US banks pay high price for cosying up to Apple

Apple's request seems reasonable. 

The headline should more correctly read "US Banks pay high price for being slow on EMV & Mobile Payments and having to outsource to Apple"

Hahahahah, nice comment Brett. Lets just say that the banks are lucky to have Apple and have a glimmer of hope of foiling MCX. Although, MCX may be to cause of its own undoing. 

The reasoning being that cards need revenue from interest charged on accounts that carry a balance. This compensates for fraud, chargebacks etc.. Merchants will not or can not take credit risk. Look at Target for a prime example.

Merchants also want to control data. But why? Think Sainsbury vs Tesco. Sainsbury used Nectar verse Tesco its own card. Guess which one is doing better today. Now guess which one controls its data. Lol.

Apple needs to rethink its business model prior to launching this service in Europe. European issuers will from next year receive the maximum of 0,20% in interchnage feews for debit and 0,30% for credit and may receive less in some countries. So no space for 0,15% sharing there. Furthernmore the customer data sharing may be a violation of the data protection and privacy laws in Europe. And last but not least, Apple may be accused of misusing its dominant position in some markets where their market share on devices is +30% - an offence that can render up to 10% of the Apple turnover in fines. Microsoft can explain this risk to Apple... and these rules are monitored by the EU Commission who hates all american companies.

Now we know how Apple will know how much fees to collect from card issuers without knowing the value of the individual Apple Pay transaction:

"fees paid to Apple would be collected by the major card schemes Visa and MasterCard, with Apple maintaining the right to audit the issuer's Apple Pay records at least twice a year."

FinExtra member,

There is a coming divide between the EU and US potentially here. While there is anti-trust regs in the US, the fact that the largest banks have so willingly co-opted Apple in their NFC solution set probably means that there is not going to be that perception at any stage in the US.

Obviously Visa and Mastercard will move towards tokenization to reduce fraud, and so there is an inexorable push towards mobile payments that will happen globally, and interchange really isn't a factor in moving towards that for either banks, merchants or the card networks - it's all about reducing risk. What we know is that the 16 digit card number is no longer defensible as an artifact from a security perspective, so moving away from that to tokens is absolutely required.

So the question is, if not Apple and/or Google Wallet, then who? It looks like further fragmentation until EU banks and Visa/Mastercard get traction on the tokenization/HCE standard.

We need this - it is largely unavoidable if we want to protect 'cardholders' from fraud moving forward. This is not an Apple Pay versus Interchange argument...

BK 

I don't see why folks are surprised to see Apple asking for Analytics data. if I were to build a service similar to ApplePay, I would like to know all the details they are asking for to improve and promote my offerings to other players. Since Apple is taking the high stand of customer privacy here, they will need to somhow get the service volumes for various reasons mentioned above.

The V/MC token issue charge seems like a revenue opp. for the card networks. I am assuming its cheaper for banks for pay for tokenization to be added in the wallet vs. issuing and mailing a new plastic card in the event of theft/loss.

I assume when apple pay business case was brought up in these issuing banks a lot of guys would have said that let's consider the loss in interchange revenue as investment in marketing. After all you don't get a lot of opportunities to associate your brand with a hip and consumer friendly brand like Apple.