Interchange fees, hubris key challenges to Australian Apple Pay rollout
Apple is reportedly facing pushback as it tries to roll out Apple Pay in Australia, as major banks in the region are reluctant to cede a slice of the AU$2 billion they take in with interchange fees in exchange for technology some say is already available in the country.
Commonwealth Bank of Australia's CEO Ian Narev said Apple will find it difficult to market Apple Pay to Australian banks on innovation alone, because the country's financial institutions have offered touchless payment technology for years, reports The Sydney Morning Herald.
"By most global standards, the capability that the Australian banking sector has generally, and Commonwealth Bank has specifically, to provide for customers is ahead of a lot of the other markets around the world where Apple has done well," Narev said. "There is functionality associated with Apple Pay that we have had in the market for 18 months to two years."
According to Narev, Apple Pay made a splash in the U.S. because tap-to-pay transactions were not previously available. While not completely true -- Google Wallet launched as a U.S.-only product in 2011 -- Apple's system was one of the first to gain traction in a market where wide acceptance of NFC-based transactions floundered.
Perhaps more of a concern for Australian banks is Apple's cut of interchange fees. Apple is reportedly negotiating for a slice comparable to its U.S. operations, thought to stand at 15 cents per $100. The publication believes major banks are loathe to considering interchange fees in Australia are half that of the U.S. at roughly 50 cents per AU$100 transaction. And the Reserve Bank of Australia is pushing for even lower fees pegged at around 30 cents for AU$100.
Additionally, Apple Pay and its iPhone and Apple Watch interfaces represent an extra layer between banks and their customers at the point of sale. Australian institutions want to leverage this so-called "interface" level as a platform to sell other products, something that would prove difficult if Apple owns the space, the report said.
Finally, the publication argues Apple faces an uphill battle in negotiating from position of weakness, saying Apple Pay adoption is "sagging" in the U.S. just as competing services like Samsung Pay linger on the horizon. A questionable report published earlier this month by PYMENTS.com claimed consumers were losing interest in Apple Pay, though the firm only presented results without adequate background on its data gathering techniques.
In any case, a successful Australian deal looks to be a long time coming. If and when Apple Pay does launch in the region, the final fee structure might be closer to a model established by UK banks, which supposedly negotiated much lower rates compared to Apple's U.S. program.
Commonwealth Bank of Australia's CEO Ian Narev said Apple will find it difficult to market Apple Pay to Australian banks on innovation alone, because the country's financial institutions have offered touchless payment technology for years, reports The Sydney Morning Herald.
"By most global standards, the capability that the Australian banking sector has generally, and Commonwealth Bank has specifically, to provide for customers is ahead of a lot of the other markets around the world where Apple has done well," Narev said. "There is functionality associated with Apple Pay that we have had in the market for 18 months to two years."
According to Narev, Apple Pay made a splash in the U.S. because tap-to-pay transactions were not previously available. While not completely true -- Google Wallet launched as a U.S.-only product in 2011 -- Apple's system was one of the first to gain traction in a market where wide acceptance of NFC-based transactions floundered.
Perhaps more of a concern for Australian banks is Apple's cut of interchange fees. Apple is reportedly negotiating for a slice comparable to its U.S. operations, thought to stand at 15 cents per $100. The publication believes major banks are loathe to considering interchange fees in Australia are half that of the U.S. at roughly 50 cents per AU$100 transaction. And the Reserve Bank of Australia is pushing for even lower fees pegged at around 30 cents for AU$100.
Additionally, Apple Pay and its iPhone and Apple Watch interfaces represent an extra layer between banks and their customers at the point of sale. Australian institutions want to leverage this so-called "interface" level as a platform to sell other products, something that would prove difficult if Apple owns the space, the report said.
Finally, the publication argues Apple faces an uphill battle in negotiating from position of weakness, saying Apple Pay adoption is "sagging" in the U.S. just as competing services like Samsung Pay linger on the horizon. A questionable report published earlier this month by PYMENTS.com claimed consumers were losing interest in Apple Pay, though the firm only presented results without adequate background on its data gathering techniques.
In any case, a successful Australian deal looks to be a long time coming. If and when Apple Pay does launch in the region, the final fee structure might be closer to a model established by UK banks, which supposedly negotiated much lower rates compared to Apple's U.S. program.
Comments
and what of Canada?
????
This is a bit of a sticky wicket. On the one hand Apple doesn't really need Australia to make Apple Pay work (and the same can be said for Australian banks not needing Apple Pay support anytime soon). And on the other hand getting Australia would be decent win for Apple Pay.
