Apple Pay – An attempt to demystify – Take 2

Earlier, a couple of months ago, I attempted to demystify ApplePay in this blog post. Those were the?early days when most of us didn’t have access to enough?information on its inner workings. Even with such limited information,?many parts of the post turned out to be correct, but some turned out to be wrong too.?Today, with access to more information, I am making a second attempt?at demystifying ApplePay. This post is primarily a rehash of the original with only the relevant parts changed. Let’s get on with the article now…

When Apple announced ApplePay as a service on September 9th, 2014 and subsequently in their press release, they mentioned a few key terms like Secure Element, Tokens, One time unique number, Device account number, dynamic security code and such. Take a look at the 4th paragraph in their press release to see what I?mean. For the layman, this could mean that apple has used?some complex?security technology to make ApplePay secure; but for some people in the field of mobile payments and security, it was not very clear what Apple was trying to say. So, let’s try and dissect that, shall we?

For simplicity, we are only going to discuss about ApplePay in the context of a payment made at a physical POS?and not the mCommerce version of the service. This is only an educated attempt to understand the underlying implementation while the reality could well, be different.

Let’s start with the Secure Element (SE). ApplePay stores the payment credentials inside the SE. It does not store them in the cloud and it does not store them within the host operating system. This means that none of the iOS apps will have access to the payment information stored within the SE.

What exactly is stored in the SE?

When, you as a customer add a credit card to your Passbook (Mobile Wallet), the simplest thing for the wallet to do would be to store the real payment credentials like the Primary?Account Number (PAN) into the SE. But that is a naive implementation and Apple does not do that. ApplePay instead stores something called a token and some associated data inside the Secure Element.

What is a token?

Token is like a fake credit card number that looks and feels like a credit card number for most intents and purposes, but it is not the real deal. During transaction authorization the token would be de-tokenized into the real PAN?before passing?on to the Issuer for authorization. The entity that places a request to de-tokenize differs depending on the tokenization standard used. In proprietary tokenization technologies, an Acquirer would be responsible for tokenization and de-tokenization. But,?ApplePay uses the latest in tokenization standard created by EMVCo. In this case, the payment network performs de-tokenization.

How is a token provisioned to the SE?

Now that we know that a Token is stored in the SE, the next step is to find out how it gets provisioned there in the first place.?There are many ways in which this could have been implemented and we will not know for sure until Apple announces its implementation. But, here is an educated guess I would go with…

When a customer adds a credit card to their wallet, the PAN?details are submitted to ApplePay servers. ApplePay sends the information over to the appropriate payment network (Visa, Master Card or AMEX) asking for a Token in return. In this scheme of things, the payment network is said to play the role of a Token Service Provider (TSP) while ApplePay plays the role of a Token Requestor (TR).

The TSP?in turn requests the appropriate card Issuer to perform Identification & Verification (ID&V) and/or out of band validation?(OOB) to verify if the card is valid, if it is in good standing and if the request is originating?from an authentic customer. After receiving a successful response from the Issuer, the?TSP?vaults the PAN, generates and maps it to a token and returns the token and a token-key back to ApplePay’s server. This token-key will later be used to generate a dynamic cryptogram at the SE. ApplePay, acting as its own Trusted Service Manager (TSM) provisions the token, token-key and maybe other data into the Secure Element. It is the Token that Apple calls as “Device Account Number” in its press release.

What happens when a?payment transaction is initiated?

When a customer taps or waves their iPhone in front of a point of sale terminal, a payment transaction is initiated. ApplePay uses EMVCo’s Contactless suite of specifications to communicate with the contactless reader terminal. When it is time for the Secure Element to send information to the terminal, it does a couple of?things. First, it identifies if the contactless terminal supports EMV Contactless or if it supports only Contactless MSD (for backwards compatibility).

If it supports EMV?Contactless, the SE?generates a dynamic cryptogram using a combination of?the token, token-key, transaction amount, transaction counter etc. If the terminal supports only Contactless MSD, it generates a dynamic CVV?instead,?using similar data elements like?token-key and other transactional data. Finally, it passes the token, the dynamic cryptogram?(or?the dynamic CVV) and other payment and chip data elements to the terminal in compliance with?EMV Contactless specification.

