Apple Pay reward card

Apple Pay certainly has a long way to go before it becomes ubiquitous. The service is currently available on a limited basis in the United States and the United Kingdom and is yet to hit major markets such as Canada, Japan, Germany, Italy and more.

In Australia (or colloquially, Down Under), banks are reportedly reluctant to give up on interchange fees in exchange for seamless technology and are said to loathe a third-party providing an extra layer between them and their customers at the point of sale.

A new report by Australia’s The Sydney Morning Herald newspaper offers a rare look into a web of complicated relationships between mobile payment service providers like Apple on one side and financial institutions on the other.

A major sticking point in the negotiations between Apple and Australia’s top banks are so-called interchange fees, or the money the banks collect from merchants in return for use of their payment infrastructure.

It’s (always) about the money

Banks won’t share a slice of the $2 billion they earn in interchange fees each year with Apple nor are they willing to let the Cupertino firm earn about fifteen cents on every $100 of transactions that it makes in the United States.

“Australia’s big banks will not agree to this level given that interchange fees in Australia are about half the US level,” equivalent to an average of $0.50 for $100 of transaction compared with about $1 for $100 of transaction fees in the US.

Commonwealth Bank of Australia (CBA) CEO Ian Narev said Apple Pay will have a hard time signing up Australian banks because it offers the same functionality that “we have had in the market for 18 months to two years” via an app for Android phones.

He did not say if the Commonwealth Bank has any plans to cater to its iOS-totting users by creating an iPhone app. “Take-up, however, has so far been low, with most customers preferring to pay with their cards,” reads the report.

Sounds like the Australian banking sector is just being greedy and doesn’t want middlemen to stand in the way of mobile payment transactions.

The report goes on to note that Apple may choose to sign up a few small banks for Apple Pay in order to gain transaction-account market share, which might prompt the big boys to reconsider their stance.

Why would Apple free-ride on our investment?

In an even more puzzling move, Australia’s major banks reportedly don’t want Apple Pay to use their payments infrastructure that they’ve spent hundreds of millions of dollars building. The new infrastructure will have real-time capability and “there are concerns about Apple seeking to free ride on this investment.”

Last but not least, the banks don’t want Apple to get in between them and their customer at the point of sale. Major banks believe that future revenue will come from being the “interface” when customers pay for goods and services, which will allow individual financial institutions to cross-sell products.

“This multi-layered infrastructure has been designed to promote competition and drive innovation in payment services,” the report adds.

But if the banks really invested in this payment infrastructure “to promote competition,” they shouldn’t fear a real competitor like Apple using it in the first place.

We shall prevail

CBA CEO does understand that the mobile payments market and contactless transactions are up for a major disruption.

“If it not Apple, it might be Google; if it is not Google, it might be Samsung; if it is not Samsung, it might be Amazon; if is it not Amazon, it is going to be someone else,” he said.

Apple Watch Apple Pay teaser 001

Nevertheless, he’s convinced banks will prevail in this fight.

“But we have got customers, we have got distribution, we have got brand, we have got product. So as long as we are adding to that investment and have the right execution focus, we should be able to be really competitive,” he said.

The only thing that they don’t have, if I may add, is a seamless solution that customers would actually want to use. Most mobile banking apps are just terrible and I suspect apps offered by Australia’s major financial institutions are no better.

Sounds to me someone is in for a rude awakening as the global banking landscape gets reshaped by ubiquitous smartphones and services like Apple Pay and Android Pay.

Wrapping it up

To sum up, here’s what the general mobile payment structure looks like in regard to Apple Pay and common practices:

  • In the United States, Apple earns about fifteen cents on every $100 of transaction.
  • In the United Kingdom, however, banks were successful in negotiating Apple down to a much lower fee so the iPhone maker is receiving only a few pence for £100 of transaction.
  • Interchange fees in the United States are about $1 for $100 of transaction.
  • Interchange fees in Australia are fifty cents per every $100 of transaction, or about half the US level.
  • Banks in Australia earn a whopping $2 billion in interchange fees collected from merchants each year.
  • Apple has been asking for the same amount of interchange fee in Australia.
  • Australia’s major big banks won’t agree to Apple’s terms.
  • Banks also don’t like Apple Pay as it’s another layer between them and customers, preventing them from providing “overlay” services at the point of sale.

Who will blink first, do you think?

Source: The Sydney Morning Herald

  • Chris

    Up until now, I’ve been 100% happy with ComBank in regard to the level of security they offer along with their perfectly designed iOS app and internet banking experience to beat.

    As their customer, I’m more than happy to pay a small fee to use Apple Pay rather than them paying for it as then they can continue earning money without loss.

    Sadly, and like many things in Australia, we get left behind because of corporate greed such as this without any regard to what the consumer really wants.

    Since reading about this yesterday, I’m already planning to contest this decision as we in Australia deserve the same opportunities that the rest of the developed world have.

    • Wilber Alexander Flores

      Dude you guys are in Australia and get apple pay before us here in Canada. How stupid is that… I wish I had it. I got a 6plus and a apple watch and still no apple pay. Oh how we get left out…, enjoy it man 🙂 fight the struggle !

