Follow the money: Who benefits from the UK’s Apple Pay crackdown?

The UK wants to take a chunk out of Apple Pay, as the Competition and Markets Authority (CMA) moves to force Apple to open access to its 12-year-old contactless payment system to rivals.

The regulator has published a consultation document that proposes requiring Apple to allow competitors to use the near-field communication (NFC) chip on its devices to enable alternative payment systems on iOS  on “fair, reasonable, transparent and non-discriminatory terms.”

The regulator says action is required because UK businesses have complained that Apple’s existing NFC access arrangements are not commercially viable.

30% of UK adults use Apple Pay?

The regulator also revealed some interesting statistics concerning use of contactless tech in the UK:

• Contactless payments represent 39% of all payments, compared to just 3% of transactions a decade ago.
• 62% of adults currently use a digital wallet.
• 50% of those use Apple Wallet — which implies that around 30% of UK adults use Apple Pay.

“These proposals open the door to more innovation, more choice and economic growth, including in the UK’s important fintech sector,” said Sarah Cardell, chief executive of the CMA.

It’s not clear if those companies will take advantage of this forced liberalization. The CMA tells us that the only services that have done so in the EU, where Apple has already been forced to open up NFC, have all been transnational entities, including Vipps, PayPal, Klarna, Curve, and BBVA. Are consumers flocking to these services to rejoice in this new market liberalization? While this open NFC has only been in place a few months, I don’t think so.

Who will really benefit from this?

Cardell also said, “By removing barriers to entry, we can help create the conditions for brilliant British businesses with great ideas to develop new products and services here — from payment apps and digital IDs to travel passes and digital keys.”

That seems highly speculative to me, but I can see UK banks offering up digital payments directly via Apple’s NFC as the most likely outcome of the new rule. In a statement, David Geale, executive director for consumers, payments and competition at the Financial Conduct Authority, said, “Opening up this technology will also support the expansion of open banking, enabling more people to make payments directly from their bank accounts.”

I imagine the banks will turn out to be the real motivation here. To my mind, it suggests the sector wants to use regulation to muscle in on the ecosystem Apple has made and wants to make direct use of NFC on iPhones to cut Apple out of the revenue generated by these payments as much as possible. 

The CMA admits, after all, that part of the reason it began this work was because it had complaints from competitors. Lenders and fintech businesses have challenged the 0.15% fee Apple takes on credit card transactions carried out via Apple Pay. The inference isn’t hard to see. With 39% of all payments made by adults in the UK being contactless, those tiny payment processing fees look like profit to banking shareholders, and they want it back. 

Apple responds

They won’t get it all back. Even the CMA concedes that Apple deserves a “fair reward” for providing access via its platforms and ecosystem, but I doubt it will hang onto as much as it makes now.

In a statement, Apple said, “We do ⁠not believe the CMA should require Apple to adopt an approach with lower privacy and security protections. We will continue to engage constructively to reach an outcome that is in the best interest of our users.”

Privacy or profits?

Digging a little deeper, the proposals will demand technical changes from Apple. The two main globally used contactless technology standards are secure element (SE), which stores information on-device, and host-based card emulation (HCE), which stores data off-device. 

Neither technology was developed by Apple, and both are used across other mobile ecosystems. While Apple now supports HCE and SE in the EU to meet Digital Markets Act regulation, it has historically avoided supporting HCE to protect the privacy and security of customers. That is almost certainly because it sees risks in storing highly confidential payment data off the device. 

Payments on Apple’s devices are instead protected by secure element. European developers wanting to use NFC with HCE systems must apply for a specific Apple NFC/HCE entitlement and meet technical, security, and regulatory standards, which will likely be the approach Apple takes in the UK if the CMA gets its way.

Will consumers really benefit from this? 

I doubt it, but the move will almost certainly prise some money out of Apple’s grasp, which will then be shared among other corporate entities, some — though probably not all — of whom may even value customer privacy as much as Apple does. In the end, it’s all about the money, and someone will take a slice of it. Does it really matter who that is?

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