Apple to collect swipe fees from banks for Apple Pay transactions - report

Posted:
in iPhone edited September 2014
Apple's new Apple Pay system has the potential to become a huge revenue driver, as the iPhone maker has reportedly reached agreements with its partner banks to take a cut of the revenue earned from so-called "swipe fees" when consumers make purchases through the platform.




The exact figures are unknown, but banks expect to see a net revenue increase thanks to the new payment options, according to Bloomberg. Apple is also believed to have negotiated for lower-than-normal transaction fees, treating Apple Pay payments as "card present" purchases.

Swipe fees, known in the industry as interchange fees, are fees paid between banks for processing credit and debit card transactions. The banks generally pass these fees on to the retailers, and they can make up as much as 90 percent of the total fees paid by merchants in a given transaction.

For their part, major card issues appear to be excited about the prospect of an Apple-driven mobile payment revolution, despite giving up some of the approximately $40 billion they make each year from swipe fees.

"The timing is right with customer behavior, the customer experience is right, and elements have come together around how the ecosystem is evolving for this to be a game changer," JPMorgan executive Gavin Michael told the publication. "We've seen -- certainly in our customer base -- a drive to the mobile channel."

Visa executive Jim McCarthy seemed even more enthused. "Having a partner like Apple really was like catching lightning in a bottle," he said. "Given their ability to effectively manage their platform, and get folks across multiple industries, merchants, banks and networks to cooperate really was the thing that catalyzed the whole thing."
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Comments

  • Reply 1 of 229
    malaxmalax Posts: 1,598member
    If Steve were still hear Apple would be getting 30% of the payment amount, not some fraction of the nickel-and-dime swipe fees. \s
  • Reply 2 of 229
    I don't think this is going to be a enough revenue to really impact Apple. Seems like it will likely be a few hundred million in revenue, maybe a billion.
  • Reply 3 of 229

    If Steve were still hear Apple would be getting 30% of the payment amount, not some fraction of the nickel-and-dime swipe fees. \s

     

    I am not sure about that- banks are not ones to let terms be dictated to them.

  • Reply 4 of 229
    Originally Posted by revenant View Post

    I am not sure about that- banks are not ones to let terms be dictated to them.




    Steve taking on the Federal Reserve. That I’d like to have seen.

  • Reply 5 of 229

    This was obvious, or should have been. Even 1% of an over Trillion dollar economy is pretty good :) 

  • Reply 6 of 229

    Tim Cook stated in the keynote that US card payments totalled $4tr/yr

     

    Apple could conservatively be looking at 10% of that market in year 2, collecting 0.1% - 0.25% of the value of those transactions.

     

    That comes out at $400m - $1bn, so good call on the earnings potential!

     

    Like with iTunes, the profit on this activity is a bonus: it's the ecosystem stickiness that Apple are after.

  • Reply 7 of 229

    I guess my predictions were only partially correct. While Apple is getting paid on those transactions, I am guessing Apple is getting a swipe fee versus a percentage of the overall sale, but no way to know for sure.

     

    What I'm curious if Apple comes out with next is a way for small businesses to take advantage of this, much like Square and others have done. My guess is they will hold off for the time being because if Apple did give this to a small retailer, not 100% of their clients will be paying with Apple Pay and I'm not sure Apple wants to support standard swiping of cards, which opens the door up to fraud compared to their NFC solution.

  • Reply 8 of 229
    Overall everyone will win from this. Credit card issuers make money every time a consumer uses their card and if consumers decide to use their cards more often because of the ease of Apple Pay then Visa, MC, Amex, and Discover will be happy.

    For merchants I'm assuming the fees will be about the same as normal, but they will benefit from higher end Apple customers frequenting their stores moreso than stores that don't support NFC or "Apple Pay technology".

    Myself personally if I had an Apple Pay compatible device I would choose Walgreens over CVS if CVS didn't support Apple Pay. So in the end the retailers still win because they will have an edge on their competition (see: Staples vs OfficeMax, Petco vs Petsmart, McDs vs Burgee King).

    And of course Apple wins because this will strengthen the ecosystem, and give them yet another revenue source.
  • Reply 9 of 229

    Uh. Don’t tell me in the US you don’t have chip cards?

    Mine, which is two years old, has an embedded NFC as evidenced by the ‘wavy’ symbol on it

  • Reply 10 of 229
    eauvive wrote: »
    Uh. Don’t tell me in the US you don’t have chip cards?
    Mine, which is two years old, has an embedded NFC as evidenced by the ‘wavy’ symbol on it
    <img alt="" class="lightbox-enabled" data-id="48474" data-type="61" src="http://forums.appleinsider.com/content/type/61/id/48474/width/200/height/400/flags/LL" style="; width: 125px; height: 400px">

    Funny thing is I see people with those cards go up to card readers and swipe them because they don't know they can wave it at the card reader. Honestly for a payment card I'm not sure if waving it at a card reader is any faster than simply swiping it though?
  • Reply 11 of 229
    Quote:

    Originally Posted by malax View Post



    If Steve were still hear Apple would be getting 30% of the payment amount, not some fraction of the nickel-and-dime swipe fees. \s



    It will come across as greed by Apple out to make every nickel and as much as they can get from people - which is business. But Apple will be perceived as ripping people off.

