seems that they're trying to do a lot of things that could be very helpful."

Apple Pay could jumpstart consumer adoption of mobile payments in the U.S., if it fulfills its promise of being secure and easy to use. The service uses a near-field communication radio antenna on the phone to send payment data to a store reader.

Apple customers will have the option of using the credit card they have on file in Apple iTunes, but the actual data will never leave the company's server.

Instead, the phone will use a payment token that's a representation of the actual credit card number. The token is stored on a special chip called a Secure Element.

"Until it hits the real world and gets in the hands of security researchers and actual criminals who are highly motivated to steal information, we won't be able to say exactly whether this is a better solution than what we're currently using now," Carlis said.

Apple Pay uses specifications set by EMVCo, which also manages testing processes for payment systems that accept mobile tokens or credit cards with embedded data-storing chips.

Apple says its payment system will be compatible with the roughly 220,000 merchants that use NFC readers.

In addition, Apple is working with a handful of merchants, including Bloomingdale's, Macy's, McDonald's, and Whole Foods, to provide deeper integration with their readers. Developers will be able to tap into the service for one-click purchases within mobile apps.

A potential security concern is in the way Apple will let people add an alternative credit card to the phone, so it can be used instead of the one the company has on file.

To add a card, a person could take a picture of it with their iPhone and send it to Apple. Security researchers will certainly look at whether the image is stored securely on the phone and how it is transmitted to prevent an attacker from capturing the image over a public Wi-Fi.

"Storing it on your phone in some readable format would be a pretty juicy target," Carlis said.

Assuming the NFC technology is implemented correctly, the payment systems are generally more secure than credit cards most people use in the U.S. today. The security weaknesses in using cards with magnetic stripes to store card data has been highlighted in payment system breaches at major retailers, including Neiman Marcus Group, Michaels, Lowe's, Supervalu, Albertsons, Target and, more recently, Home Depot.

“With this announcement, Apple validates the data-centric security model, and shines a spotlight on the need for the payment world to move on from vulnerable static credit-card numbers and magnetic stripes to protected versions of data -- tokenized payments," Mark Bower, vice president of product management for Voltage Security, said.

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However, if Apple Pay and other similar services are widely adopted, then hackers are expect to shift their attention to online retailers accepting credit card numbers from customers via computers or mobile devices.

"It will probably reduce overall fraud, but online fraud will increase," Alisdair Faulker, chief products officer at ThreatMetrix, said. "That's something to be aware of. There will be winners and losers."

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