The Apple Pay fee structure provides important insight into how Apple positioned itself within the traditional card payments ecosystem. Rather than replacing banks or payment networks, Apple Pay relies heavily on existing issuers, Visa, and Mastercard to support transactions while collecting a fee from participating financial institutions. Reported agreements called for Apple to receive 15 basis points on credit card transactions and a fixed fee on debit transactions.
The arrangements also illustrate how Apple sought visibility into the performance of its payment platform. Participating issuers were reportedly required to provide extensive transaction data covering purchase volumes, transaction types, leading merchants, and average purchase amounts. Meanwhile, payment networks assumed important roles ranging from tokenization to collecting Apple’s fees, highlighting the degree to which Apple Pay was built around—and dependent upon—the established card payment infrastructure.
An equity analyst with Keefe, Bruyette & Woods has seenthe agreement between credit card companies and issuing banks relating toprocessing Apple Pay payments and has confirmed the previously disclosed 15basis point fee per credit card transaction and .5 cents per debittransaction. In addition, the creditcard networks will collect Apple’s fees and transfer those funds to Apple. In addition to the fees, Apple requirescard-issuing banks offer Apple Pay to at least 95% of their MasterCard or Visacards issued.
The analyst reports that“The term sheet lays out data points in “almost three dozen” categories,Sakhrani writes. The data include things like purchase volume data forboth debit and credit cards, in-store vs. in-app purchase mix, the top 100merchants by purchase volume, and the average purchase amount.”
The analyst, Sanjay Sakhrani, believes that the paymentnetworks are highly involved in processing payments, but doesn’t explain inwhat ways.
“Visa and MasterCard,beyond the security aspect of tokenization, seem to be playing a largeoperational role for Apple in the platform, which is interesting and makes themquite relevant,” he writes.
The metrics that are being requested by Apple are notsurprising. Apple needs to have some way of monitoring the success of Apple Payand they’ve developed a scorecard of sorts to achieve that goal. Outside of tokenization and the relatedrouting, clearing and settlement responsibilities which are the normal rolesfor the payment networks, it would be interesting to see what other operationalroles Sakhrani writes about for MasterCard and Visa.
The Apple Pay fee structure demonstrates that Apple’s entry into payments was less about circumventing the traditional card ecosystem and more about finding a valuable position within it. Issuing banks, Visa, and Mastercard continued to perform essential functions, while Apple provided the consumer-facing technology and experience that could encourage greater use of mobile payments.
The extensive performance data required by Apple also suggests that the company intended to closely measure adoption and transaction behavior as Apple Pay expanded. Understanding the roles played by issuers and payment networks is therefore critical to evaluating both the economics of Apple Pay and its broader impact on the payments industry.
Overview by Ron Mazursky, Director, Debit Advisory Service for Mercator Advisory Group
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