Chinese banks will reportedly pay half of what U.S. banks are forking over to support Apple Pay, a sizable gap that's due to Apple's relative fame in different parts of the world and the sizeable hype behind the product's U.S. launch in 2014.
"Apple doesn't have the brand fervor in China that it does over here," said Nick Holland, a payments consultant. "I heard bank executives in the U.S. say things like 'we're paying whatever it takes to be a part of Apple Pay.' The halo effect from a marketing standpoint was that important. I doubt the same occurred in conversations with Chinese banking executives."
If Chinese bankers did say that, Apple didn't hear it. According to
That final figure compares with the 0.15% U.S. banks are paying, a figure that
It was clear right away that banks weren't getting everything they wanted from the Apple Pay deal. Even before it was evident that
More recently, banks have endorsed competing products, such as JPMorgan Chase's collaboration with the
Another example is Prairie Cloudware, which is approaching U.S. banks to build issuer-specific mobile payment systems. Prairie Cloudware's initial partner, Union Bank, is partly motivated by slow adoption for Apple Pay.
Even with all of these issues, Apple Pay launched in the U.S. with
But the story has been much different in other countries, as banks are holding out longer. In
"It would appear Apple is adjusting its market entry strategy on a market-by-market basis, which makes sense," said Thad Peterson, a senior analyst at Aite Group. "It also forces the Chinese banks to have skin in the game, which could help them prioritize Apple Pay against other players like Samsung."
Apple's negotiations have been particularly rough in Australia, where for more than a year Apple has attempted to come to a credit card interchange sharing arrangement, and has reportedly placed a
"Apple Pay will be useless if it can't get bank-issued cards on it," said Tim Sloane, vice president of payments innovation at Mercator Advisory Group. "So what Apple can charge will be based on how the banks negotiate. I understand that in Australia, Apple had to negotiate with a single person that represented all banks surely providing the banks a more powerful negotiating position."
The competitive landscape inside a country also makes a difference. Apple has several rivals in the U.S., but none that have jumped out to a sizable lead. The challenge in the U.S. is still to get people to use the technology rather than to win them away from another mobile wallet brand.
"There is an established and intensively competitive mobile payments environment in China, with incumbents such as Alipay and Tencent taking a lion's share of transaction volume," Holland said, noting AliPay has more than 400 million users—a higher base than the entire population of the U.S. "Apple has some catching up to do."
It's also possible the market's evolution and emerging revenue streams will eventually reduce bank transactions fees in the U.S. for Apple Pay, according to Sloane.
"As bank contracts come up for renewal, I suspect we will see those fees drop and Apple will start to develop new monetization strategies, likely aimed at new services that merchants and issuers can pay to play such as ads, marketing, incentives, etc.," Sloane said.
