Apple has inked a deal with major financial institutions — American Express, JP Morgan Chase, Citigroup, Capital One, and Bank of America — to lower card transaction fees as the iPhone maker is preparing to step into the world of mobile payments, reports Bank Innovation.
Rumours of Apple launching its own mobile payment platform have gained traction during the past week as more evidence has surfaced of an NFC (near field communication) chip being used with the iPhone 6.
It is known that Apple has about 800 million active iTunes accounts linked to credit cards, so it was a question of when, not if, Apple would step into this emerging industry. However, there were challenges the company needed to overcome, and processing fees were one of them.
If you are a business owner using any of the available mPOS (mobile point of sale) solutions, you may have already experienced that there is a huge difference between card-present and card-not-present transactions. Considering the higher fraud factor of the latter, financial institutions charge more for card-not-present transactions.
What Apple did was convince them to consider the transactions processed through its mobile payment platform as card-present transactions. The company managed to obtain a 15- to 25-basis-point discount for such transactions, according to people familiar with the matter.
According to Tom Noyes, while banks control the card-present/not-present rates, the networks negotiate the rates with payments processors. The differences can be dramatic. Apple was apparently adamant about getting the card-present rates and told issuers that it would assume some of the fraud risk inherent in every transaction by providing a secure element via biometric authentication (its TouchID feature) and location data provided through an NFC chip. The Apple payments platform will work with all of their cards.