Apple Inc. unveiled its mobile payments platform on Tuesday along with its iPhone 6 and Apple Watch hardware that will support the transaction mechanism with NFC chips – but the service will be available in the U.S. only with no mention of plans to expand to Canada.
Canadians are actually used to not getting access to a lot of brand new tech services launched in the U.S. We just have to be jealous of the toys our neighbours to the south have until the product eventually expands to an international deployment. But with Apple Pay, excluding Canada seems a bit mystifying at first. After all, the NFC chip method of payment requires a tap-to-pay POS system and those are not widely deployed in the U.S. But in Canada, the faster adoption of the chip and PIN payments cards has seen the rollout of these POS systems at a much faster clip. Just take a look at this map from Bayberry Consulting, which shows adoption of these EMV card types at less than one per cent in the U.S. as of June 2012.
So what’s the hold up? According to Bank Innovation writer Ian Kar, Apple first negotiated a discounted transaction fee rate from American banks before going forward with Apple Pay. Not only has Apple negotiated for the lower “card present” rate when payments are made via an iPhone or Apple Watch, but it has also knocked 15 to 25 basis points (that’s hundredths of a percentage) off that rate. By taking on some liability and using two secure element storage areas on its devices, plus biometric authentication required to complete payment, Apple won the lower rate.
Apple’s deal with the major credit card issuers means it doesn’t technically need to negotiate deals with Canadian banks. It could work directly with credit card firms to process transactions that consumers use at already-present POS terminals in Canada that accept the tap-to-pay method. But it wouldn’t receive the favoured rate it has negotiated in the U.S. and that would eat away its profit margin.
Whether or not banks will be interested in working with Apple in Canada is really up in the air. Some banks have taken steps to capitalize on the presence of tap-to-pay POS terminals in Canada by partnering with carriers and credit card issuers on their own apps that can complete payments on Android and BlackBerry devices that are NFC-chip enabled. For example, CIBC has launched an app allowing $50 and below transactions via a credit card it issues and can be stored on the phone with carriers Rogers and Telus.
Banks may feel the advantage of having their own app that can complete payment creates a better customer connection than simply being thrown into Apple’s PassBook. It’s also not clear if Apple will approve developers that want to make use of its payments capability, accessing the Secure Element and NFC chip.