Apple, Visa, Mastercard face lawsuit over high merchant fees

AppleInsider

Apple has been named in a proposed class-action lawsuit alongside Mastercard and Visa, over claims of conspiracy to cut competition and make merchants pay higher fees for credit and debit card transactions.

Apple Pay

Filed on Thursday at the East St. Louis, Illinois Federal Court, merchant Mirage Wine & Spirits alleges that Apple made agreements with Visa and Mastercard to not compete against the two incumbent credit card firms.

According to the complaint reported by Reuters, the deal allegedly had Visa and Mastercard pay Apple part of the transaction fees for any purchases performed by consumers on their networks that used Apple's "Mobile Wallet service," namely Apple Pay. This was deemed in the complaint to be a "very large and ongoing cash bribe" valued at hundreds of millions of dollars per year.

Since there's no competition between the three companies in the complaint, there's therefore no reason for any of the firms involved to work to improve their services and gain more custom, such as by reducing the fees merchants pay for card transactions. The supposed deal therefore didn't help merchants that relied on the network, but instead cost them more money in fees.

It is thought that, if there wasn't a market-allocation agreement, Apple or a third party would've entered the market and placed "downward pressure on the Entrenched Networks' fees."

The lawsuit doesn't just go after fee arrangements but also tackles Apple's hardware as well. It is alleged that, under the agreement with Visa and Mastercard, Apple would "protect their market division from competition by blocking third parties from accessing certain hardware in the iPhone."

Apple had, in the complaint, allegedly agreed to not allow third-party payment applications to "reside in the Apple Pay Mobile Wallet or use the NFC hardware" installed on items like the iPhone.

If the agreement didn't exist, Apple would've had more incentive to effectively manage its own payment network, with the Apple Wallet funded with bank transfers and merchant fees that were still "highly profitable to Apple" but also "significantly below" those of Visa and Mastercard.

There would've also been an incentive to open up NFC functionality to third-party apps, the complaint adds.

The lawsuit is seeking a class action status, and is brought on behalf of a proposed class of "at least many thousands" of merchants. It also seeks triple damages under U.S. antitrust law.

Apple has yet to officially comment on the lawsuit.

While the lawsuit may take a while to come to fruition, Apple may still open up NFC access. On December 12, it was reported Apple is considering offering to open up NFC on the iPhone to other payment services, to fend off antitrust regulatory trouble in the European Union.

Read on AppleInsider

termsofuse

Is it my understanding that Mirage Wine & Spirits wants Apple to open its own credit card financial institution to increase competition? Maybe Apple can get into the egg laying business too. 

gatorguy

This would be the second US antitrust lawsuit targeting Apple Pay if it gets certified. The previous was allowed to go forward back in September after several hearings.
https://appleinsider.com/articles/23/09/28/apple-pay-antitrust-lawsuit-accuses-apple-of-coercing-consumers-excessive-fees ;

eriamjh

It would be nice to know what min, max, and average merchant fees are in the world of credit cards.  

This is what pays for things like daily cash, and cash back, and all those perks.

mikethemartian

termsofuse said:

Is it my understanding that Mirage Wine & Spirits wants Apple to open its own credit card financial institution to increase competition? Maybe Apple can get into the egg laying business too. 

No, banks issue credit cards. MasterCard and Visa are payment networks.

eightzero

Sorta not following here, since Apple Pay works fine with both Amex and Discover. 

What I do see is a resurgence of merchants adding credit card fees, and they are excessive. 3% credit card fees are now common, and there is no way any but the smallest of merchants are charged that much. One of the more entertaining (?) instances of this is at the Ford delarship where I was changed a 3% credit card fee at the service department that was not disclosed until after the service work was completed. I asked if this fee would still apply to the "Ford Rewards" credit card, their own branded "FordPass Rewards" Visa card - and it does. So...if you get their "rewards" card, you give it right back to them at the PoS. Nice. 

chasm

eriamjh said:

It would be nice to know what min, max, and average merchant fees are in the world of credit cards.  

This is what pays for things like daily cash, and cash back, and all those perks.

As you note, the merchant fee is a service charge by the credit provider that comes out of the merchant’s selling price. Broadly speaking, it varies by card from one percent to three percent.

To put this in the simplest terms, there are four parties involved in a credit card transaction: the customer, the customer’s issuing bank, the merchant, and the merchant’s bank. Amex and Diner’s Club do things a little differently, since they aren’t issued by the customer’s bank, but the idea is the same.

Apple Pay only comes into play when you use an NFC terminal and an Apple device to pay with your card. At that moment, Apple Pay becomes the platform to provide a whole new level of security on the transaction, and coordinates the payment and fees between the customer’s bank, the merchant, and the merchant’s bank.