Let’s stop for a moment here and review what just happened and compare that to Apple’s press release?as quoted below.

“Each transaction is authorized with a one-time unique number using your Device Account Number and instead of using the security code from the back of your card, Apple Pay creates a dynamic security code to securely validate each transaction.”- From the press release

From the quote above, the Device Account Number represents the Token, the One-time Unique Number represents the dynamic cryptogram and the Dynamic Security Code represents the dynamic CVV.

What happens during a payment transaction?

The contactless terminal receives the token, dynamic cryptogram (or dynamic CVV) and other data elements according to the contactless EMV specification (or contactless MSD for backwards compatibility) and?sends?them over to the Acquirer. The Acquirer doesn’t know or care if the incoming PAN?is a token?PAN?or the real PAN. They just identifiy the payment network based on the BIN?and send it over the corresponding payment network.

The payment network identifies that it is a tokenized PAN?and not a real PAN?based on BIN?tables. Consequently, they send a request out to the TSP?to de-tokenize passing in the Token, the dynamic cryptogram (or dynamic CVV) and other transaction data elements. The TSP?validates the cryptogram using the token-key that it shared earlier during the provisioning process. It also performs token channel validations and other configured domain control validations. If all the validations came out?positive, the TSP?de-tokenizes and returns the real PAN?back to the payment network. The payment network attaches the real PAN?to the authorization request and sends it over to Issuer for authorization.

The Issuer authorizes the transaction depending on the customer’s account status. The authorization response?flows back from Issuer to the Payment network. The payment network removes the real PAN?from the response and attaches token in its place before responding?back to the Acquirer and back to the Merchant where your receipt gets printed.

In conclusion, we saw how ApplePay?does provisioning and how a payment transaction is processed.?For some of us this is good enough information to?understand the security strategy used by ApplePay. But some others may have more questions.?What happens when the?Card is lost??What?happens when the phone is lost??What happens when the merchant is compromised? How does ApplePay handle these challenges? These are all very good questions, but this post has?already become too big. So, I will address those follow-up questions in my next post. Stay tuned!

Related Reading:

 

Apple Pay vs Google Wallet : The Secure Element

Note: You can read all articles in this series by visiting the Table of Contents

Both Google Wallet and ApplePay are trying to solve the same set of problems – mobile payments at the physical POS and inside apps. They have many?characteristics that are very similar, but they also differ in significant ways when it comes to implementation and user experience. In this series of blog posts, we will analyze a few?similarities and differences one by one. We will start by talking about the?Secure Element today.

A Secure Element (SE) securely stores card/cardholder data and does cryptographic processing. During a payment transaction it emulates a contactless card using industry standard protocols to help authorize a transaction. The Secure Element could either be embedded in the phone or embedded in your network operator’s SIM card. We will generically refer to them as device-based Secure Element. More recently, with the introduction of HCE technology by Google, the definition of Secure Element has been expanded to include a secure cloud as well. We will refer to them as cloud-based Secure Element.

In the beginning, Google Wallet v1.0 started its journey by using the device-based Secure Element for card emulation. This approach didn’t work out well for Google as most of the major network operators (Verizon, AT&T and T-Mobile) decided to support their own brand of wallet called Softcard (previously Isis) and blocked access to the Secure Element for any other wallet providers. Google had no choice but to move on.

se-hce-dual-ce

Today, Google wallet v3.0 does not use a device-based Secure Element. It uses a technology called Host-based card emulation (HCE) instead, where card-emulation and the Secure Element are separated into different areas. For example, in HCE mode, when an NFC enabled Android phone is tapped against a contactless terminal, the NFC controller inside the phone redirects communication from the terminal to the host operating system. Google wallet picks up the request from the host operating system and responds to the communication with a virtual card number and uses?industry standard contactless protocols to complete?the transaction. This is the card-emulation part. The transaction proceeds and reaches the Google cloud servers where the virtual card number is replaced with real card data and authorized with the real Issuer. Since the real card data is securely stored in Google’s cloud servers, the cloud represents the Secure Element part. In general, this approach is considered less secure compared to the embedded SE approach. But there are some areas (like Lost & Stolen use-case) where it is more secure. We will discuss that in a different post.

