Apple has reportedly negotiated deals with several leading issuers to extend card present rates to Apple for all transactions involving their cards with Apple’s new mobile payments scheme. On top of that concession, they have agreed to give Apple back part of the card present interchange fees – 15 to 25 basis points – on each transaction. The issuers include JP Morgan Chase, Bank of America, Capital One, Citi and American Express.
Card present rates make sense because Apple will be using TouchID (biometrics), Apple’s secure element and NFC to both add security and additionally authenticate the user using geolocation data, thereby theoretically reducing fraud.
The card present discount will not apparently be universal, though, even among Apple’s new contactless payment methods. On both the new iPhones and its watch, “Apple will also launch an eCommerce/mCommerce buy button in EasyPay. This will not receive any card present or preferential rate,” wrote Tom Noyes, a financial technology investor and former head of channels at Citi whose report was widely cited. “This is less a function of in-App purchases and more a function of 3rd party E-Commerce sites having a EasyPay button for fast IOS checkout.”
Because it is the card networks that set the interchange rates, and the negotiation is reported to have been done with issuers, it would appear that the only way that Apple could be getting any money from issuers is if they negotiated that the issuers extend a rebate on the fees they collect from the merchants as a condition of allowing their cards in Apple’s digital wallet. It is unclear at this time whether Apple is cutting deals with merchants to enable payment using its mobile payments scheme and passing some of Apple’s savings back them in the form of lower fees or rebates
A Bank Innovation report said that Apple’s deal may open the door to similar arrangements for others. “On Apple’s side, the deal with the issuers was the ‘polite’ way of entering the financial services industry. We’ve heard of only one other merchant that has received a price break similar to Apple’s–cough, cough Walmart. Who knows whether Apple’s deals will foster additional price reductions on card transactions for retailers.”