A decade after
The latest development, a
Here's the story so far:
Apple vs. banks: The story so far
March 22, 2024 10:05 AM
SeongJoon Cho/Bloomberg
Apple Pay, Apple's way
Banks and payment companies had long seen the potential to build a contactless mobile wallet into Apple's iPhones, but they may not have anticipated how imbalanced such a relationship would be.
When Apple Pay formally launched in 2014, it came with what one banker described as "the most one-sided agreement I have ever seen ," with no room to negotiate on Apple's fee of 15 basis points for credit card transactions and half a cent on debit. And from the beginning, Apple made clear that it would not allow any other company to access its devices' NFC chip for a contactless mobile wallet. Apple Pay would be the only option for Apple handsets.
But as onerous as bankers found those terms, they considered them — alongside an NDA that was so strict that at U.S. Bank, only 10 people in the entire company were allowed to know what they were working on — well worth it to be involved with Apple Pay at its launch.
"Here was our opportunity to go with the pretty girl to the prom. We were able to take some of their shine and push it toward ourselves," said the bank's head of retail payment solutions at the time.
Read more:Tales from Apple Pay's first partners
When Apple Pay formally launched in 2014, it came with what one banker described as "
But as onerous as bankers found those terms, they considered them — alongside an NDA that was so strict that at U.S. Bank, only 10 people in the entire company were allowed to know what they were working on — well worth it to be involved with Apple Pay at its launch.
"Here was our opportunity to go with the pretty girl to the prom. We were able to take some of their shine and push it toward ourselves," said the bank's head of retail payment solutions at the time.
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David Paul Morris/Photographer: David Paul Morris/
Apple Card: Goldman's exclusive burden
When Apple finally launched its own credit card within Apple Pay, it signed on only one issuer: Goldman Sachs, which treated the partnership as its first step into retail banking.
But that first step was a doozy.
Apple can be a brutal negotiator, and four years after the Apple Card's 2019 debut, Goldman Sachs had apparently had enough, and was looking to get out of its pact with Apple for the credit card and a linked savings account.
In its pursuit of "tech-style" growth, Goldman was relatively loose with its underwriting rules and approved many borrowers with mediocre FICO scores, leading to a higher-than-average rate of delinquencies and charge-offs, said Hugh Tallents, a senior partner at New York-based strategy consulting firm cg42.
"Goldman's charge-off rate with the Apple Card was double the industry average and you can't sustain that, even if you value the Apple partnership," he said.
Read more:How Goldman Sachs' deal with Apple went sour
But that first step was a doozy.
Apple can be a brutal negotiator, and four years after the Apple Card's 2019 debut, Goldman Sachs had apparently had enough, and was looking to get out of its pact with Apple for the credit card and a linked savings account.
In its pursuit of "tech-style" growth, Goldman was relatively loose with its underwriting rules and approved many borrowers with mediocre FICO scores, leading to a higher-than-average rate of delinquencies and charge-offs, said Hugh Tallents, a senior partner at New York-based strategy consulting firm cg42.
"Goldman's charge-off rate with the Apple Card was double the industry average and you can't sustain that, even if you value the Apple partnership," he said.
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A bank uprising from down under
While banks in the U.S. grumbled about Apple Pay's terms, those in Australia were aggressively pushing back.
By 2016, the Commonwealth Bank of Australia, Westpac Banking Corporation, National Australia Bank, and Bendigo and Adelaide Bank had banded together to attempt to collectively bargain with Apple over its terms, seeking relief from the Australian Competition and Consumer Commission. The banks' key demand was to be able to develop their own mobile wallet that would use the iPhone's NFC chip for contactless payments.
But the agency sided with Apple in early 2017, citing concerns that giving the banks a win on this issue would tip the scales too far in their favor by giving them excessive leverage on setting fees and rates. "We are concerned that the proposed conduct is likely to reduce or distort competition in a number of markets," the ACCC said in a statement at the time.
Read more:Australia sides with Apple in bank dispute over mobile wallet
By 2016, the Commonwealth Bank of Australia, Westpac Banking Corporation, National Australia Bank, and Bendigo and Adelaide Bank had banded together to attempt to collectively bargain with Apple over its terms, seeking relief from the Australian Competition and Consumer Commission. The banks' key demand was to be able to develop their own mobile wallet that would use the iPhone's NFC chip for contactless payments.
But the agency sided with Apple in early 2017, citing concerns that giving the banks a win on this issue would tip the scales too far in their favor by giving them excessive leverage on setting fees and rates. "We are concerned that the proposed conduct is likely to reduce or distort competition in a number of markets," the ACCC said in a statement at the time.
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Chris Ratcliffe/Bloomberg
Taking more of banks' turf
Over the years, Apple has tested the waters with other banking products, including a savings account and a buy now/pay later offering.
Apple's entry into the booming BNPL market was cautious. It was self-financing its interest-free loans through a new entity, Apple Financing LLC, and limited loans to $1,000 among a subset of Apple customers. It also set out from the beginning to report these loans to credit bureaus, setting it apart from competitors that had been less forthcoming with that data.
