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Apple reportedly wrangles lower credit card transaction fees for mobile payments rollout

post #1 of 33
Thread Starter 
Adding to rumors regarding Apple's supposed mobile payments solution, a report on Thursday claims the Cupertino tech giant has managed to negotiate lower transaction fees from five credit card issuing banks.

Touch ID


Citing sources familiar with the matter, Bank Innovation says Apple has managed to strike deals with American Express, JP Morgan Chase, Citigroup, Capital One, and Bank of America that classifies payments made through a rumored iOS-based system as "card present" transactions, which come at a lower processing fee.

Unlike "card not present" transactions, "card present" payments command a lower fee reflecting a comparatively low risk of fraud. To obtain "card present" status, Apple supposedly assumed some of the risk by requiring Touch ID for each purchase, while leveraging NFC technology for additional security.

Going further, Apple reportedly reduced "card present" rates by 15 to 25 basis points, equating to a roughly 10 percent discount on processing fees, sources said. The publication offers iTunes as an example, noting Apple stands to save some $27 million if revenues from the digital storefront meet last quarter's $4.5 billion mark.

The company rumored to roll out an iOS-based mobile payments solution that could be tied to customers' iTunes accounts -- automatically adding millions of on-file credit cards -- meaning gross revenues could balloon dramatically. Importantly, Apple's as-yet-unannounced system will work with all credit card from issuing partner banks.

In addition to issuers, recent reports claim Apple has signed deals with American Express, Visa and MasterCard for the payments , bringing the world's top credit card companies onboard for an apparently imminent launch.

Earlier today, The Wall Street Journal reported that the next-generation iPhone and rumored "iWatch" will both feature NFC-based e-wallet solutions, a technology long-rumored for inclusion in the company's portable lineup.
post #2 of 33

Tim's army is a bunch of good negotiators. And, if himself is part of this negotiaing-army, Tim is the best for Apple for coming decade.  

Cant wait for Sep 9th.

post #3 of 33
Could someone ELI5 the way Apple stands to make money on third-party purchases here?

Lets say I go to WalMart, and pays my bill say $500 using TouchID/iTunes thru VISA. At which stage does Apple profit?

They are obviously taking electronic payment system to a whole another level here with both security and ease. It will become defacto standard, but I fail to see where they profit. Obviously they reduce their cost of VISA,etc transaction costs on iTunes store. But that is just a tiny fish in the sea compared to the $15billion electronic payment market which is much more interesting.

The only way I can see Apple profit from this is if they start their own Bank - and using Visa,Mastercard,etc to get everybody onboard only to offer their own competing service. But obviously Visa,Mastercard,etc must have seen this coming miles ahead.
post #4 of 33
It looks like Apple already has the top banks and credit issuers on board. I'm assuming on day 1 consumers will be able to upload their credit and debit cards to their iPhone 6 for use at NFC terminals everywhere.
post #5 of 33
Quote:
Originally Posted by hydr View Post

Could someone ELI5 the way Apple stands to make money on third-party purchases here?

Lets say I go to WalMart, and pays my bill say $500 using TouchID/iTunes thru VISA. At which stage does Apple profit?

They are obviously taking electronic payment system to a whole another level here with both security and ease. It will become defacto standard, but I fail to see where they profit. Obviously they reduce their cost of VISA,etc transaction costs on iTunes store. But that is just a tiny fish in the sea compared to the $15billion electronic payment market which is much more interesting.

The only way I can see Apple profit from this is if they start their own Bank - and using Visa,Mastercard,etc to get everybody onboard only to offer their own competing service. But obviously Visa,Mastercard,etc must have seen this coming miles ahead.

Well if Apple is able to negotiate down the transaction fees charged from banks to merchants, Apple then can add in their own minimal processing fee. For merchants the transactions would cost the same from cards and iWallet. For banks and card issuers Apple is taking on some of the risk so that they don't have to. For Apple they will be able to earn money on their processing fee for every transaction.

That could be millions of transactions by next year, that Apple is profiting from
post #6 of 33
Quote:
Originally Posted by blackbook View Post

It looks like Apple already has the top banks and credit issuers on board. I'm assuming on day 1 consumers will be able to upload their credit and debit cards to their iPhone 6 for use at NFC terminals everywhere.

Much like I do right now with my phones already. I'm glad Apple if finally bringing NFC to the iPhones and making this take off in a big way.

post #7 of 33
Quote:
Originally Posted by hydr View Post

Could someone ELI5 the way Apple stands to make money on third-party purchases here?

Lets say I go to WalMart, and pays my bill say $500 using TouchID/iTunes thru VISA. At which stage does Apple profit?

They are obviously taking electronic payment system to a whole another level here with both security and ease. It will become defacto standard, but I fail to see where they profit. Obviously they reduce their cost of VISA,etc transaction costs on iTunes store. But that is just a tiny fish in the sea compared to the $15billion electronic payment market which is much more interesting.

