MasterCard Gears up to Take on Apple Pay—with One Big Caveat

by Sarah Grotta 0

Last week, MasterCard announced the availability of MasterPass for in-store transactions. MasterPass has been available for on-line and in-app transactions, but the in store availability is a leap forward and is being embraced by several U.S. banks. MasterPass will use NFC, so understanding the Canadian viewpoint to this announcement is pertinent since the adoption of NFC by merchants is much greater than in the U.S. Canadian Business reported:

MasterCard expects to expand the program beyond the United States quickly, with a planned Canadian launch sometime within the next six to 12 months. For the banks, the credit card company’s involvement is something of a god-send. Many – especially in Canada – had been resisting Apple’s encroachment into payments because they didn’t want the technology company getting between them and their customers. They also didn’t want to give Apple a cut of the action, which is why held off getting on board with Apple Pay for as long as possible.

MasterCard is offering banks a holy grail: The company isn’t charging them anything to use its system beyond the small cut of each credit card transaction that it’s always been getting and it’s letting the banks splash their own branding on the apps. The banks are thus able to keep the customer relationship and don’t have to pony up any more money. It’s a pretty sweet deal.

The fly in the ointment of all this cheerful news is that MasterPass NFC transactions are not available on Apple iPhones. Apple Pay is available on iPhones and currently Apple doesn’t see a reason to allow other NFC based payment applications in their phones:

This is a problem in both the United States and Canada, where about 40% of smartphone owners use iPhones. How MasterCard and the banks plan to reach critical mass without access to nearly half of their customers is a head-scratcher.

On the one hand, it seems foolish for third-parties—whether it’s MasterCard, banks or wireless carriers—to launch mobile-payment apps knowing full well they don’t have access to a huge part of the market.
On the other hand, there’s also a case to be made that Apple’s obstinance with its NFC capability is an unfair advantage that it’s giving itself, not unlike Google favouring its own services in search results.
NFC is still relatively new on iPhones and it’s possible that Apple may in fact open up the capability to outsiders at some point, but so far, the company has made no overtures to that effect

Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group

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