But even such a restrained approach to this market isn't without risks. Experts speculated that Apple's motives were more about boosting use of Apple Pay at the point of sale, or collecting data that would grant it visibility into its customers' purchasing habits.
"BNPL lenders essentially target people who are financially stressed, who are trying to make purchases they can't afford. This isn't exactly Apple's traditional market," aid Daniela Hawkins, managing principal with Capco.
Read more:Why Apple Pay Later is different from other buy now/pay later loans
Apple's entry into the booming BNPL market was cautious. It was self-financing its interest-free loans through a new entity, Apple Financing LLC, and limited loans to $1,000 among a subset of Apple customers. It also set out from the beginning to report these loans to credit bureaus, setting it apart from competitors that had been less forthcoming with that data.
But even such a restrained approach to this market isn't without risks. Experts speculated that Apple's motives were more about boosting use of Apple Pay at the point of sale, or collecting data that would grant it visibility into its customers' purchasing habits.
"BNPL lenders essentially target people who are financially stressed, who are trying to make purchases they can't afford. This isn't exactly Apple's traditional market," aid Daniela Hawkins, managing principal with Capco.
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Nic Coury/Bloomberg
Tapping into a new market
In 2022, Apple finally opened up the iPhone's NFC chip — but only to receive payments, not to make them.
In a rare instance of Apple letting other companies hold the reins, when Apple launched Tap to Pay, it chose not to act as a merchant acquirer or payment facilitator; retailers would still need to work with a partner such as NewStore to accept payments.
While this may seem generous, it's also a case of Apple making a play for the future of the point of sale, when traditional checkout lanes disappear in favor of open store designs that enable staffers to accept payments from their phones.
"Self checkout is moving more toward smart checkout," said Dayna Radbill, a senior director at Gartner who focuses on payments within the context of digital commerce.
Increasingly, merchants have options other than a dedicated payment terminal and can instead use personal computing devices that also support incentive marketing, staff and inventory management.
Read more:How Apple's Tap to Pay could hasten the demise of the point of sale
In a rare instance of Apple letting other companies hold the reins, when Apple launched Tap to Pay, it chose not to act as a merchant acquirer or payment facilitator; retailers would still need to work with a partner such as NewStore to accept payments.
While this may seem generous, it's also a case of Apple making a play for the future of the point of sale, when traditional checkout lanes disappear in favor of open store designs that enable staffers to accept payments from their phones.
"Self checkout is moving more toward smart checkout," said Dayna Radbill, a senior director at Gartner who focuses on payments within the context of digital commerce.
Increasingly, merchants have options other than a dedicated payment terminal and can instead use personal computing devices that also support incentive marketing, staff and inventory management.
Read more:
Andrew Harrer/Bloomberg
Apple gives ground on payments — at a cost
Apple Pay wasn't the only area where Apple exerted control over payments. To offer software and in-app purchases on Apple devices, companies must agree to use the payment system embedded in Apple's App store — and pay the rates Apple decrees.
The biggest threat to Apple's control of its App Store stems from its longlegal battle with Epic Games , publisher of Fortnite. The lawsuit over app store checkout policies entered a new phase in January after Apple said it would charge a commission of up to 27% for non-Apple payment providers, a move that immediately drew fresh threats of legal action.
Apple's new policy for developers using non-Apple payment processors for app store transactions follows an earlier policy that required developers to use Apple's payment system, with an interchange-style fee of up to 35%. Apple announced the new policy in mid-January, around the same time that the U.S. Supreme Court declined Apple's appeal of lower-court rulings in the Apple/Epic case that required Apple to open App Store payments to outside processors.
The legal fights are playing out while Apple facespressure from regulators in Europe, the U.S. and elsewhere who claim the technology company has too much control over how people access and use Apple to shop and make payments via Apple's digital wallet.
Read more:How Apple's new payment fees portend more legal fights
The biggest threat to Apple's control of its App Store stems from its long
The legal fights are playing out while Apple faces
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Drew Angerer/Photographer: Drew Angerer/Getty
Justice Department gets involved
The U.S. Justice Department and 16 attorneys general sued Apple on Thursday, accusing the iPhone maker of violating antitrust laws by blocking rivals from accessing hardware and software features on its popular devices.
The suit, filed in New Jersey federal court, marks the culmination of a five-year probe into the world's second-most-valuable technology company. The Biden administration has made competition a cornerstone of its economic policy, with Silicon Valley becoming a key focus.
The lawsuit alleges that Apple has used its power over app distribution on the iPhone to thwart innovations that would have made it easier for consumers to switch phones. The company has refused to support cross-platform messaging apps, limited third-party digital wallets and non-Apple smartwatches and blocked mobile cloud streaming services.
Read more:Justice Department sues Apple in antitrust case over iPhone, payments
The suit, filed in New Jersey federal court, marks the culmination of a five-year probe into the world's second-most-valuable technology company. The Biden administration has made competition a cornerstone of its economic policy, with Silicon Valley becoming a key focus.
The lawsuit alleges that Apple has used its power over app distribution on the iPhone to thwart innovations that would have made it easier for consumers to switch phones. The company has refused to support cross-platform messaging apps, limited third-party digital wallets and non-Apple smartwatches and blocked mobile cloud streaming services.
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