EU probe of Apple Pay

17 Jun 2020

Short Blog today. Before jumping in.. I’ve been working on 2 significant blog series

  1. Consolidation in Financial Services. Given convergence of several forces, we are in the midst of a consolidation of networks, and services. The pandemic has placed new strains on sub scale players, which will provide the basis for significant M&A. My involvement in the deal flow has slowed the writing down.  
  2. Big Tech, Neo Banks and Financial Services. Looking to give the “inside baseball” look at what is really happening.

I’ve got over 100 pages of material… hope to get it out in bite size chunks in a few weeks.

EU and Apple Pay

From today’s WSJ and also on Forbes, the EU announced 2 investigations:

Investigation 1 – App Store/In App Payment (text of the EU probe) Key items mentioned

  • “investigations concern in particular the mandatory use of Apple’s own proprietary in-app purchase system and restrictions on the ability of developers to inform iPhone and iPad users of alternative cheaper purchasing possibilities outside of apps”
  • The Commission will investigate in particular two restrictions imposed by Apple in its agreements with companies that wish to distribute apps to users of Apple devices:

(i)   The mandatory use of Apple’s own proprietary in-app purchase system “IAP” for the distribution of paid digital content. Apple charges app developers a 30% commission on all subscription fees through IAP.

(ii)  Restrictions on the ability of developers to inform users of alternative purchasing possibilities outside of apps.

Investigation 2 – Apple Pay – contactless/NFC (text of EU probe)

  • “The investigation concerns Apple’s terms, conditions and other measures for integrating Apple Pay in merchant apps and websites on iPhones and iPads, Apple’s limitation of access to the Near Field Communication (NFC) functionality (“tap and go”) on iPhones for payments in stores, and alleged refusals of access to Apple Pay.”
  • “the Commisison has concerns that Apple’s terms, conditions, and other measures related to the integration of Apple Pay for the purchase of goods and services on merchant apps and websites on iOS/iPadOS devices may distort competition and reduce choice and innovation.”

Analysis – App Store/In App Payment

Investigation 1 will likely result in substantial changes to Apple’s In App Payment revenue share model in Europe. Per Apple’s developer guidelines (Section 3.1.5a)

“If your app enables people to purchase goods or services that will be consumed outside of the app, you must use purchase methods other than in-app purchase to collect those payments, such as Apple Pay or traditional credit card entry.”

Apple looks to protect consumers by providing consistent controls for billing and dissemination of customer information. As a reminder, while use of credit cards provides for anonymity, the entry of necessary billing information ties a consumer to a card and breaks the privacy chain allowing apps to directly collect both consumer information AND payment credentials. While Apple’s position is very sound, the 30% charge for using Apple Pay is very hard to justify. The high cost, combined with the restriction/mandate does not impair consumer choice but it does materially limit merchant options. My view is that Apple will likely be required to either drop the in-App purchase fee or to open other in-app payment methods.

Opening up Apple to other in-app payment methods is a slippery slope to reduced privacy. While this is a key service revenue channel for Apple, the value of maintaining the leading consumer privacy platform greatly exceeds they value of in-app revenue share.

Apple Pay NFC/Secure Enclave

We have seen this story before, most recently in Australia. In 2016, the big 4 AU banks worked to force open Apple’s Secure Enclave. Apple won the ruling with Australia’s competition commission in 2017, but the banks refused to adapt until just 6 months ago.  The commissioner stated “Apple Pay would increase competition between the banks, making it easier for consumers to switch between card providers by “limiting any ‘lock-in’ effect individual bank wallets may cause”.’

Apple’s antagonists are in 2 primary camps: the MNOs/GSMA and Banks. Per my 2014 blog, the MNOs spent 8 years perfecting their vision of NFC only to have it thrown under the bus by Apple and Google. MNOs wanted the locked “wallet” to be in the SIM (and under their control). Similarly, large banks invested in their own wallets, they wanted to enable their proprietary mobile banking app to access the NFC radio.

The primary FRICTION in ApplePay/NFC is in Apple’s mandatory bank issuer agreement, which stipulates a 15bps revenue share. In 2014, the US banks were absolutely furious with this fee… and their angst has not abated. To make matters worse, Apple’s launch of Apple Card with Goldman created a new issue for banks. Domestic debit networks (ie Canada/Interact, Australia/EFTPOS, China/CUP) seem to be immune from this fee (but I have not been able to validate).

It is important to note that Apple remains the primary user of both the Visa Tokenization Service (VTS) and Mastercard’s MDES, with SRC growing as a #2. While Google certainly wanted to use these services the top 5 banks pressured Visa and MA to avoid in a failed attempt to force them into the TCH’s token vault. A move made even stranger with Visa’s recent acquisition of Rambus/BellID (the TCH’s token service (see blog). The point here is that Apple’s bank integration is VERY tight and secure.


Apple’s win in Australia is a likely template for the success they will have with the EU. The core approach of Apple here is to protect consumer privacy AND the integrity of the platform. Opening up other applications to Apple Pay means merchants would no longer be able to trust that the “tap” was of consistent quality and validity. The most likely impact to Apple in this investigation will be the 15bps fee, and gaining commitment that all card types (example a Sepa Debit card) will be accepted to the wallet.

Perhaps the EU commissioner views anything that EU banks support with suspicion. The EU certainly has a plethora of “Mobile wallets”, but Apple does not “limit” consumer choice. US readers think about it this way.. Paypal is not an option in the Apple wallet, but rather the underlying instrument. Does the consumer lose here? Apple can logically make the case that is it better protecting consumer information, rather than introducing yet another intermediary.

2 thoughts on “EU probe of Apple Pay”

  1. Hey Tom, love the info you put on your blog. I’ve learned a lot from here. Thank you. I’m curious what you think about buy now, pay later (BNPL), maybe in the view of Visa & Mastercard networks and direct players like Afterpay, Klarna and Affirm. Since you own some PayPal, maybe you can also talk about the opportunities and threats for them in regard to this sub category in payments. Thanks

    1. I don’t know BNPL. In general all sub prime lenders are in an a state of uncertainty over the ‘shape” or the recovery AND future stimulus. All have substantially increased reserves for NCLs. Winning here means very strong merchant relationships with healthy merchants AND the right macro economic environment to support the buyers. Not a risk category for me..

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