     

    My feeling is Apple is greedy and really only selling to the mid-high to high end customers. And its apparent in their market share.

     

    So be it. Not so thrilled with the new phones, aside from the cameras which are a little better.

     

    Will wait for the 6S at least.

  • Reply 12 of 229
    Quote:
    Originally Posted by blackbook View Post





    Funny thing is I see people with those cards go up to card readers and swipe them because they don't know they can wave it at the card reader. Honestly for a payment card I'm not sure if waving it at a card reader is any faster than simply swiping it though?



    Here in France, there is no swipe anymore since… eons. You have to insert your card in the reader, wait for it to be ready and then dial your PIN code (4 digits). The NFC system bypasses the need to type the PIN code, so it is way faster. BUT, of course, it is limited: you can do a maximum of four NFC transactions in a row, and those cannot amount to more than € 20. At the 5th or if the total amount is greater than € 20, you have to revert to the standard procedure. Mileage may vary according to the security rules of the bank you're in.

  • Reply 13 of 229
    saareksaarek Posts: 1,551member
    Quote:

    Originally Posted by blackbook View Post





    Funny thing is I see people with those cards go up to card readers and swipe them because they don't know they can wave it at the card reader. Honestly for a payment card I'm not sure if waving it at a card reader is any faster than simply swiping it though?



    It's faster, no need to enter a pin or if in America go through the hassle of showing your ID/having to sign for the transaction. However it only works on small payments, what is exciting about the Apple Pay system is that it should cover all payments both large and small.

     

    Hopefully this will roll out quickly and not become the stagnant abortion that iTunes Radio has become, heck it's only been a year with no sign of that service in most countries. Pathetic really.

  • Reply 14 of 229
    Quote:

    Originally Posted by EauVive View Post

     

    Uh. Don’t tell me in the US you don’t have chip cards?

    Mine, which is two years old, has an embedded NFC as evidenced by the ‘wavy’ symbol on it


    I have a chip in my card but no one supports it. 

  • Reply 15 of 229
    Quote:

    Originally Posted by blackbook View Post





    Funny thing is I see people with those cards go up to card readers and swipe them because they don't know they can wave it at the card reader. Honestly for a payment card I'm not sure if waving it at a card reader is any faster than simply swiping it though?

    I've tried to use this feature on multiple occasions and I can't because no merchants in the US supports this feature. 

  • Reply 16 of 229
    Quote:
    Originally Posted by AdonisSMU View Post

     

    I have a chip in my card but no one supports it. 




    That’s what I suspected. In this particular case, the US are still using neolithic technologies. 

     

    Conversely, where it is in use, e.g. in Europe (I think), Apple will never be able to coax the merchants or banks to use its system. It’s just pointless.

  • Reply 17 of 229
    I guess my predictions were only partially correct. While Apple is getting paid on those transactions, I am guessing Apple is getting a swipe fee versus a percentage of the overall sale, but no way to know for sure.

    There are three ways this can go down. They get points on the merchant fee, they get points on the sale price, or they get points on both (e.g.: 23.78¢ per transaction plus 1.49% of the sale price). I've never heard of merchant fees that are only on the sale price so it's likely the 1st or third option, but I'd lean very heavy on just getting points on the merchant fees.
    What I'm curious if Apple comes out with next is a way for small businesses to take advantage of this, much like Square and others have done. My guess is they will hold off for the time being because if Apple did give this to a small retailer, not 100% of their clients will be paying with Apple Pay and I'm not sure Apple wants to support standard swiping of cards, which opens the door up to fraud compared to their NFC solution.

    I think that sounds like a great idea. Between PayPal and Square allowing you to send money as easily as sending an email I think that is a distinct possibility. I agree they would wait until they can get NFC established, accepted and understood before complicating their system. Perhaps next year with iOS 9; no need to wait for an iPhone announcement on that one). Wouldn't they have to collect fees directly for that one instead of the merchant fees being inset with the price sent the customer sending money to another is effecting acting like the merchant? I bet they could undercut both PayPal and Square in this regard whilst making it very profitable for them.


    PS: I was hoping there would be an Apple Rewards Program for using their NFC solution even though there doesn't have to be to get people to use it.

    eauvive wrote: »
    Uh. Don’t tell me in the US you don’t have chip cards?
    Mine, which is two years old, has an embedded NFC as evidenced by the ‘wavy’ symbol on it

    Sure we do. I'm not understanding the point you're trying to make.
  • Reply 18 of 229
    asdasdasdasd Posts: 5,686member
    The thing people are missing is that Apple pay allows a new category of apps. Apps which sell non digital items (IAP didnt allow that). This allows trains, hotel rooms, taxis and physical items to be booked within apps. That's possible now provide you want to hand your credit card to the app - or have pre registered on their website. Eventually I can see Apple banning apps which allow users to independently access credit card info.

    That's a bigger revenue stream than maybe people are imaging now.
  • Reply 19 of 229
    melgrossmelgross Posts: 33,585member
    schlack wrote: »
    I don't think this is going to be a enough revenue to really impact Apple. Seems like it will likely be a few hundred million in revenue, maybe a billion.

    I've seen some estimates that it could eventually be more than $10 billion a year, depending on exactly what they do with it.
  • Reply 20 of 229
    asdasdasdasd Posts: 5,686member
    Personally I think they should reduce the 30% on IAP. P
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