Apple Pay nets favorable transaction fees from banks, denied support from Walmart and Best Buy

Posted:
in iPhone edited September 2014
A detailed look at Apple's new Apple Pay mobile and online payments solution reveals the reasoning behind decisions from credit card issuing banks to not only adopt the service, but offer low per-transaction fees.



As explained by The New York Times, by supporting Apple Pay, major banks like JPMorgan Chase run the risk of losing potential revenue to the tech giant as it shoulders into the finance sector. But the partnerships were struck anyway, thanks to Apple's vast market reach and new threats to traditional credit card networks.

Part of the concern stems from new out-of-network payment initiatives created by consortiums made up of powerful retailers, like the Merchant Customer Exchange, which counts Walmart and Best Buy as members. Not coincidentally, the two big-box stores on Thursday announced they will not be accepting Apple Pay.

"There are schemes that don't respect and honor the payment networks," said MasterCard's SVP for mobile product development James Anderson. "We want to invest in programs that respect our role in the ecosystem."

According to the report, Apple began working closely with banks and credit card network partners in January 2013. Apple Pay will launch with support from major companies Visa, MasterCard and American Express.

The publication reiterates rumors circulating prior to Apple Pay's debut on Tuesday, saying banks are offering Apple transaction fees lower than what is normally charged for credit card processing. These rates are not only lower than so-called "card not present" fees assigned to touch-less systems, but also traditional "card present" fees.

Banks are supposedly hoping to make up the difference by adding transaction volume driven by Apple Pay adoption. For example, customers may move from paying with cash or check to Apple's system.

In addition, The Times says credit card networks will not assume any additional cost in partnering with Apple, though analysts speculate Apple Pay may drive down interest rates. A large portion of credit card network fees go toward preventing fraud, but those expenses may drop once Apple Pay and Touch ID roll out, the report says.

Touch ID


Financial institutions have been researching and developing credit card technology on their own for years and Apple Pay is one of the few outside protocols to be adopted on such a wide scale. The system will also be the first to utilize a tokenized transaction process, which swaps out actual card numbers with generated codes, thus inhibiting would-be thieves' ability to capture usable personal data.

Apple has published a number of patents describing such a system, including properties covering Apple Pay's touch-less NFC implementation.

Apple Pay will be available on iPhone 6 and iPhone 6 Plus handsets, as well as the upcoming Apple Watch, which is expected to launch early next year.
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Comments

  • Reply 1 of 201
    pmzpmz Posts: 3,433member
    Whats the over under on how long before Walmart, Best Buy, and other's eat their words and are forced to accept Apple Pay?

    I give it less than 12 months.
  • Reply 2 of 201
    It says Apple will be the first to utilize tokenization, do we know what's different between Apple Pay and Google Wallet in relation to tokenization? If Google doesn't use it, what do they use?
  • Reply 3 of 201
    The people using ?Pay with an iPhone 6 probably aren't shopping at Walmart.
  • Reply 4 of 201
    chasmchasm Posts: 1,277member
    By a strange but delightful coincidence, these are two of the merchants I detest the most (and have done for a long time). Avoiding shopping there because they don't take %uF8FFPay will be a particular pleasure. I may even periodically go into their stores, select something expensive like an HDTV, have them bring it to the counter and go "what? you don't take Apple Pay? Oh well forget it then."
  • Reply 5 of 201
    radarthekatradarthekat Posts: 3,011moderator
    Quote:

    Originally Posted by pmz View Post



    Whats the over under on how long before Walmart, Best Buy, and other's eat their words and are forced to accept Apple Pay?



    I give it less than 12 months.

     

    Yup.  Two holiday seasons without it and then they capitulate before the 2016 holiday season.

  • Reply 6 of 201
    Quote:

    Originally Posted by pmz View Post



    Whats the over under on how long before Walmart, Best Buy, and other's eat their words and are forced to accept Apple Pay?



    I give it less than 12 months.

    Best Buy will be the first to fold.. they are having issues with their big box traffic with competition... They will not want to risk loosing possible sales by not accepting a suddenly large form of payment like Apple Pay. 

     

    Walmart has more clout though.. along with their Sams Club arm.. Sam's Club has traditionally bucked the normal payment scheme's.. They still don't accept VISA.. and only just recently started taking MC. 