Apple’s fee for this comes out of the merchant’s bank fees. Without getting into the details, this amounts to 0.15 percent of the value of the transaction. So if you bought something (say a new Mac) where the total price before taxes was $2,000, Apple would get $3.*

*this estimate is based on the total fees Apple charges the merchant’s bank as of 2014. To the best of my knowledge, that total hasn’t changed, but it might have.

The merchant is supposed to “mark up” the price of the items to cover their base cost, the cost of doing business, and allow for profit. So Apple’s “slice” of this entire transaction should already be covered as part of the fee the merchant’s bank charges the merchant, i.e. part of the cost of doing business.

So I can sort of see why Apple Pay has to be included in a lawsuit challenging the fees banks and credit card companies charge merchants, but Apple isn’t actually the source of the issue in any way IMO, and frankly they more than justify their tiny fees for the services they provide, which have made using credit cards VERY significantly safer than they were before, since:

A. The actual card information is never exposed when you use Apple Pay, and

B. Then entire transaction is encrypted to avoid interception, and

C. Apple Pay eliminates the possibility of theft, unauthorized use, or leaving behind a physical credit card by accident.

nubus

eriamjh said:

It would be nice to know what min, max, and average merchant fees are in the world of credit cards.  

This is what pays for things like daily cash, and cash back, and all those perks.

For US: https://www.fool.com/the-ascent/research/average-credit-card-processing-fees-costs-america/
For EU: https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op294~8ac480631a.en.pdf (Table 11).

Cards are still way cheaper than cash in handling. IMHO shops should have the right to charge for any payment option (cash included) to the customer. The choice is with the customer. If a customer want to pay 5% for paying by cash or 3% for American Express... then fine - but right now those paying with debit cards or Visa are taking the bill for other customers.

eightzero

nubus said:

eriamjh said:

It would be nice to know what min, max, and average merchant fees are in the world of credit cards.  

This is what pays for things like daily cash, and cash back, and all those perks.

For US: https://www.fool.com/the-ascent/research/average-credit-card-processing-fees-costs-america/
For EU: https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op294~8ac480631a.en.pdf (Table 11).

Cards are still way cheaper than cash in handling. IMHO shops should have the right to charge for any payment option (cash included) to the customer. The choice is with the customer. If a customer want to pay 5% for paying by cash or 3% for American Express... then fine - but right now those paying with debit cards or Visa are taking the bill for other customers.

Thanks for posting that. Good info.

Merchants are adding these fees. Thing is they are adding way more than what they are actually charged. And handling cash is indeed expensive...and difficult to quantify. I don't see people believing that it is an actual cost, and trying to do so would be troublesome. These are really overhead costs, but merchants are learning to add fees to collect more by claiming "someone else made them do it." Ive seen restaurants not only add a tip option at the PoS (for things where no service is rendered) but a "government required payroll fee." Folks, there is a minimum wage law because if there wasn't, they'd pay less.

Xed

chasm said:

eriamjh said:

It would be nice to know what min, max, and average merchant fees are in the world of credit cards.  

This is what pays for things like daily cash, and cash back, and all those perks.

As you note, the merchant fee is a service charge by the credit provider that comes out of the merchant’s selling price. Broadly speaking, it varies by card from one percent to three percent.

To put this in the simplest terms, there are four parties involved in a credit card transaction: the customer, the customer’s issuing bank, the merchant, and the merchant’s bank. Amex and Diner’s Club do things a little differently, since they aren’t issued by the customer’s bank, but the idea is the same.

Apple Pay only comes into play when you use an NFC terminal and an Apple device to pay with your card. At that moment, Apple Pay becomes the platform to provide a whole new level of security on the transaction, and coordinates the payment and fees between the customer’s bank, the merchant, and the merchant’s bank.

Apple’s fee for this comes out of the merchant’s bank fees. Without getting into the details, this amounts to 0.15 percent of the value of the transaction. So if you bought something (say a new Mac) where the total price before taxes was $2,000, Apple would get $3.*

*this estimate is based on the total fees Apple charges the merchant’s bank as of 2014. To the best of my knowledge, that total hasn’t changed, but it might have.

The merchant is supposed to “mark up” the price of the items to cover their base cost, the cost of doing business, and allow for profit. So Apple’s “slice” of this entire transaction should already be covered as part of the fee the merchant’s bank charges the merchant, i.e. part of the cost of doing business.

So I can sort of see why Apple Pay has to be included in a lawsuit challenging the fees banks and credit card companies charge merchants, but Apple isn’t actually the source of the issue in any way IMO, and frankly they more than justify their tiny fees for the services they provide, which have made using credit cards VERY significantly safer than they were before, since:

A. The actual card information is never exposed when you use Apple Pay, and

B. Then entire transaction is encrypted to avoid interception, and

C. Apple Pay eliminates the possibility of theft, unauthorized use, or leaving behind a physical credit card by accident.

