EU accuses Apple Pay: Restricted Competition in Contactless Payment Market 

 April 8, 2022

The European Commission argues that Apple Pay has abused its dominant market standing by preventing opponents from accessing contactless payment technology on iOS systems.

In a preliminary result, the Commission said Apple had stopped mobile wallet app developers from accessing near-field communication (NFC) or ‘tap and go’ technology on iOS gadgets, in an action that helps its own Apple Pay service.

PayPal was one of the institutions that helped ‘spur a formal antitrust complaint’ against Apple Pay. The antitrust investigation into Apple Pay first started in June 2020. PayPal was one of the institutions that supported “spur a formal antitrust complaint” against Apple Pay by growing concerns with the European Commission.

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After further investigation, if charges are upheld, Apple could face a fine of up to 10pc of its global turnover. It could command the tech colossus of more than $36Bn.

“We have indications that Apple restricted third-party access to key technology necessary to develop rival mobile wallet solutions on Apple’s devices,” EU commissioner for competition Margrethe Vestager said yesterday. “If confirmed, such a conduct would be illegal under our competition rules.”

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The European Commission said that while another mobile payment technology exists, NFC offers a “more seamless and more secure payment experience” widely accepted in Europe.

The preliminary finding states that this tech is embedded in Apple’s mobile devices, but Apple Pay is the “only mobile wallet solution” that can access it.

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Apple has defended its approach and said it would continue to engage with the European Commission “to ensure European consumers have access to the payment option of their choice in a safe and secure environment.”

“We designed Apple Pay to provide an easy and secure way for users to present their existing payment cards digitally and for banks and other financial institutions to offer contactless payments for their customers,” an Apple spokesperson said.

Apple’s conduct may have distorted competition in the mobile wallets market in Europe and prevented the emergence of innovative competitors that could have challenged the tech giant.

“The Apple Pay investigation will inform the future application of the Digital Markets Act,” Vestager added, referring to the new EU rules set to crack down on anti-competitive behavior by Big Tech.

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It will set a precedent concerning the analysis of the security concerns and a recipe for effective and proportionate access to NFC for mobile payments.

Apple Pay is digital wallet assistance and mobile payment by Apple Inc. that permits users to make payments in iOS apps,  in person, and on the web using Safari. It is supported on the Apple Watch, iPad,  iPhone, and Mac. However, it is not available on any client gadget that is not made and sold by Apple (in particular, it cannot be utilized on any Android device, nor any browser operating on Windows).

It digitizes and can substitute a credit or debit card chip and PIN dealing at a contactless-capable point-of-sale terminal. It does not need Apple Pay-specific contactless payment terminals; it can operate with any merchant that accepts contactless payments.

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In addition, it adds two-factor authentication via Touch ID, Face ID, PIN, or passcode. Devices wirelessly convey with point-of-sale systems using near field communication (NFC), with an embedded secure element (eSE) to store payment data and perform cryptographic functions securely. Apple’s Face ID and Touch ID for biometric purposes authentication.

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Initially launched in the United States, Apple Pay is available in Argentina, China, Colombia, Costa Rica, Hong Kong, Israel, Armenia, Australia, Bahrain, Brazil, Canada, Japan, Kazakhstan, Macau, Mexico, New Zealand, Singapore, South Africa, Taiwan, the United Arab Emirates, Palestine, Peru, Qatar, Saudi Arabia. In addition, it has all nations of or with territories in Europe (except Albania, Andorra, Bosnia and Herzegovina, North Macedonia, and Turkey).

Apple Pay supports international payment schemes—like American Express, Mastercard (including Maestro), and Discover. In addition, it has a country-specific domestic payment scheme like China’s UnionPay, Japan’s JCB, Australia’s EFTPOS, Saudi Arabia’s Mada, France’s Cartes Bancaires, Canada’s Interac, and Germany’s Girocard. Participating banks vary by region.

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Apple Pay can also ride some public transport networks through credit/debit cards or dedicated travel cards like JR East’s Suica, the San Francisco Bay Area’s Clipper, the Chicago Transit Authority’s Ventra, and Hong Kong’s Octopus Card.

Apple Cash is a feature that allows the transfer of money from one user to another thru iMessage. When a user accepts a payment, the funds are deposited in the recipient’s Apple Cash card, available for immediate use at Discover merchants. Alternatively, the user can transfer the balance to a nominated bank account via ACH transfer. Unfortunately, Apple Cash is only available in the United States.

Apple Pay does not generate additional fees for users and merchants. A cardholder has a contract with the card issuer. A merchant has an agreement with an acquirer. The acquirer holds a contract with the card issuer. In Switzerland, participating card issuers spend for the service. In 2020, Swiss banks spent a fixed commission of 0.275 CHF (US$0.26) quarterly on each card to Apple.

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Additionally, they expended 0.12% on credit card transactions and 0.17% on the web or app-based transactions. Swiss antitrust controls require that an acquirer delivers a maximum of 0.44% of the transaction amount to the issuer. The competition commission calls this amount an “interchange fee.” As a result, Apple costs between 27% and 39% of the credit card issuers’ income acquired from the acquirer.

Other retailers’ previous multiple unsuccessful efforts have built mobile payments services, including PayPal, Walmart, Target, Google Wallet, and Softcard. They said that previous actions did not solve customer inconvenience issues and felt that Apple Pay potentially did.

Mobile payment market fragmentation was partly due to Apple’s refusal to enter. Apple has a history of allowing “first movers fail” with an early service version before discharging “a more polished interpretation of the same idea.”

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The Verge’s Dieter Bohn named Apple Pay the “week’s most revolutionary product,” the announcement “a definitive Apple instant of simplification and integration,” and the collaboration between payments services and Apple “an infrequent piece of collaboration and agreement.”

He indicated that the service’s effect on the mobile payments industry would be equivalent to the iPhone’s influence on the mobile industry.

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Nathaniel Popper of The New York Times directed the banks’ coordination level with Apple as “elaborate” and expressive of mutual “preparation and investment.” Some analysts counted that the service could reduce the standard credit card transaction fees since fees traditionally cover credit card fraud. In addition, the banks were willing to work with Apple in the face of efforts like Bitcoin and the Merchant Customer Exchange, which seek to work around the card networks.

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Apple revealed that more than one million credit cards had been recorded on Apple Pay in the first three days of its availability, making it the most comprehensive mobile payment system in the US.

There were 220,000 participating retailers when it was established. Outside the United Kingdom and the United States, Apple Pay can be employed with American and British payment cards at consistent NFC-based payment terminals.

In the United States, Apple faced opposition from the mobile payments industry, particularly the Merchant Customer Exchange (MCX), trialing a competing system comprehended as CurrentC. Several players of CurrentC, like Best Buy, Walmart, and Publix, had initially stated that they would not accept Apple Pay due to exclusivity deals. Rite-Aid and CVS Pharmacy subsequently disabled all NFC payment systems in favor of CurrentC.

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However, due to the exclusivity period ending in August 2015, Rite Aid began accepting it on August 15, 2015. In addition, best Buy has already started to accept Apple Pay at all stores starting in October 2015.

Target’s CEO Brian Cornell said they would be open to obtaining Apple Pay eventually after the transformation to chip and PIN technology is accomplished, but they remain active with MCX. On January 22, 2019, Target revealed the roll-out of Apple Pay support to all of its US stores.

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