     

    They are big Discover card fans.. and you'll note the one card not on Apple Pay... DISCOVER.. 

  • Reply 7 of 201
    radarthekatradarthekat Posts: 3,011moderator
    Quote:

    Originally Posted by Soundvision View Post



    It says Apple will be the first to utilize tokenization, do we know what's different between Apple Pay and Google Wallet in relation to tokenization? If Google doesn't use it, what do they use?

     

    I believe they merely encrypt the card information between the phone and the NFC device and down into the retailer's back-end system.  There it's utilized by the retailer to complete the transaction, just as though a physical card were swiped.

  • Reply 8 of 201
    adrayven wrote: »
    and you'll note the one card not on Apple Pay... DISCOVER.. 
    Not there yet...
    But shortly.
    https://mobile.twitter.com/discover/status/509405306531876865
  • Reply 9 of 201
    It says Apple will be the first to utilize tokenization, do we know what's different between Apple Pay and Google Wallet in relation to tokenization? If Google doesn't use it, what do they use?

    That's a good question.

    Apple made it clear that they generate a one-time token that gets used instead of your actual credit card number.

    That seems to be the best (only?) way I'd want it to be.

    Also... I think TouchID is another great thing that Apple brings to the table. It's simple... yet offers a great amount of security.
  • Reply 10 of 201
    Quote:
    Originally Posted by Indymac View Post



    The people using ?Pay with an iPhone 6 probably aren't shopping at Walmart.

     

    You sound like some elitist snob. Wal-mart sells the iPhone and other Apple products, so clearly not everyone who shops there are poor, on welfare, or beneath you as you suggest. This is why some do not like Apple supporters, some come across as pompous. Is Best Buy for the poor also, or just conveniently left them out to make a misguided comment?

  • Reply 11 of 201
    dunksdunks Posts: 1,236member
    Quote:

    Originally Posted by Soundvision View Post



    It says Apple will be the first to utilize tokenization, do we know what's different between Apple Pay and Google Wallet in relation to tokenization? If Google doesn't use it, what do they use?

     

    Google wallet uses Turkenization

     

  • Reply 12 of 201
    Quote:

    Originally Posted by Adrayven View Post

     

    Best Buy will be the first to fold.. they are having issues with their big box traffic with competition... They will not want to risk loosing possible sales by not accepting a suddenly large form of payment like Apple Pay. 

     

    Walmart has more clout though.. along with their Sams Club arm.. Sam's Club has traditionally bucked the normal payment scheme's.. They still don't accept VISA.. and only just recently started taking MC. 

     

    They are big Discover card fans.. and you'll note the one card not on Apple Pay... DISCOVER.. 




    Discover says it's "In Talks" to join.  But looks like they are going on 2 years to "join" PayPal..

     

     

    http://appleinsider.com/articles/14/09/10/discover-in-talks-to-join-apple-pay-swift-goes-gm-at-version-10

  • Reply 13 of 201
    Originally Posted by RadarTheKat View Post

    Yup.  Two holiday seasons without it and then they capitulate before the 2016 holiday season.

     

    I doubt they make it through 2015.

  • Reply 14 of 201

    You'll see a lot of companies start to accept it between now and next year when chip and pin comes around, because hardware will need to be replaced anyways. Wal-Mart is the world's largest retailer, it takes them time to integrate something. I'm sure they will eventually do it, but they'll want to see how it does in the wild first before they commit.

  • Reply 15 of 201
    You sound like some elitist snob. Wal-mart sells the iPhone and other Apple products, so clearly not everyone who shops there are poor, on welfare, or beneath you as you suggest. This is why some do not like Apple supporters, some come across as pompous. Is Best Buy for the poor also, or just conveniently left them out to make a misguided comment?

    I don't even know what this comment is about other than you seem to be infering a lot of things that are clearly projections of your own beliefs in your uh...."misguided comment".
  • Reply 16 of 201
    Part of the concern stems from new out-of-network payment initiatives created by consortiums made up of powerful retailers, like the Merchant Customer Exchange, which counts Walmart and Best Buy as members. Not coincidentally, the two big-box stores on Thursday announced they will not be accepting Apple Pay.

    1) How long will that last if Apple chooses not to sell their products to Wal-mart and Best Buy, two stores that seem to like to draw people in by saying they sell Apple products?

