"We protect fingerprint data using a secure enclave, which is uniquely paired to the touch ID sensor. When iPhone is serviced by an authorised Apple service provider or Apple retail store for changes that affect the touch ID sensor, the pairing is re-validated. This check ensures the device and the iOS features related to touch ID remain secure. Without this unique pairing, a malicious touch ID sensor could be substituted, thereby gaining access to the secure enclave. When iOS detects that the pairing fails, touch ID, including Apple Pay, is disabled so the device remains secure.”
Although it hurts that we cannot go to next door repairwala to fix my home button or screen, I for one think that this is a welcome move. This at least shows that Apple is serious about fingerprint security. Those Chinese companies who manufacture replicas of TouchID cannot be trusted.
But then Apple must launch Apple stores in India fast!! The Authorized service centres loot us currently as the service cost includes Apple's margins + authorized centre's margins. This might also discourage manufacturing of fakes.
Some digging revealed that this error is caused because third party replace touch ID along with broken screen. Replacement iPhone 5s/6/6s screens from China come with TouchID sensor attached.When the screen is broken, expert shops should remove touch ID from replacement screen (discard that Touch ID sensor) and and fit only the screen along with existing touch ID of the phone.