      • Chris

        We don’t have it, that’s the point on this article and my response to it. At the moment, we’re in the same boat as Canada.

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      • zoLa siWisa

        Also in South Africa… 🙁

  • jo3y

    The banking system in .au and .us are completely different (when i traveled to SF in May)
    The .au banks have invested a lot on their own form of NFC based payment, and most shops have incorporated VISA Paywave and MasterCard PayPass all across Australia.

    I maybe saw 1-2 ‘tap-and-pay’ system when i was state-side, however they’re EVERYWHERE in Australia.
    There’s no security chips on US credit cards (from what ive been told), and signing receipts are still the common form of authentication on credit cards.

    Its totally different in Australia, were a PIN is mandatory, and tap-and-pay is essentially everywhere!

    • mrvautin

      I agree. Apple pay is far less “needed” in Australia than in the US.

      • Chris

        You’re essentially saying that my right to use such a technology isn’t warranted simply because because of the country in which I live.

        I’m sorry, but I should have the same opportunities that the next person does and shouldn’t be told no simply because there are already developed technologies.

      • :D

        Well, the world is corrupt. I’d say you that since you can’t really do anything about it, you should just start appreciating what you do have. People in less developed countries probably won’t see stuff like this for about another 5-10 years at the least. I know how you feel though. I’m here in the UK, still waiting for my dumb banks to set up Apple Pay.

      • Chuck Finley

        It doesn’t matter that you want the same opportunities as other countries, what it boils down to is cold hard money.

        If a system isn’t going to make money in a certain market then it won’t happen, it’s simple as.

      • Chris

        I’m willing to pay for it as a customer of the bank, a small fee is worth been able to use NFC payments on my iPhone.

    • “The .au banks have invested a lot on their own form of NFC based payment, and most shops have incorporated VISA Paywave and MasterCard PayPass all across Australia.”

      Sounds precisely the same here in Canada, just the US that seems to now be adapting NFC payment…no point adding and paying for a proprietary service when multiple other devices already support what’s in place at no extra operations cost.

  • Christian Biehl

    Why greedy banks??? Did you read your own article???

    ““Australia’s big banks will not agree to this level given that interchange fees in Australia are about half the US level,” equivalent to an average of $0.50 for $100 of transaction compared with about $1 for $100 of transaction fees in the US.”

    • Chris

      They earn about AUD$2b each year off fees, that’s why.

      • Christian Biehl

        But you did see that banks in the U.S. take the double amount of fees??
        Now the banks in the US are still getting 0.75% of the transaction where in Australia it would be then down to 0.35%

    • David

      Totally agree with this, if Australia banks interchange fees are half than in the US, shouldn’t Apple ask for half what they take in the US?

    • ‘Cause to Zibreg, Apple can’t be the greedy one.

    • Chuck Finley

      Ziberg is literally Apple’s biggest fanboy.

  • Faisal

    100% True, they are greedy. I used CBA’s paytag on my iPhone, sticks on the back of the phone and i wasted A$2.99 on it, as it was useless. They have an app for android phone that works with NFC but for that you have to open bank’s app, go into payment, put security code and then tap. I bet Apple Pay or Samsung Pay is the best solution for them to get rid of their own silly methods to pay through phone.

  • Loay Al-wesi

    In Australia, you pay around 2$ for each time you withdraw money from an ATM that isn’t your bank (For example your bank account is in ANZ bank and withdrew money from Westpac ATM) … this is really crazy if you are withdrawing 20$ … I had to study the area before I withdraw money

    • Christian Biehl

      But that practise I know as well in other countries where I lived (Ireland, Germany). You just need to familiarise yourself with which bank your bank partnered up and that’s it. I think

      • Loay Al-wesi

        True … but the fees are really high ! I live in Kuwait now, the fees to cross withdraw is 100 Fils, which is 0.33 US$ !

  • Martynet

    Apple should setup their own bank 🙂 And I would be the first customer. I’m from Ireland and god knows when apple pay will come here. There is not even an Apple Store at the moment. Which is really weird, considering that Ireland is the apple bridge between the US and Europe.

  • roberte

    I remember when Australia’s biggest telco Telstra ignored the iPhone. Telstra had, and still has, the biggest and fastest mobile network here. Of course Telstra changed their tune because the majority wanted iPhones and churned to Telstra’s competitors to get one.

    Same will happen with banking. That said, personally I’m not interested in it!

  • Micrones

    Every company is in this to make money, why the banks are being called greedy eludes me. Apple is not doing this for free or for customers convenience and if anyone believes Apple is being magnanimous is a fool.

    Each country’s dynamics are different and that is the nature of international market
    Banks sells all this services to make money and that is capitalism/free market as it is which is wonderful
    People should stop complaining about the banks being greedy

  • Dabble

    Well NFC has been in use in other countries long before Apple pay, I think the only greedy one here is Apple – the problem here is that Apple did not want to use the current system but Rather created a sorta new but similar layer to force banks to use it. The same happened with AirPlay, .ACC format, Thunderbolt.
    Bottom line Apple wants money and will used his user base as leverage … That’s clear