    2) Perhaps not coincidentally, the only time I've had my CC number stolen — not the physical card, just the number — it was used repeatedly at both those stores over very large distances. My bank caught it and called me about the highly suspicious activity. On another occasion I setup the original flatscreen iMac that I had retrieved from a family member and got it online. I noticed the screen would come on every now and then without being used then one time I noticed Safari open. The previous own had enabled VNC with a simple password. People had logged in from all over the world and many had used it to buy merchandise from Wal-mart in the states. I think it's safe to assume with stolen CCs. I called Wal-mart and tried to inform them by giving them the items purchased, the address it was being shipped to, the IP address of the computer the purchase was made, and the approximate timestamp. Nothing! They didn't give a shit.
    Banks are supposedly hoping to make up the difference by adding transaction volume driven by Apple Pay adoption. For example, customers may move from paying with cash or check to Apple's system.

    I don't think the move from cash and check to ?Pay is the main motivator for the financial institutions for allowing lower-than "card present" merchant fees.
    A large portion of credit card network fees go toward preventing fraud, but those expenses may drop once Apple Pay and Touch ID roll out, the report says.

    That's what I think the main motivator is. I have no idea how much they can save but I bet it's substantial, especially if Apple is putting their money where their mouth is by agreeing to be financially responsibly for ?Pay specific fraud they might incur. That helps everyone all around as it keeps pushing Apple to make ?Pay even more secure when possible without having to consider how much a security overhaul may cost.
    Apple has published a number of <a href="http://appleinsider.com/articles/14/01/16/apple-details-secure-over-the-air-e-wallet-strategy-in-patent-filing">patents</a> describing such a system, including properties covering Apple Pay's touch-less NFC implementation.

    It seems like it was last week when I told how stupid I was for thinking Apple would ever adopt this failed Android service. :\
  • Reply 17 of 201
    The reason that Walmart and Best Buy have not joined is that they want to be in position to tell the customer which card to use- the one with a lower discount rate. With apple pay, the retailers have to accept whatever the iPhone user has designated on their iPhone.
  • Reply 18 of 201
    I JUST thought of this...and haven't read anything about this potential issue anywhere. Won't your iPhone need an Internet connection at the time of the transaction in order to use Apple Pay??? That could be an issue for some business locations right... :\
  • Reply 19 of 201
    Originally Posted by NOS2U View Post

    The reason that Walmart and Best Buy have not joined is that they want to be in position to tell the customer which card to use- the one with a lower discount rate. With apple pay, the retailers have to accept whatever the iPhone user has designated on their iPhone.

     

    You know... I wouldn’t put this past them.

  • Reply 20 of 201
    It says Apple will be the first to utilize tokenization, do we know what's different between Apple Pay and Google Wallet in relation to tokenization? If Google doesn't use it, what do they use?
    I believe they merely encrypt the card information between the phone and the NFC device and down into the retailer's back-end system.  There it's utilized by the retailer to complete the transaction, just as though a physical card were swiped.

    It sounds like it's the actual card numbers, not a representational card number. There seems to be no special HW or SW to help isolate the data.

    Interestingly Google has this basic feature already. Instead of using your Gmail username and password on, say, your Mac in the Mailbox app you log into gmail.com and then set a device you wish log into Gmail with at which point you're given a long, representational password to use with your username. Your regular password won't work for any of the apps that use POP or IMAP or SMTP, you have to use the representational password. This is a feature I've been wanting Apple to add to iCloud for awhile.

    Apple made it clear that they generate a one-time token that gets used instead of your actual credit card number.

    That seems to be the best (only?) way I'd want it to be.

    I still get a straight answer on if it's a one-time representational card number token plus per card per device that is then given to the bank for verification, or if it's a one-time per use representable card number token per card per device that uses an internal clock to change the PIN every minute (or so) like SecurID. The latter would definitely be more secure but it's also tricker to implement. For example, let's say you go hiking for a week and your iPhone battery has been dead for a few days. You finally get some power but you still don't have a network connection yet this place accepts ?Pay. Would that token system still be synced up? Would that need it's own dedicated battery and system (like SecurID) that will last years or would you need to have a network connection to make the proper sync with your bank's system? Doesn't that sync add a level of insecurity to the system? My guess is it's the former.
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