Apple sued for having a monopoly on iPhone’s Tap-to-Pay

A proposed class action lawsuit is strived at Apple Pay, claiming that Apple has an illegal monopoly over contactless payments on the iPhone, allowing it to force card issuers into paying fees.

Unfortunately, the suit is being booted off by Iowa-based Affinity Credit Union, which issues debit and credit cards compatible with Apple Pay. Still, the company’s lawyers hope to make it a class-action case so other card issuers can join the lawsuit.

Apple creates over $1 billion annually by charging credit card firms up to 0.15 percent per transaction in Apple Pay fees. Yet, those same card issuers don’t have to spend anything when their customers use “functionally identical Android wallets.” The suit alleges that Apple violates antitrust law by making it, so Apple Pay is the only service able to carry out NFC payments on its iPhones, iPads, and Apple Watches. It also says that Apple prevents card issuers from passing on those fees to customers, so iPhone owners don’t have any incentive to find a cheaper payment method.

As we’ve debated during the Epic v. Apple trial, a case like this can hinge on what a judge decides the relevant market might be — here, the plaintiffs say Apple has a monopoly on “Tap and Pay iOS mobile wallets.” But even if a judge agrees that’s true, they could still decide that there’s no absolute monopoly because customers can consistently switch to Android, where other mobile wallets exist.

Lawsuits aren’t automatically endowed with class-action status — a judge has to determine whether or not to grant that. However, the law firm taking the case for Affinity, Hagens Berman, has a bit of a track record with class-action suits against Apple. For instance, it was involved with getting developers a $100 million settlement after alleging that the App Store’s rules were unfair, as well as with the ebook price-fixing case that ended with Apple returning around $400 million to customers.

The lawsuit’s goal is to change the Apple policies that move all contactless payments to go through Apple Pay and create the company to reimburse card issuers for illegally charging the plaintiff’s claim fees.

It isn’t the only challenge Apple faces over how it runs Apple Pay. The EU recently objected that third-party developers can’t use the iPhone’s NFC system for payments, claiming that the restrictions lead to “less innovation and less choice for consumers for mobile wallets on iPhones.” Now, the company could also face a legal battle over the issue in the US.

Apple Pay is digital wallet assistance and mobile payment by Apple Inc. that permits users to make payments in iOS apps,  in person, and on the web using Safari. It is supported on the Apple Watch, iPad,

iPhone, and Mac. However, it is not available on any client gadget that is not made and sold.

It digitizes and can substitute a credit or debit card chip with a PIN at a contactless-capable point-of-sale terminal. It does not need Apple Pay-specific contactless payment terminals; it can operate with any merchant that accepts contactless payments.

In addition, it adds two-factor authentication via Touch ID, Face ID, PIN, or passcode. Devices wirelessly convey with point-of-sale systems using near field communication (NFC), with an embedded secure element (eSE) to store payment data and execute cryptographic functions securely. Apple’s Face ID and Touch ID for biometric purposes authentication.

Initially launched in the United States, Apple Pay is available in Argentina, Australia, Bahrain, Brazil, Canada, Japan, Kazakhstan, China, Colombia, Costa Rica, and Hong Kong. It is also available in Israel, Armenia, Macau, Mexico, New Zealand, Singapore, South Africa, Taiwan, the United Arab Emirates, Palestine, Peru, Qatar, and Saudi Arabia. In addition, it has all nations of or with territories in Europe.

Apple Pay supports international payment schemes—like American Express, Mastercard (including Maestro), and Discover. In addition, it has a country-specific domestic payment scheme like China’s UnionPay, Japan’s JCB, Australia’s EFTPOS, Saudi Arabia’s Mada, France’s Cartes Bancaires, Canada’s Interac, and Germany’s Girocard. Participating banks vary by region.

Apple Pay can also ride some public transport networks through credit/debit cards or dedicated travel cards like JR East’s Suica, the San Francisco Bay Area’s Clipper, the Chicago Transit Authority’s Ventra, and Hong Kong’s Octopus Card.

Apple Cash is a feature that allows the transfer of money from one user to another thru iMessage. When a user accepts a payment, the funds are deposited in the recipient’s Apple Cash card, available for immediate use at Discover merchants. Alternatively, the user can transfer the balance to a nominated bank account via ACH transfer. Unfortunately, Apple Cash is only available in the United States.

Apple Pay does not generate additional fees for users and merchants. A cardholder has a contract with the card issuer. A merchant has an agreement with an acquirer. The acquirer holds a contract with the card issuer. In Switzerland, participating card issuers spend for the service. In 2020, Swiss banks spent a fixed commission of 0.275 CHF (US$0.26) quarterly on each card to Apple.

Additionally, they expended 0.12% on credit card transactions and 0.17% on web or app-based transactions. Swiss antitrust controls require that an acquirer delivers a maximum of 0.44% of the transaction amount to the issuer. The competition commission calls this amount an “interchange fee.” As a result, Apple costs between 27% and 39% of the credit card issuers’ income acquired from the acquirer.

Other retailers’ previous multiple unsuccessful efforts have built mobile payments services, including PayPal, Walmart, Target, Google Wallet, and Softcard. However, they said that previous actions did not solve customer inconvenience issues and felt that Apple Pay potentially did.

Mobile payment market fragmentation was partly due to Apple’s refusal to enter. Apple has a history of allowing “first movers fail” with an early service version before discharging “a more polished interpretation of the same idea.”

Dieter Bohn named Apple Pay the “week’s most revolutionary product,” the announcement “a definitive Apple instant of simplification and integration,” and the collaboration between payments services and Apple “an infrequent piece of collaboration and agreement.”

Nathaniel Popper of The New York Times directed the banks’ coordination level with Apple as “elaborate” and expressive of mutual “preparation and investment.” Some analysts counted that the service could reduce the standard credit card transaction fees since fees traditionally cover credit card fraud. In addition, the banks were willing to work with Apple in the face of efforts like Bitcoin and the Merchant Customer Exchange, which seek to work around the card networks.

Apple revealed that more than one million credit cards had been recorded on Apple Pay in the first three days of its availability, making it the most comprehensive mobile payment system in the US.

There were 220,000 participating retailers when it was established. In addition, Apple Pay can be employed with American and British payment cards at consistent NFC-based payment terminals outside the United Kingdom and the United States.

Target’s CEO Brian Cornell said they would be open to obtaining Apple Pay eventually after the transformation to chip and PIN technology is accomplished, but they remain active with MCX. On January 22, 2019, Target revealed the roll-out of Apple Pay support to all of its US stores.