Apple was sued earlier this week by a small credit union who accuses them of creating a non-competitive environment surrounding the Apple Pay digital wallet. Jonathan Stempel at Reuters reports further:
“According to a complaint filed in San Francisco federal court, Apple “coerces” consumers who use its smartphones, smart watches and tablets into using its own wallet for contactless payments, unlike makers of Android-based devices that let consumers choose wallets such as Google Pay and Samsung Pay.”
As Mercator has covered in the past, including my latest overview of the digital wallet space in June, Apple operates in a closed garden environment, restricting access to their wallet technology and NFC (Near Field Communication) chips. In contrast, Android devices operate in an open environment, allowing for multiple digital wallets to access the NFC chips within phones using the Android OS and with no direct costs back to either Google or the phone manufacturer. Apple currently charges 15 basis points on credit card transactions and half a cent on debit card transactions processed through Apple Pay resulting in them collecting more than $1 Billion in fees according to the lawsuit.
The plaintiff, Affinity Credit Union of Iowa, argues that Apple’s approach not only harms financial institutions, but also harms consumers utilizing the digital wallet by not allowing for personal choice that could result in using a product consumers feel is superior in either security or functionality.
“Apple’s conduct minimizes the incentive for the Cupertino, California-based company to make Apple Pay work better and make it more resistant to security breaches. ‘Apple’s conduct harms not only issuers, but also consumers and competition as a whole,’ the complaint said.”
The lawsuit follows similar actions in Europe where regulators also argue that Apple’s digital wallet does not provide a competitive environment. Affinity is seeking class action status in its complaint.
Overview by Jordan Hirschfield, Director, Prepaid Advisory Service at Mercator Advisory Group