The upside and hiccups with Apple Pay

Once the excitement has abated and we start thinking through what we can actually do with Apple Pay here in Australia, there is an exciting upside but also significant hiccups that appear.

The good news is that with Apple finally joining the NFC (Near Field Communication) bandwagon, a long raging debate is over. NFC combined with the use of Tokens is now the accepted standard. It remains to be seen, but Apple would most probably have designed the EMV compliant secure element and setup an EMV card in the iPhone that would work transparently with contactless EFTPOS terminals. If not, this would have led to Apple facing lengthy certifications for changes in terminal hardware / software and even worse upgrades in the field.

Australia would be well prepared as it has already rolled out more than 300,000 contactless terminals, contrary to the US. Tyro’s brand new contactless 3G terminal fleet supports Visa Paywave / Mastercard^® Paypass card and most certainly Apple Pay on the new iPhone or Apple Watch.

But now some of the headaches.

1. The survival of the domestic debit card system is further questioned. Australians extensively use their domestic eftpos debit card system as do Canadians and Kiwis. While Apple supports the global schemes, they might not prioritise any effort required to support the Australian contactless eftpos card. This raises the additional issue that the Reserve Bank of Australia’s mandate of network choice will be undermined. The dominance of the global schemes will be further entrenched by the de facto removal of access to the domestic debit card network.
2. The choices at the point of sale are removed. Apple Pay, much as the current Visa Paywave / Mastercard Paypass card transactions, will most probably de facto eliminate the choice for the merchant to pass on his cost via a surcharge. It will also remove the option for a foreign cardholder to opt for paying in his home currency. Again, this goes against the Reserve Bank of Australia’s mandate of choice so as to maintain competition.
3. The big issuer banks will most probably be reluctant to share their interchange revenue. The Australian payment market is dominated by the four major retail banks which are at the same time card issuers and merchant acquirers. The Reserve Bank of Australia has capped interchange fees at 0.50 percent whereas fees in the US are three times higher. Apple’s business case for opening up its massive iTunes and iPhone customer base relies on levying a 0.15 percent fee on the interchange fee that the cardholder banks receive worldwide trillions of dollars in card transactions. The Australian oligopoly will most certainly be unwilling to cut their interchange fee revenue by 30 percent to share with Apple.
4. Apple will need to offer more to entice consumers to change their behavior. Australians 550,000 merchants and certainly Tyro merchants have become used to the speed and “ease of use” that contactless cards and an integrated payment process offer today. It’s not obvious that consumer behaviour will move from tapping the plastic card to using the iPhone or Apple Watch touchpoint process, at a point of payment, where this is accepted. Apple might first need to enrich its payment solution with pre-ordering or loyalty functionality to make the switching effort worthwhile. That requires integration with software packages, an area that again is a Tyro specialty.
   

In conclusion, Tyro welcomes Apple’s announcement to become a player in the new world payment eco-system. Their efforts will take time to eventuate, but eventually it will give our merchants and their consumers more choice. Innovation is good.

Finally, a word of warning: the payments world is complex with its network dependencies, interoperability and security requirements and regulatory oversight. Change will be a somewhat slower pace than what we see in the new world otherwise.

_{Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Apple, Apple Pay, iTunes, Apple Watch and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries.}