Why Apple Pay Is No Sure Thing in the Mobile Payments Race

by Sarah Grotta 0

An article in StartUp Smart commented on the adoption and use of Apple Pay based on the data that was revealed last week during Apple’s earning release:

When tech giant Apple announced its second quarter earnings of $14 billion last week, it gave a limited glimpse into its mobile payments service Apple Pay. The service is gaining one million users per week, but not delivering any meaningful revenues.

This is suggesting that while consumer curiosity is strong enough for consumers to download the app, usage is elusive. This is also telling of the new revenue share deals Apple is able to strike. Most U.S. financial institutions (Fis) are reported to be paying Apple a healthy 15 basis points. Apple isn’t generating nearly as much in other countries:

“… when Apple Pay arrived in Australia in November 2015 in a partnership with American Express, the major Australian banks baulked at Apple Pay’s suggested 0.15% fee.

Merchant service fees are much lower in Australia than in the US. The proposed fee would mean giving Apple 12 cents of the average 80 cents that most banks get for every $100’s worth of transactions they process on their MasterCard and Visa credit cards.
ANZ did not disclose the terms of the deal they had struck with Apple, but as ANZ’s debit cards are also part of the deal with Apple Pay, ANZ may have negotiated a flat fee for each debit transaction, rather than a percentage fee of the value.”

“Apple Pay was launched in China in February 2016, but here it also faces a battle to convince the hundreds of millions of Chinese smartphone holders to switch to Apple. The Chinese banks reportedly negotiated a 0.07% fee per transaction, under half of the fee charged by Apple Pay in the US. 19 Chinese banks were then involved in the launch of Apple Pay.”

It is an interesting scenario – FIs paying Apple a fee – that doesn’t exist with other major wallet providers and is indicative of Apple’s brand power. In addition to the basis points that banks give to Apple, they also pay tokenization processing fees, incur customer service fees, promotional and will bear transactional risk on all Apple Pay transactions conducted with a magnetic stripe card or and EMV card at and EMV enabled terminal.

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

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