The only way I can see Apple profit from this is if they start their own Bank - and using Visa,Mastercard,etc to get everybody onboard only to offer their own competing service. But obviously Visa,Mastercard,etc must have seen this coming miles ahead.

Probably they are getting some of the transaction fees from the retailer.
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post #8 of 33
Quote:
Originally Posted by AppleInsider View Post


Going further, Apple reportedly reduced "card present" rates by 15 to 25 basis points, equating to a roughly 10 percent discount on processing fees, sources said. The publication offers iTunes as an example, noting Apple stands to save some $27 million if revenues from the digital storefront meet last quarter's $4.5 billion mark.

I guess your grandmother was right—watch the millions and the billions take care of themselves.
post #9 of 33

I already stated that Apple should be in a position to negotiate lower fees. If they pass these on the the merchants, then they would be more inclined to adopt an Apple payment system (even if it means updating or adding new POS hardware).

 

I've said all along there has to be some other benefit here other than tapping your phone instead of your cards. Lower fees would definitely fall into that category.

post #10 of 33
Something's missing here. What happens at the POS? The current Verifone readers are from the 20th century. Will Apple provide an iBeacon/NFC dongle to all retailers?

I can see Target or Nordstrom making the switch, but what I really want is to be able to buy my Cisco and King Cobra at Leroy's Liquors and Fried Chicken with my iPhone. Will Leroy be Touch ID-compliant?

The big retailers, that's the steak. The little guy is where the sizzle is.
post #11 of 33
Quote:
Originally Posted by macinthe408 View Post

Something's missing here. What happens at the POS? The current Verifone readers are from the 20th century. Will Apple provide an iBeacon/NFC dongle to all retailers?

I can see Target or Nordstrom making the switch, but what I really want is to be able to buy my Cisco and King Cobra at Leroy's Liquors and Fried Chicken with my iPhone. Will Leroy be Touch ID-compliant?

The big retailers, that's the steak. The little guy is where the sizzle is.

 

I'm hoping iWallet will be compatible with current NFC readers. I would assume that's why Apple made deals with AMEX, MC, and Visa since all of those companies have NFC card readers at retailers nationwide.

post #12 of 33
This new news really has me puzzled. It's easy to see where Apple makes their money, they will take that rate that is given to them by Visa, MC, Amex and will mark it up slightly and that will be their profit. They will make a tiny amount on every transaction, making them tons of money. This is how credit card processors and credit card processing "hustlers" make their money.

Now what confuses me is why Bank of America and these other companies are coming into the picture. I would presume with Apple partnering with the credit card companies themselves (Visa, MC, Amex), I don't see what BoA and others bring to the table.

Very excited to see what Apple whips up on Tuesday.
post #13 of 33
Huge revenue / profit boost for Apple -

Apple will make transaction fee for each charge H U G E

Also - drags more an more into the sticky Apple ecosystem.

Maybe Apple starts own bank - with point rewards - going toward purchase of its own Apple items (product and downloads) like disney card, sparks card et al
post #14 of 33
Quote:
Originally Posted by Soundvision View Post

This new news really has me puzzled. It's easy to see where Apple makes their money, they will take that rate that is given to them by Visa, MC, Amex and will mark it up slightly and that will be their profit. They will make a tiny amount on every transaction, making them tons of money. This is how credit card processors and credit card processing "hustlers" make their money.

Now what confuses me is why Bank of America and these other companies are coming into the picture. I would presume with Apple partnering with the credit card companies themselves (Visa, MC, Amex), I don't see what BoA and others bring to the table.

Very excited to see what Apple whips up on Tuesday.

 

I would assume so that users can also use DEBIT (i.e. bank cards) with iWallet. Not everyone has or wants to use a credit card to take advantage of smarter, faster, more secure payments.

post #15 of 33

I've been predicting this for weeks - naysayers be damned.

 

Apple has security on the transaction so can argue for a lower transaction fee with the banks and card issuers. And then will probably provide - or maybe insist upon - an indemnity against fraud. The reason for insisting is that Apple can afford to - it'll be free (or almost so). 

 

But Samsung, on the other hand, will try to follow Apple. But while they have copied the look of iPhone, they haven't copied the security. So this will be a put-your-money-where-your-mouth-is challenge from Apple.

 

Bring it on !!

post #16 of 33
One has to wonder about the timing of this whole easy-to-guess-celebrity-password "ZOMG!! iCloud is haxxored!! Panic!!!" business just a few days before the big reveal of an Apple secure-payments system.
post #17 of 33
Expect a federal prosecution of Apple's "antitrust" ... remember Apple's books? So insane.
post #18 of 33
You mean to tell me Apple has created an incentive for bother financial institutions and retailers to support their payment system instead of just throwing in some HW and expecting everyone to adopt it? What a concept¡

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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post #19 of 33
So will an iWatch have touch ID like the phone?
post #20 of 33
Quote:
Originally Posted by macinthe408 View Post

Something's missing here. What happens at the POS? The current Verifone readers are from the 20th century. Will Apple provide an iBeacon/NFC dongle to all retailers?

