EU Ruling Against Apple To Shake Up Payments, Experts Tell VIXIO

May 10, 2022
EU payments players consider a future in which Apple Pay loses its monopoly on iOS devices and the the technology giant is forced to open up its device to competitors, bringing more opportunities for payments innovation.

EU payments players consider a future in which Apple Pay loses its monopoly on iOS devices and the the technology giant is forced to open up its device to competitors, bringing more opportunities for payments innovation.

At the start of May, the European Commission made public that it has told Apple that it is abusing its position with Apple Pay.

This followed a lengthy investigation into the Silicon Valley giant in June 2020.

"We're waiting for Apple to react, but there is no way at the moment that we will be able to get hold of a device with access to iOS NFC,” said David Poole, global head of mobile solutions at payments acceptance platform MYPINPAD.

A lot of the focus and the reason that this has been brought to the attention of the commission is that no one can access a non-Apple wallet on the device, he said. “In the payments world, there has been a move towards payments acceptance on commercial off-the-shelf devices, otherwise known as COTs, which, for contactless payments, work fine on Android, but can't be utilised on Apple."

In its statement of objections, the European Commission said that by limiting access to a standard technology used for contactless payments with mobile devices in stores via near-field communication (NFC), Apple restricts competition in the mobile wallets market on iOS.

In particular, the regulator takes issue with the decision by the tech giant to prevent mobile wallet app developers from accessing the necessary hardware and software on its devices, to the benefit of its own solution, Apple Pay.

"This type of problem is really of interest to regulators. They want to do these cases and are all talking to each other,” said Damien Geradin, founding partner of Geradin Partners, an antitrust law firm.

Geradin continued to point out that there is a historical context to the move into payments that has triggered this fallout between the company and regulators.

“The problem fundamentally is that Apple was for a long time focused on hardware, and if you look at the balance sheet, the bulk of revenue still comes from hardware,” he said. “But since Tim Cook has become the CEO, there is a greater focus on services.”

Although the market for hardware is competitive, once you have acquired an Apple device, you're a prisoner of the ecosystem, he continued: “Apple uses the control of its ecosystem to boost their services through various forms of self-preferencing.”

A welcomed intervention

This decision by the European Commission proved music to the ears for a number of EU-based payment experts.

“Serving as a gatekeeper of technology needed to conduct mobile payments can be very harmful for competition and further innovation down the road,” said Jens Olsson, a Stockholm-based fintech advisor.

“Especially when Apple and other bigtechs have taken notable steps into the payments market and have a considerable amount of market share.”

According to Olsson, this action marks a clear statement from the EU towards realising the commission's vision of a competitive, home-grown and pan–European payments market in the region.

“This in turn will enable consumers and businesses to benefit from competitive and innovative payment services that rely on accessible infrastructure to an even larger extent,” he said.

The decision by the commission against Apple was hardly a surprise for many experts who have been following the situation closely. Many are now dwelling on what these changes could mean to the status quo for mobile payments.

“As Apple is blocking the NFC, this is long overdue. We will see what happens when the decision comes, but for now, Apple are able to charge such high prices and banks must pay up significant amounts if they want their card in the wallet,” said Andrea De Matteis, founder of De Matteis Law, an Italian law firm focusing on payments and antitrust.

A change would be significant as it would mean a lot more of the money will be kept by the EU's banks, he suggested. “In turn, they could pass on these savings to consumers."

"In one way or another, things will change for Europe, and the benefit of more competition will be evident with lower prices,” he continued. “There will be challengers too that will be able to innovate with wallet solutions."

There is a gap in the market for mobile wallet providers, Poole said. “There is a pent up demand for use of iOS devices for payment acceptance, as this will broaden the choice for merchants who love Apple.”

Consumers will also benefit from the emergence of super apps that will utilise the NFC access, he suggested. “For these to grow in the EU, they will need to be granted that access from Apple."

Super apps have been a success in other jurisdictions, particularly in Asia.

WeChat and Alipay have exceeded 1bn users, and Zalo, a Vietnamese super app, has surpassed the 100m mark.

Battle won, but war not over

Sources are divided, however, on whether Apple will eventually give in regarding opening up its payments software to developers.

Regulation, ultimately, will determine that it may be forced to with the introduction of the Digital Markets Act (DMA) and the proposed European Digital Identity Wallet, which the EU has made clear will need to be usable via private solutions.

"I do think Apple will bow to the pressure eventually,” predicted Poole. “American organisations are skewed by a belief that if it works in America, it should work everywhere.”

Payments, however, are not really like that for those involved in the value chain, he said. “Even though the cardholder basically does the same, each region has its own quirks and requirements. As a tech enabler, opening the NFC will rapidly increase innovation.”

“This is not only a consumer interest,” Poole continued. “There are a lot of business providers who want their solutions to work. Square, for example, incorporated hardware terminals to work with Apple."

Others are not so sure, however.

“Will they concede? I don't know. Of all of the technology companies, Apple is the most stubborn. They never concede anything,” said Geradin.

The European Commission still wants to carry on with this and will not drop the ball, in spite of the DMA being implemented, he continued. “Yet, Apple may still litigate and refuse to comply. My gut feeling is that they will fight until their final soldier.”

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