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Apple is opening up its tap-to-pay technology to third parties in light of pressure from the European Commission, which payments experts suggest could bring new business opportunities. But is it all too good to be true?
In January, the European Commission said that it was seeking feedback on new commitments from Apple to open up access to its near-field communication (NFC) technology, following a four-year antitrust case.
Apple has said that it will allow third-party mobile wallet and payment service providers (PSPs) to access its NFC functionality, in a bid to address the commission's competition concerns.
This will be enabled through a set of application programming interfaces (APIs) and will be free of charge, without having to use Apple Pay or Apple Wallet.
“Apple’s commitment to providing access to its NFC functionality for third parties aligns with the trend of opening up finance and payments through APIs,” commented Jakub Górka, who sits on the European Commission’s Payment Systems Market Expert Group.
Górka, a professor of finance at the University of Warsaw, pointed out that Apple is not the only big tech player or financial intermediary that has been hesitant to transition from a closed ecosystem to an open one.
“Nevertheless, Apple has undeniably been one of the most persistent companies in defending its strategy for proprietary hardware and software,” he said.
“Therefore, a big bravo to the EU DG COMP!” he continued. “It is not the first time that EU services have proven effective in anti-competition proceedings, considering Visa and Mastercard's commitments in the past regarding interchange fees.”
Stakeholders can feedback to the European Commission until February 19, addressing whether Apple has struck the right balance with its commitments, and some are already sceptical about whether this is the case.
"The commitments made by Apple do not commit to open the NFC antenna on the Apple Watch,” said Andrea De Matteis, founder of De Matteis Law.
“This means you could have a competing wallet on the iPhone but not on the Apple Watch,” he said.
“Consumers will not install a competing wallet if they cannot also use it with Apple Watch as they prefer an integrated experience. Another open question is whether the competing wallet will work as well as Apple Pay for transit.
A whole new market
The announcement has triggered excitement in the payments industry, considering the new opportunities that could arise across the ecosystem.
"Companies like us are getting access to a whole new market,” said Ruben Nielsen, vice president of sales and development at Shift4, a payment processing and technology solution provider. “This will benefit everyone apart from Apple."
Copenhagen-based Nielsen said that this happened a lot faster than expected. “Apple is known for stretching as long as possible before doing anything. People expected a lot more phases legally.”
He argued that this will be “quite a game-changer”.
“When you make an in-app payment, Apple is taking 30 percent,” he pointed out. “Many cheaper alternatives will now come in and charge as little as one or two percent. Apple is going to lose revenue unless they have a master plan."
Others were, however, more sceptical about how many cost-savings this could bring.
"It does raise new security concerns. Before, as a provider, you didn't have to worry about anything in this space,” said Matthias Boulliung, consultant at Fintech Solution Expert. “Now, liability could fall on you if security breaches or fraud happen.”
He told Vixio that “with newfound freedom comes responsibility”.
“Everyone was pushing to have it open, now it is going to be, and I am curious as to who will leverage this,” he said. “Firms are going to have to factor in fraud, and this could cancel out any cost-savings from saying goodbye to Apple Pay."
Removing the gatekeepers
“Making NFC technology accessible will increase the competition and improve the payment services for already established players and wallets,” suggested Jens Olsson, advisor and consultant to the fintech industry.
Olsson said that the commitments are significant and even suggested that a few PSPs are already planning to make use of the technology to improve their services.
“Ultimately it will benefit consumers and businesses in the EU,” he argued. “There is a strong need for increased competition. Key market participants and platforms acting as gatekeepers, is not in the best interest of a well functioning marketplace.”
The idea of so-called gatekeepers has been a recurring theme for the EU throughout this mandate.
Beyond the investigation into Apple, upcoming legislation such as the Digital Markets Act, which has allowed the EU to ascertain that Apple is legally a gatekeeper, and the EU’s digital wallet regulation, enforce stricter rules on the big tech player than ever.
According to De Matteis, what happens next will depend on the strategy that banks take. “Apple Pay built a very consumer-friendly model and a competing wallet will need to gain that kind of reach. Why would you switch from Apple Pay with a user experience that works well to something else?”
He continued that this means giving a better product. “For example, also providing you access to your bank account, possibly even a super app that links several accounts, by leveraging open banking.”
“Short term we can expect established digital wallets to make use of the NFC technology for tap and pay,” speculated Olsson.
However, the Stockholm-based consultant suggested that other means of payment that are currently not relying on NFC technology for payment initiation could make use of it in the near future.
“As the user coverage gets expanded significantly with access to Apple’s users, it becomes more attractive,” he said. “For example, open banking and account-based-payments, as well as wallets that aren’t solely relying on cards are currently making use of QR codes for payment initiation in-store.”
Olsson added that the likes of the European Payments Initiative and its Wero wallet, which begins piloting this year, and open banking providers can make use of NFC “as a natural next step as the user experience and speed of transaction improves dramatically”.
“PSPs will need to create something that is appealing to consumers and is easy to switch to,” said De Matteis. “It remains to be seen how easy it will be to switch from a technical point of view, especially if they have to go into settings and switch their default payment choice to change app."
Górka agreed that the competition in the mobile wallet market will increase due to Apple’s commitment to the European Commission. “However, I would not anticipate an immediate gain for Google Pay, Samsung Pay, or others.
“Let’s remember that Apple users, including Apple Pay users, are extremely loyal to their beloved brand,” he pointed out.
“Nevertheless, this is certainly a step in the right direction, enabling NFC access to the Apple platform based on transparent, fair, and non-discriminatory criteria.”