1) Don't forget the payment processor the bank partners with for their cards.

2) I'd wager that using Apple Pay over a physical card has led to a savings for the merchant bank that far outweighs what they agree to pay Apple. 


Off Topic: I have two cards that send me a physical letter in the mail when Apple Pay is set up on a device. I hate the waste of paper and the stamp for what would suffice in an email.

citpeks

eightzero said:

Sorta not following here, since Apple Pay works fine with both Amex and Discover. 

What I do see is a resurgence of merchants adding credit card fees, and they are excessive. 3% credit card fees are now common, and there is no way any but the smallest of merchants are charged that much. One of the more entertaining (?) instances of this is at the Ford delarship where I was changed a 3% credit card fee at the service department that was not disclosed until after the service work was completed. I asked if this fee would still apply to the "Ford Rewards" credit card, their own branded "FordPass Rewards" Visa card - and it does. So...if you get their "rewards" card, you give it right back to them at the PoS. Nice. 

Are you sure that Ford dealer didn't disclose that before you committed to the service?

Credit card surcharges weren't permitted until a class action settlement in 2013.  They have been since then, but are subject to conditions, one of which is upfront disclosure.

This is what Visa says in their FAQ:

Am I required to disclose the surcharge to my customers?

Yes. U.S. merchants that surcharge must disclose the surcharge as a separate charge on the consumer's transaction receipt. In addition, disclosures indicating that a merchant outlet assesses a surcharge on credit card purchases must be posted at the point of entry and point of sale/transaction.

But all these parties have given themselves lots of wiggle room, based on nuance ("Surcharge," "Cash discount," "Convenience fee" and so on…), including the government, where paying by card can involve an additional fee.  It also varies by state law.

nubus

eightzero said:

Merchants are adding these fees. Thing is they are adding way more than what they are actually charged. And handling cash is indeed expensive...and difficult to quantify. I don't see people believing that it is an actual cost, and trying to do so would be troublesome. These are really overhead costs, but merchants are learning to add fees to collect more by claiming "someone else made them do it." Ive seen restaurants not only add a tip option at the PoS (for things where no service is rendered) but a "government required payroll fee." Folks, there is a minimum wage law because if there wasn't, they'd pay less.

Well.. i live in a country without minimum wages and one where we don't tip. Sweden is the same, and they have made it optional for shops to accept cash. As a result a lot of shops, restaurants, and museums no longer accept cash. It works fine.

I would like to see competition on payments, and I don't like paying part of the bill for those having expensive cards.Yes, shops will try to inflate the cost, and so they should always offer one "0%" option. Could be their own card or a debit card or... but taking 2-3% on every transaction is a rather heavy tax. It could be 0,35%. As this is "after tax" money the difference to consumers is real.

Xed

nubus said:

eightzero said:

Merchants are adding these fees. Thing is they are adding way more than what they are actually charged. And handling cash is indeed expensive...and difficult to quantify. I don't see people believing that it is an actual cost, and trying to do so would be troublesome. These are really overhead costs, but merchants are learning to add fees to collect more by claiming "someone else made them do it." Ive seen restaurants not only add a tip option at the PoS (for things where no service is rendered) but a "government required payroll fee." Folks, there is a minimum wage law because if there wasn't, they'd pay less.

Well.. i live in a country without minimum wages and one where we don't tip. Sweden is the same, and they have made it optional for shops to accept cash. As a result a lot of shops, restaurants, and museums no longer accept cash. It works fine.

I would like to see competition on payments, and I don't like paying part of the bill for those having expensive cards.Yes, shops will try to inflate the cost, and so they should always offer one "0%" option. Could be their own card or a debit card or... but taking 2-3% on every transaction is a rather heavy tax. It could be 0,35%. As this is "after tax" money the difference to consumers is real.

Where iI live in the US there are places that no longer accept cash and are far too small to offer their own card. These are places like coffee stands where  theft would be a lot more common in these 1 or 2 person, 24-hour operations if they had cash on hand, as well as theft from employees who may not ring up all purchases.

Since a merchant should be able to adjust a price to cover their costs I'm not opposed to them accounting for a merchant fee, but I can tell you that I have chosen not to business because of a fee added to a CC purchase. If it was the standard price with a small rebate for cash (or other non-CC/DC payments) I'm more fine with that which makes this more psychological than anything else.

I do have some large purchases each year that require my checking and routing number online that can also be had with a 3% CC/DC transaction fee. I do the virtual check for an ACH payment because I don't want the fee even if I hate using those accounts online like that — but I have the option to use a very specific checking account for such purchases so I put the money in as needed and have it set that it will not permit the account to be overdrawn to minimize the potential issue for my accounts to be stolen.

I think we'll eventually have the merchant fees included everywhere as standard as cash continues to be less popular.