I can see Target or Nordstrom making the switch, but what I really want is to be able to buy my Cisco and King Cobra at Leroy's Liquors and Fried Chicken with my iPhone. Will Leroy be Touch ID-compliant?

Leroy doesn’t need to be TouchID compliant.

Your iPhone is.

Leroy only needs NFC processing.

post #21 of 33
Quote:
Originally Posted by Chris_CA View Post

Leroy doesn’t need to be TouchID compliant.
Your iPhone is.
Leroy only needs NFC processing.

And if it's the financial institutions say it's safer to use NFC and Leroy's can be charged less for using NFC then Leroy's will very likely want to setup NFC immediatley.

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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post #22 of 33
Quote:
Originally Posted by SolipsismX View Post

And if it's the financial institutions say it's safer to use NFC and Leroy's can be charged less for using NFC then Leroy's will very likely want to setup NFC immediatley.

This is a good thing that Apple is finally getting into the NFC market. They entered at the right moment. Now all my devices will start to work in more places.
post #23 of 33
Quote:
Originally Posted by SirLance99 View Post

This is a good thing that Apple is finally getting into the NFC market. They entered at the right moment. Now all my devices will start to work in more places.

Note that the right time for Apple is after they've done all the legwork so they can include the HW, SW, ecosystem and infrastructure to make it work. I think this secure enclave for Touch ID will likely be used for payments so that it's not stored on iCloud.

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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post #24 of 33
Remember the EMV liability shift kicks in a year from now.
This is the reason that NFC and other forms of mobile payment are going to take off in the US in a big big way - that 20th Century Magstripe terminal will soon be a relic of the past.
Other countries (ie most of the world outside the US) are already on EMV and "tap and pay" are widely used in those countries.
Apple has timed this perfectly, and in adding to the iPhone will give NFC and by extension EMV a huge boost and encourage merchants (the smaller ones) to make the investment in the equipment (which isn't a huge chunk, really, but the reason that it's taken so long for US to migrate - infrastructure expense).

Another example of Apple timing their innovations perfectly and being the tail to wag the dog. Even non-iPhone users will benefit .
post #25 of 33

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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post #26 of 33
Originally Posted by blackbook View Post
 

I'm hoping iWallet will be compatible with current NFC readers. I would assume that's why Apple made deals with AMEX, MC, and Visa since all of those companies have NFC card readers at retailers nationwide.

 

iWallet sounds way too much like google's service.

 

Maybe iPay?  Short and sweet.

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post #27 of 33
Quote:
Originally Posted by Blah64 View Post

iWallet sounds way too much like google's service.

Maybe iPay?  Short and sweet.

I think apples service will include more than just payments. Think drivers licenses, insurance cards etc.
post #28 of 33
I think iPay has already been used...I remember seeing it before.
post #29 of 33

iPay is the website for ADP pay statements, which many companies use.

post #30 of 33
Yup both my employers use it, now that you mention it 1smile.gif
post #31 of 33
Quote:
Originally Posted by Chris_CA View Post

iPay is the website for ADP pay statements, which many companies use.

Apple is buying ADP...CONFIRMED! (in the spirit of "Temporary Insanity" rumors)

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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post #32 of 33
Touch ID will not only help Apple negotiate a lower fees with banks due to lower risk of fraud, it will greatly enhance consumers' confidence in using such a payment tool hence leading to wide adoption. good job Apple
post #33 of 33
Quote:
Originally Posted by Truffol View Post

Touch ID will not only help Apple negotiate a lower fees with banks due to lower risk of fraud, it will greatly enhance consumers' confidence in using such a payment tool hence leading to wide adoption. good job Apple

 

If it will allow me to pay anonymously, as is currently possible with existing iTunes store, it might even get me onboard.  Didn't Apple just add the capability to directly drop cash on your iTunes account?  Yes, it's here:

 

http://forums.appleinsider.com/t/181412/first-look-using-passbook-at-an-apple-store-to-buy-itunes-app-store-credit

 

If whatever new-fangled scheme revealed tomorrow requires a tie-in with a bank-issued credit card, I have no interest (except as an AAPL investor), but can you imagine how beautiful a system would be where you can just drop cash onto your iTunes (or whatever this will be called) account and use it to pay for nearly anything, nearly anywhere?  Without having every single purchase being tracked and profiled!  Combined with security of TouchID, it could become almost as anonymous as cash, but more secure than a credit card.  I don't really expect Apple's announcement tomorrow to fully meet this spec, but it's exciting to consider as a possibility. 

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