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Yahoo Finance: ‘Apple Pay Sides With Credit Card Industry Over Consumer Interests’

Aaron Pressman, writing for Yahoo Finance:

Apple has regularly delighted its customers with cool products on its way to becoming the most valuable company in the United States. But it hasn’t always stood up for its customers’ best economic interests.

Take the case of Apple Pay. Apple partnered with the three major credit card networks, Visa, Mastercard and American Express and the big bank card issuers such as JP Morgan Chase. That is likely a smart move from a business perspective, because so many Apple customers are frequent credit card users and prior mobile payment services have had trouble gaining much traction.

But the partnership decision also meant Apple was taking sides in a long running war between the credit card industry on one side and retailers and consumer advocates on the other.

Retailers typically pay 2% or more on every credit card purchase, costs that cut into their margins and raise prices for all shoppers.

First, the headline. I think it’s clear that Apple Pay is siding with the credit companies and banks — but they’re not pitted against consumers, they’re pitted against retailers. It’s retailers who want to reduce the use of credit cards (and the resulting fees). Not consumers. Any consumer who doesn’t want to use a credit card can simply not use a credit card. (They can still use Apple Pay with debit cards.) Apple Pay is only allowing us to more easily and securely use the credit/debit cards we already have. For consumers, nothing is worse post-Apple Pay (transaction fees are not higher — the banks pay Apple’s 0.15 percent cut), and much is better (security, privacy, and convenience).

I understand the argument that the 2-3 percent processing fees that retailers pay for credit cards are ultimately passed on to consumers in the form of higher prices, but for consumers that can be offset by cash back and reward programs from their card providers.

I don’t understand how this article amounts to anything more than “Apple should have used magic” hand-waving. What could Apple have done differently that would have actually worked, without involving credit card processors? Remember, Apple Pay doesn’t require retailers to install Apple Pay-specific POS terminal hardware. It famously works with the standard NFC hardware that’s been out for years. Building atop the existing credit card infrastructure is fundamental to people’s willingness to try Apple Pay and to retailers’ ability to accept it. Pressman is implicitly arguing that Apple should have somehow reinvented the entire retail electronic payments industry, without the help of the banks or credit card companies, and presumably with the cooperation of retailers. But we see with CurrentC/MCX the sort of things the retailers would have demanded of Apple in such a hypothetical systems.

Update: Another point. Who is to say that Apple Pay won’t add additional non-credit-card payment options going forward? This is just the start. But the start needs to be something that gets the whole thing off the ground.

Wednesday, 29 October 2014