NOTE: This doesn’t mean that Android operating system does not support device-based Secure element anymore. In fact it supports both device-based Secure Element and HCE using a routing table at the NFC controller level.

ApplePay, in contrast, works using traditional device-based Secure Element. It does not use HCE technology. Consequently, Apple does not store the real card or token data in their cloud servers at all. The on-device Secure Element essentially performs card-emulation in addition to secure storage. It sends payment data to the contactless terminal when you Tap & Pay. I have attempted to demystify how ApplePay works in one of my previous posts.?In many ways it is similar to how Google Wallet v1.0 used to work (with some important differences).

se-ce-iphone

First, ApplePay does not store the real card data inside the SE. This is in direct contrast to Google Wallet 1.0 and Softcard. Instead, they store a token that conforms to EMVCo tokenization specification. It is this token (along with a cryptogram) that gets sent to the contactless terminal. During the authorization flow, the card network identifies the token, de-tokenizes them into real PAN with the help of a Token Service Provider (TSP) and sends the real PAN over to Issuer for authorization.

Second, Apple owns and controls the Secure Element embedded inside the device thereby avoiding unnecessary challenges from the MNOs.

Finally, Apple significantly simplified the provisioning model. If they had to provision the real card details, they would have to depend on a complex and convoluted process. Fortunately, they provision a token instead and took the opportunity to simplify the process to a bare minimum.

In the next post, we will discuss how these two services differ?when the device is lost or stolen.

Related Reading:

Apple Pay – An attempt to demystify

Update as of Jan 3, 2015

This post was written in the early days after ApplePay’s announcement, when most of us didn’t have access to enough information on its inner workings. Even with such limited information, many parts of the post turned out to be correct, but some turned out to be wrong too. Consequently, I have taken a second attempt at demystifying ApplePay in this other post based on what we know at this time. The rest of this post is not modified.

When Apple announced ApplePay as a service on September 9th, 2014 and subsequently in their press release, they mentioned a few key terms like Secure Element, Tokens, One time unique number, Device account number, dynamic security code and such. Take a look at the 4th paragraph in their press release to see what I?mean. For the layman, this could mean that apple has used?some complex?security technology to make ApplePay secure; but for some people in the field of mobile payments and security, it was not very clear what Apple was trying to say. So, let’s try and dissect that, shall we?

For simplicity, we are only going to discuss about ApplePay in the context of a payment made at a physical POS?and not the mCommerce version of the service. This is only an educated attempt to understand the underlying implementation while the reality could well, be different.

Let’s start with the Secure Element (SE). ApplePay stores the payment credentials inside the SE. It does not store them in the cloud and it does not store them within the host operating system. This means that none of the iOS apps will have access to the payment information stored within the SE.

What exactly is stored in the SE?

When, you as a customer add a credit card to your Passbook (Mobile Wallet), the simplest thing for the wallet to do would be to store the real payment credentials like the Primary?Account Number (PAN) into the SE. But that is a naive implementation and Apple does not do that. ApplePay instead stores something called a token and some associated data inside the Secure Element.

What is a token?

Token is like a fake credit card number that looks and feels like a credit card number for most intents and purposes, but it is not the real deal. During transaction authorization the token would be de-tokenized into the real PAN before passing?on to the Issuer for authorization. The entity that places a request to de-tokenize differs depending on the tokenization standard used. In proprietary tokenization technologies, an Acquirer would be responsible for tokenization and de-tokenization. But,?ApplePay uses the latest in tokenization standard created by EMVCo. In this case, the payment network performs de-tokenization.

How is a token provisioned to the SE?

Now that we know that a Token is stored in the SE, the next step is to find out how it gets provisioned there in the first place.?There are many ways in which this could have been implemented and we will not know for sure until Apple announces its implementation. But, here is an educated guess I would go with…

When a customer adds a credit card to their wallet, the PAN?details are submitted to ApplePay servers. ApplePay sends the information over to the corresponding Issuer bank asking for a Token in return. The Issuer bank calls a Token Service Provider (TSP) and requests for a token. As far as I know, the payment network themselves play the role of TSP at present.

