It was originally rumored that Apple had negotiated lower transaction fees with large banks for its new Apple Pay mobile payments system, but it turns out that the Cupertino-based company might have an even better deal in place. According to Bloomberg, citing three people with knowledge of the arrangement, Apple will reportedly receive a cut of bank fees from financial institutions when a consumer uses an iPhone in lieu of a credit or debit card for purchases.
Apple will collect a fee for each transaction processed by major banks, including Chase Bank, Bank of America and Citibank. While this will give the tech company a portion of the more than $40 billion generated annually in swipe fees, lenders expect to benefit from consumers spending more money through smartphones and other mobile devices. It also gives banks a chance to tap into Apple’s more than 800 million iTunes accounts with credit cards linked on file.
“The timing is right with customer behavior, the customer experience is right, and elements have come together around how the ecosystem is evolving for this to be a game changer,” Gavin Michael, JPMorgan’s digital chief, said in an interview. “We’ve seen — certainly in our customer base — a drive to the mobile channel.”
The agreement between Apple and financial institutions is reported to build upon the existing fee structure in place for credit and debit cards in the United States, in which merchants pay a fee totaling around 2 percent of the purchase price for credit card transactions. These swipe fees enable banks to cover fraud costs and offer reward programs to consumers. Bloomberg’s sources did not specify the size of fee that Apple collects, or whether it’s tied to a specific purchase value.
Apple announced Apple Pay at its special keynote yesterday afternoon as a one-touch mobile payment system powered by the new NFC chip on the iPhone 6 and iPhone 6 Plus. The system stores your payment info in an encrypted and secure fashion, with the help of Touch ID and the new Apple A8 chip. Apple Pay will be supported at over 220,000 U.S. merchants, including Macy’s, McDonald’s, Walgreens, Nike, Bloomingdale’s, Whole Food Markets, Petco, Staples and more.
Forrester Research predicts the mobile payments market to become around a $90 billion industry by 2017.
Will you use Apple Pay for making purchases?