Apple Pay = Proxy for Payments? Understanding the Hidden Layers of Security 

The media has talked about Apple Pay a lot, and most people certainly know about it well, especially if they have an iPhone in their pocket. However, it’s more challenging to explain the technical capabilities the system provides. I recently heard an expression that Apple is the “proxy server for payments.” So, let’s dive deeper into this comparison and explain some technical terms to better understand how Apple Pay works. 

Starting with proxies, this technology is invaluable for internet users, as it not only secures the connection and protects personal data stored on the device, but also provides freedom of geolocation when it comes to browsing and streaming. This security layer and re-routing feature are the reasons why people make the comparison in the context of Apple Pay. The way an online proxy server works is fascinating and very smart: it hides the actual IP address of the user’s device, then connects them to servers located around the world, convincing websites that the user is browsing from that virtual IP address. This is what we call masking. 

This is great for anonymity, it’s like having a stand-in send the message so your personal address remains hidden. Proxies (and their encrypted cousins, VPNs) are commonly used to preserve privacy, bypass geo-blocks, and add a layer of security by keeping your real location or identity unknown on the web. 

The question is—when someone pays via Apple Pay, does the service do the same re-routing? The short answer is no. Apple does not mask your real bank information by making the payment from a virtual or cloud-based banking account on your behalf. What Apple Pay does can still be called masking, but in a different way. 

Apple Pay’s Tokenization

So how does Apple Pay achieve this sleight-of-hand with your card details? The magic lies in tokenization and the use of a Secure Element in your device. When you add a credit or debit card to Apple Pay, Apple works with your bank behind the scenes to create a device-specific token. The bank (via the card network’s token service) generates a substitute account number for your card, often called a Device Account Number (DAN) or DPAN. This DAN is a unique code that will stand in for your actual card number. Apple then stores this token (DAN) securely on a special chip in your iPhone or Apple Watch known as the Secure Element. So, Apple never keeps your real card number on its servers as the sensitive data lives only on that Secure Element chip in your device. 

The Secure Element is like a vault. It’s isolated from the rest of the phone’s software and hardware, and it’s engineered to store your token and cryptographic keys safely. Even if someone were to hack your phone’s apps, they cannot extract the card token from the Secure Element. Furthermore, the token itself is useless without the cryptographic keys that only the Secure Element holds. Apple Pay uses industry-standard encryption and EMVCo tokenization techniques so that each transaction is approved with a unique one-time code.  

The Work Process

Here’s what happens when you make a payment: you authenticate (with Face ID, Touch ID, or a passcode), and the Secure Element generates a dynamic security code (sometimes called a cryptogram) based on your token, the transaction info, and secret keys. It then sends the token (DAN) and this one-time cryptogram to the point-of-sale terminal via NFC. The merchant’s system and your bank’s payment network validate the token and cryptogram to authorize the charge. Because a fresh cryptogram is used each time and the real card number is never transmitted, the transaction is highly secure. If a hacker were somehow eavesdropping, they’d catch only a single-use code and a token that’s meaningless outside that specific transaction. 

This tokenization process dramatically reduces fraud risks. As cybersecurity expert Travis Taylor puts it, “Nothing is 100% secure in this world… but Apple Pay comes pretty close” to stopping thieves from stealing your payment info. He notes that when you tap to pay with Apple Pay, “you’re not actually handing over your credit card number to the merchant,” and that alone “can intercept a whole lot of credit card fraud”. In other words, even if a store’s payment system is compromised, your actual card number isn’t sitting there to be stolen – the bad guys would only get the token, which won’t work on another device or for another purchase.  

The impact of this design is reflected in the trust and adoption Apple Pay has gained. Since its launch in 2014, Apple Pay’s usage has skyrocketed. By 2024 it had roughly 785 million users worldwide, and about 85% of U.S. retailers now accept Apple Pay in their stores. In the United States, Apple Pay accounts for over 54% of in-store mobile wallet usage, and it’s even responsible for about 14% of all online consumer payments (thanks to its use in apps and on websites). Those numbers highlight not only how popular Apple Pay has become, but also the immense volume of transactions riding on its tokenization system. In essence, Apple Pay proved that tokenization at scale can work seamlessly; billions of payments have been completed safely via these “hidden layers” of security. 

Since we keep so much information on our smartphones, knowing that there is a technology that actually works is already a good sign. Especially now that most payments are done through the phone (mobile app payments, which may become a target for bad actors, e-commerce shopping, and more) Apple’s tokenized payment method gives peace of mind to its users.