PARIS — After changing the way we listen to music with the iPod and kickstarting the smartphone era with the iPhone, is Apple Pay going to revolutionize how we pay? The least we can say is that the Cupertino giant has done everything to maximize its chances of succeeding in its objective: to relegate wallets to museum pieces.
The strength of Apple Pay lies in the way the company integrates it in the payment ecosystem. Instead of confronting the banks on their own terrain, as others have done, Tim Cook and his group chose to become their allies. It’s a win-win situation for Apple, as it can promise its clients not to use their banking data while pledging to help banks fight against fraud, which represents an estimated 0.145% of the sums paid in card transactions.
Apple’s authentication system, which uses the iPhone 6’s Touch ID fingerprint sensor, coupled with an encryption process of all data linked with the bank cards, indeed reinforces the security of Apple Pay.
In exchange, the company will take a share of the commissions cashed in by the banks. That amount is estimated at around 0.2% per transaction made via Apple Pay, which leaves U.S. banks with 0.3% to 0.8%, depending on the payment mode (debit or credit card).
But before Apple can export its new service across the Atlantic, it will need to adapt its model to fit the European system. “Apple’s prism seems entirely American. Whether it’s because of its commercial or security approach, this economic model cannot be implemented that easily in Europe,” warns Gilbert Arira, CEO of the Groupement des Cartes Bancaires CB.
On the Old Continent, interchange fees are indeed significantly lower, especially in France where they only represent 0.28% of a transaction. This proportion makes it difficult for a new player to get a worthwhile share. Not to mention the fact that many banks have already invested a lot of money in e-wallets, with which Apple Pay would be competing.
Fraud is also less frequent in Europe, as the chip-and-PIN cards are a lot more secure than the magnetic strip cards used in the U.S. In France, fraud represents 0.045% of the sums paid by cards, some 30% less than in the U.S.
So what economic equation will Apple offer to European banks? However complex it might be, “Apple is a norm-maker,” admits a banker. In other words, it would be best to work hand-in-hand with the tech retail company than against it.