While Apple did do a lot to get this foundation built up but with potentially trillions of dollars in revenue through cards each year that Apple 15¢ per $100 that's $7.5 billion per year nearly all in profit from just $500 billion in charges. Then again, there is a lot of fraud protection that will be coming from Apple Pay. Then again again, there is OK fraud prevention with chip and PIN.
All in all, I'd say Apple's position is slightly stronger, but not strong enough that they will win with their current revenue request.
The following PDF list's Australia's credit card fraud at $624 million for 2014, which is up 4% from the previous year.
They also list that the majority of it comes from card not present which Apple Pay is still listed as (and probably will for a couple more years) but it really needs the culture to see that the card not present is not the same as a verified and virtualized card using a representational number and tokening system. The best way to do that is with a catch term… which I don't have.
Apple appears to not understand the unmitigated greed of Australian banks.
Consider that Australia is probably the one market where CurrentC might actually work. Australians are very very loathe to pay fees, so people use their direct entry (BSB) system to circumvent them.
This might not be terribly obvious to Americans, but it's roughly the equivalent of handing over ACH numbers to strangers. AFAIK you can only deposit to these, not turn around and withdraw money. Hence it's parallel with CurentC.
ApplePay will be more successful in markets like Canada (3%) and the UK (1.6%) because the domestic banking system has high fees to begin with and the government has been meddling to get the fees lowered after the US went after Visa and Mastercard in the US..
"But but but
banksApple needs competition!"Apple are bigger with more cash than any bank in Australia and probably the world. They're probably more stable financially than most banks in the world also. Given its interest in payments I'm surprised it doesn't.
The banks in Australia are evil (as in everywhere probably). I wish there were options that weren't (as) evil. I also wish there were better choices than Visa and MasterCard that are similarly evil.
The government here will probably make it difficult because they're fiercely anti-competitive in the banking sector (basically there's a lot of corporate-political corruption protecting the big four) but Apple has the resources to challenge this and win successfully if it wants to.
Then again, I get the feeling Apple are trying to keep a low profile in an effort to maintain the status quo regarding their tax arrangements And negligible/minuscule tax rates.
In the US at least, in-store Apple Pay transactions are processed as card present
https://support.apple.com/en-au/HT204274
Are Apple Pay payments charged as card present or card not present?
Payments made using Apple Pay in stores are card present transactions. Payments made using Apple Pay within apps are card not present transactions.
In the US at least, in-store Apple Pay transactions are processed as card present
https://support.apple.com/en-au/HT204274
Are Apple Pay payments charged as card present or card not present?
Payments made using Apple Pay in stores are card present transactions. Payments made using Apple Pay within apps are card not present transactions.
Quite disappointing news. Where Australia goes, NZ soon follows.
I hope that this is just a negotiation tactic. If Apple accepted lower fees for the UK, hopefully they can get the same deal to work in Australasia.
Apple is very popular in NZ/Australia and we also have a card carrying culture (i.e. most people don't pay using cash for anything).
I hope Apple can get the banks onboard.
I really want this to work out. I will change banking institutions if I have to.
You should at least change away from the big 4 anyway. I refuse to deal with them.
Apple appears to not understand the unmitigated greed of Australian banks.
Ask any Australian here, they'll tell you the banks are pricks.
I see a little from both sides. Apple have developed some IP around the system to make it "cool" to use but I've already paid for that in my device(s). Why should I have to also pay 15 basis points to them again if they're only involved at the initial token issue stage? As I understand it, once the Device Number is generated, no transactions go via Apple so it's not like they need some high volume realtime infrastructure to mediate every transaction. And in the USA they've had to sell and market the idea to banks and merchants. Once they hit "go" in Australia, they have a ready market to play into. I think they could drop to a lower bps and still make almost pure profit.
Have said this, I assume Ian Narev's comments on the 50bps (soon to be 30bps) interchange rates mainly relate to debit/EFTPOS cards, not credit cards. With credit cards, there is much more margin to share basis points from ...
Out of the 7 transactions I tried with Apple Pay only 3 went through without a hitch.
Twice I had to put my card in anyway to "verify the payment method" and the other two times my iPhone showed done but the cashier confirmed that the transaction hadn't gone through.
I really wanted to love Apple Pay and can see how it would be a bit of a revelation in a county like the USA that was so far behind in terms of banking technology, chip & pin and contact less payments etc, but my NFC debit/credit cards almost never fail and don't need to be held against the NFC terminal nearly as long as my phone.
I'll try it again next year, maybe improvements will have been brought in by then.