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Apple is betting that tokenization systems offered by payment processors will provide a security boost to its new Apple Pay system at a time when consumers are wary of Apple's cloud-based services.
September 9 -
Apple has officially unveiled Apple Pay, a new mobile payment system in its upcoming line of smartphones, using a model that involves legacy payment companies but adds a new spin.
September 9
Apple will collect fees from banks when consumers use an iPhone in place of credit and debit cards for purchases, a deal that gives the handset maker a cut of the growing market for mobile payments, according to three people with knowledge of the arrangement.
The iPhone 6 and iPhone 6 Plus, unveiled today, include a new service called Apple Pay that lets users shop with the tap of a finger on a phone, instead of swiping a card. Banks including JPMorgan Chase, Bank of America and Citigroup agreed to integrate their cards into the system.
Apple and banks individually negotiated the fees in setting up the service, according to the people, who requested anonymity because terms aren't public. Fees will be charged for every transaction, one person said. The people didn't specify the size, which they said could vary, or whether it's tied to the value of purchases. The mobile-payments market will probably more than quadruple to about $90 billion by 2017, according to Forrester Research.
The arrangement builds on the existing fee structure for credit and debit cards in the U.S., according to the people. Merchants there typically pay fees totaling about 2 percent of the purchase price for credit-card transactions. The so-called swipe fees, also known as interchange, help card-issuing banks cover fraud costs and fund reward programs and total more than $40 billion a year. While banks would bear the cost of Apple's share, they're betting it will be offset by an increase in transactions, one person said.
Trudy Muller, a spokeswoman for Apple, didn't return a call seeking comment. Spokesmen for JPMorgan, Bank of America and Citigroup declined to comment on the terms of agreements with Apple. The Financial Times reported earlier today that banks would give up some fees to Apple.
Apple Pay relies on partnerships with the three biggest card networks, Visa, MasterCard and American Express, to process payments. Visa and MasterCard handled 63.4 billion purchase transactions in the U.S. last year valued at $3.32 trillion, according to the companies' data. U.S. card spending at American Express, which is a network and also the biggest credit-card issuer by purchases, totaled $637 billion last year.
