There are some terminologies that need to understand first.
Payment Processing Terms
- Secure Element (SE)
- Near Field Communication (NFC)
- Tokenization
1. Secure Element (SE)
Its microprocessor cip that stores sensitive data such as payment information. The SE is embedded into NFC chip found in iPhone 6 and newer, Apple Watch, and MacBook Pro (newer models only).
It’s essentially the same chip that debit and credit cards use to secure your payment information.
2. Near Field Communication (NFC)
NFC is short range wireless technology that allows two electronic devices to communicate when placed right next to each other (usually 10 cm or less).
Your iPhone (certain models), apple Watch and POS terminal (certain models) are NFC equipped.
3. Tokenization
A highly secure process that substitutes sensitive data with one time algorithmically generated number known as a token.
The credit card number (Primary Account Number/PAN) is replaced by token when you add a card to Apple Pay. In short, token is just a fake credit card number. And a token holds no value. If its falls into the hands of bad guys, it’s useless since they cant reverse it back to PAN.