The TSP?vaults the PAN, maps it to a token and returns the token and a token-key. This token-key will later be used to generate a dynamic cryptogram at the SE. The Issuer receives a token and token-key, and adds a cvv-key to the mix. The cvv-key will be later used to generate a dynamic security code at the SE. The Issuer returns the token, token-key and cvv-key back to ApplePay. ApplePay, acting as its own Trusted Service Manager (TSM) provisions the token, token-key,?cvv-key and maybe other data into the Secure Element. It is the Token that Apple calls as “Device Account Number” in its press release.

What happens when a?payment transaction is initiated?

When a customer taps or waves their iPhone in front of a point of sale terminal, a payment transaction is initiated. ApplePay uses EMVCo’s Contactless suite of specifications to communicate with the contactless reader terminal. When it is time for the Secure Element to send information to the terminal, it does two things. First, it generates a dynamic cryptogram using a combination of?the token, token-key, transaction amount, transaction counter etc. Second, it generates a dynamic CVV value using the cvv-key. Finally, it passes the token, the dynamic cryptogram, the dynamic CVV and other payment and chip data elements to the terminal using the EMV specification.

Let’s stop for a moment here and review what just happened and compare that to Apple’s press release?as quoted below.

“Each transaction is authorized with a one-time unique number using your Device Account Number and instead of using the security code from the back of your card, Apple Pay creates a dynamic security code to securely validate each transaction.”- From the press release

From the quote above, the Device Account Number represents the Token, the One-time Unique Number represents the dynamic cryptogram and the Dynamic Security Code represents the dynamic CVV.

What happens during a payment transaction?

The contactless terminal receives the token, dynamic cryptogram, dynamic CVV and other data elements according to the contactless EMV specification (or contactless MSD for backwards compatibility) and?sends?them over to the Acquirer. The Acquirer doesn’t know or care if the incoming PAN is a token PAN or the real PAN. They just identifiy the payment network based on the BIN and send it over the corresponding payment network.

The payment network identifies that it is a tokenized PAN and not a real PAN based on BIN?tables. Consequently, they send a request out to the TSP?to de-tokenize passing in the Token?and the dynamic cryptogram. The TSP, among other things, validates the cryptogram using the token-key that it shared earlier during the provisioning process. If the cryptogram is valid, the TSP de-tokenizes and returns the real PAN back to the payment network. The payment network attaches the real PAN to the authorization request and sends it over to the Issuer for authorization.

The Issuer validates the dynamic CVV based on the cvv-key it shared earlier during the provisioning process. Then it?authorizes the transaction depending on the customer’s account status. The authorization status?flows back from the Issuer to the Payment network, back to the Acquirer and back to the Merchant where your receipt gets printed.

In conclusion, we saw how ApplePay?does provisioning and how a payment transaction is processed.?For some of us this is good enough information to?understand the security strategy used by ApplePay. But some others may have more questions.?What happens when the?Card is lost??What?happens when the phone is lost??What happens when the merchant is compromised? How does ApplePay handle these challenges? These are all very good questions, but this post has?already become too big. So, I will address those follow-up questions in my next post. Stay tuned!

Reprinted from my own article here

Related Reading:

 

Mobile Payments: What is HCE?

What is HCE?

Previously, we discussed about Secure Element and how it enables payment transactions in card-emulation mode. We also briefly discussed that SE?is not the only choice available. Today,?we also have HCE as an alternative. HCE stands for Host-based Card Emulation.?As its name suggests, it has something to do with?card-emulation mode. But what does host-based mean? Before we talk about what host-based means, let’s review how things were before?HCE.

Prior to HCE, the only way to emulate a card using a mobile NFC device was to use a Secure Element. Let’s take the Android platform as an example. Here, the host operating system (Android in this case) and its apps do not get involved with a payment transaction at all.

se-ce

When a consumer holds the device over an NFC terminal, the NFC controller in the device routes all data from the reader directly to the Secure Element. The Secure Element itself performs the communication with the NFC terminal, and no Android application is ever involved in the transaction. After the transaction is complete, an Android application can query the Secure Element directly for the transaction status and notify the user. This is the approach used by ApplePay as well

This SE?based approach is inherently secure and that is a very big advantage. But, there are some downsides?too. The SE owner owns the key to the kingdom. All others will have to go through complex business models, partnerships, and dependencies to gain access and it makes the whole process that much more?complex and expensive. Moreover, the SE itself has only?limited storage capacity and processing speed.