MichaelKohl

Xed said:

I do have some large purchases each year that require my checking and routing number online that can also be had with a 3% CC/DC transaction fee. I do the virtual check for an ACH payment because I don't want the fee even if I hate using those accounts online like that — but I have the option to use a very specific checking account for such purchases so I put the money in as needed and have it set that it will not permit the account to be overdrawn to minimize the potential issue for my accounts to be stolen.

Virtual check sounds really good. What bank offers that? I don’t see that option on my bank. 

Xed

MichaelKohl said:

Xed said:

I do have some large purchases each year that require my checking and routing number online that can also be had with a 3% CC/DC transaction fee. I do the virtual check for an ACH payment because I don't want the fee even if I hate using those accounts online like that — but I have the option to use a very specific checking account for such purchases so I put the money in as needed and have it set that it will not permit the account to be overdrawn to minimize the potential issue for my accounts to be stolen.

Virtual check sounds really good. What bank offers that? I don’t see that option on my bank. 

I figured all of them. All a merchant needs is your routing and checking number to extract funds. It's very insecure as far as digital payments go. I hate using it since my checking account doesn't have nearly the same security as when using a CC.

eightzero

citpeks said:

eightzero said:

Sorta not following here, since Apple Pay works fine with both Amex and Discover. 

What I do see is a resurgence of merchants adding credit card fees, and they are excessive. 3% credit card fees are now common, and there is no way any but the smallest of merchants are charged that much. One of the more entertaining (?) instances of this is at the Ford delarship where I was changed a 3% credit card fee at the service department that was not disclosed until after the service work was completed. I asked if this fee would still apply to the "Ford Rewards" credit card, their own branded "FordPass Rewards" Visa card - and it does. So...if you get their "rewards" card, you give it right back to them at the PoS. Nice. 

Are you sure that Ford dealer didn't disclose that before you committed to the service?

Credit card surcharges weren't permitted until a class action settlement in 2013.  They have been since then, but are subject to conditions, one of which is upfront disclosure.

This is what Visa says in their FAQ:

Am I required to disclose the surcharge to my customers?

Yes. U.S. merchants that surcharge must disclose the surcharge as a separate charge on the consumer's transaction receipt. In addition, disclosures indicating that a merchant outlet assesses a surcharge on credit card purchases must be posted at the point of entry and point of sale/transaction.

But all these parties have given themselves lots of wiggle room, based on nuance ("Surcharge," "Cash discount," "Convenience fee" and so on…), including the government, where paying by card can involve an additional fee.  It also varies by state law.

Yep, very sure. I'm kinda sensitive to this kind of chicanery. They do now, as I suspect someone pointed out the law, but they sprung it on me as one of their first dupes. I did go back (some stuff you just have to go to a dealer for) and brought cash. The teller was very annoyed, and it was sorta funny to see them struggle with counting out change. 

As you correctly point out, local governments are also getting on the gravy train with these alleged fees they are charged. Funny how local governments don't seem to pass along the savings they enjoy (like exemption from sales/use tax) to their constituents (or as they sometime try to call us their "customers)) but they claim they are being charged 3% from some credit card company for a service that can only be obtained via their (usually god-awful) web portal. 

eightzero

nubus said:

eightzero said:

Merchants are adding these fees. Thing is they are adding way more than what they are actually charged. And handling cash is indeed expensive...and difficult to quantify. I don't see people believing that it is an actual cost, and trying to do so would be troublesome. These are really overhead costs, but merchants are learning to add fees to collect more by claiming "someone else made them do it." Ive seen restaurants not only add a tip option at the PoS (for things where no service is rendered) but a "government required payroll fee." Folks, there is a minimum wage law because if there wasn't, they'd pay less.

Well.. i live in a country without minimum wages and one where we don't tip. Sweden is the same, and they have made it optional for shops to accept cash. As a result a lot of shops, restaurants, and museums no longer accept cash. It works fine.

I would like to see competition on payments, and I don't like paying part of the bill for those having expensive cards.Yes, shops will try to inflate the cost, and so they should always offer one "0%" option. Could be their own card or a debit card or... but taking 2-3% on every transaction is a rather heavy tax. It could be 0,35%. As this is "after tax" money the difference to consumers is real.

There are indeed many cultural differences as you note. Even some regional ones here in the States. Interestingly, one of the first non-cash industries is airlines. Sorta makes sense, as imagine the cost of handling cash in all the various currencies offered. 

neilm

eriamjh said:

It would be nice to know what min, max, and average merchant fees are in the world of credit cards.  

This is what pays for things like daily cash, and cash back, and all those perks.

No, "all those perks" are paid for out of the high monthly interest charges on cardholders who don't pay off their balance each month. The transaction fees mostly go to cover routine operating costs.

Fun fact: Cardholders who pay off their balance every month are referred to internally by the card companies as "deadbeats".