The alternative is to use Host-based Card Emulation.?Here,?the host operating system (Android) and its apps gets involved with a payment transaction.

hce-ce

When a consumer holds the device over an NFC terminal, the NFC controller in the device routes all data from the reader directly to the Host CPU on which Android applications are running directly. Then, an?Android application (a Mobile Wallet) that deals with a particular payment application can do its magic and?provide for the card emulation requests and responses.

Since the host CPU is inherently insecure, any mobile wallet worth its salt will not store the real payment credentials inside the phone. Google Wallet for example moves all such data to a hosted cloud environment, and that is where the?secure storage and secure processing takes place. In essence, we have moved the Secure Element from inside a chip to a cloud environment (HCE Cloud) instead.

This approach has its downsides – like security and a need for data connection. This does not mean that your private information is vulnerable. We can still have a very high degree of security?using other technologies. Payment card Tokenization is one of them and we will discuss it in an upcoming post.?On the bright side,?the complex business models, partnerships and access restriction to SE can be dramatically simplified. This enables payment application issuers to easily provision to the cloud and get it over with.

Using SE-based Card Emulation and Host-based Card Emulation is not an?either-or scenario though. Android allows both to co-exist in the same?NFC enabled device and offers?tools and technologies to work with both of them as shown in the diagram below.

se-hce-dual-ce

All the above diagrams were taken from Android developers website.

Mobile Payments Blog Series

Welcome to the Mobile payments FAQ and?not so FAQ?series?and you are on FAQ?#15.?The idea behind this series is to?share and learn as much as possible about the field of mobile payments.?If you like, you can read all of the FAQs on the Mobile Payments?category or by visiting the Table of contents page.

Related Reading

Mobile Payments: What is a Secure Element?

What is a Secure Element (SE)?

GlobalPlatform defines Secure Element (SE) as?a tamper-resistant platform capable of securely hosting applications and their confidential and cryptographic data in accordance with the rules and security requirements set forth by a set of well-identified trusted authorities. Put simply, a Secure Element can be considered to be a chip that offers a dynamic environment to?store data securely, process data securely and perform communication with external entities securely. If you try to mess with it by tampering in any form, it may self-destruct, but will not allow you to gain unauthorized access.

While not all NFC applications require security, those that involve financial transactions do. The Secure Element resides in highly secure cryto chips. It also?provides delimited memory for each application stored in it and other functions that can encrypt, decrypt and sign the data packet.

In today’s smartphones, a Secure Element can be found as a chip embedded directly into the phone’s hardware, or in a SIM/UICC card provided by your network operator or in an SD card that can be inserted into the mobile phone.

To put things into context, when you are using an?NFC enabled mobile device?to Tap & Pay, the NFC controller goes into card-emulation mode. The NFC controller itself does not deal with the data or processing associated with the payment transaction. It is just an interface that allows communication using standard protocols.

It is the Secure Element that actually emulates the contactless card. It performs handshake with the terminal, sends the right responses to the right queries, generates dynamic cryptograms, authenticates the stored card and so on.??To take it a step further and be even more accurate, it is not the Secure Element that emulates the card. The software that emulates a contactless card is the one that is stored inside the secure element in the form of payment applications or applets. The Secure Element provides secure?storage and execution environment for the payment applications to do its job.

Secure Element is not a necessity to?emulate contactless cards although it is the most secure to date.?An alternative is to use Host-based Card Emulation (HCE) which moves the secure storage and execution environment to the cloud instead of the Secure Element. We will discuss HCE?next.

Mobile Payments Blog Series

Welcome to the Mobile payments FAQ and?not so FAQ?series?and you are on FAQ?#14.?The idea behind this series is to?share and learn as much as possible about the field of mobile payments.?If you like, you can read all of the FAQs on the Mobile Payments?category or by visiting the Table of contents page.