In the wake of the Apple Pay launch in Norway, the fact that only Apple themselves is allowed to provide NFC-based payments through the handsets, making Apple Pay the only option for contactless payments through an iPhone has become a hot topic, and Apple has been reported to the Norwegian competition authority for exploiting their dominant market position to prevent competition. Despite this, it is still unlikely that NFC access for payments will be opened for third-party developers anytime soon.
To give some context, Apple has an estimated market share of more than 60 percent of the smartphone market in Norway. Based on this, it is claimed that Apple may be in breach of the national competition laws. Another issue regarding Apple Pay is that the solution is based on international schemes such as VISA and Mastercard, which represent a significant cost increase compared to national schemes for retailers.
This has also become an issue in Denmark, where Apple has an estimated market share of 70 percent of the smartphone market, and Apple is also reported to the Danish competition authority for automatically choosing VISA over the national scheme, Dankort. This again is an issue under IFR (Interchange Fee regulation) that states that the consumer should be able to choose which payment scheme that will be utilized when conducting a payment.
It is not only payments that call for Apple to open up NFC access. The Dutch government is pushing for Apple to open the NFC functionality on iPhones to the Dutch authentication system DigiD, as this authentification method is widely used for identification in the Netherlands through username and password. However, for some services, stronger authentification methods require an ID document, and the chip in this can be read with the NFC function on a mobile device. This is possible with an Android device. Norwegian fintech spinoff from NDB, IDmee is another solution that utilizes this technology.
Based on this, the expectations where high that Apple would announce full third-party NFC access through the Core NFC framework for iOS 12 at WWDC this year. The expectations fell short as it became clear that NFC-access for third-party developers is still limited to fairly limited use cases.
Despite strong arguments for Apple to open up NFC-access to third-parties, it is unlikely that this will happen anytime soon.
The legal battle for NFC-access has already been fought and lost by Australian banks. Already back in 2016, leading Australian banks submitted an application to the ACCC (Australian Competition and Consumer Commission), urging for access to NFC for third-party payment solutions.
As a response to the claim for NFC access by Australian banks, Apple states that the increased competition claim doesn’t apply, as if the banks were given NFC access, they could start specifically charging customers for using Apple Pay, discouraging the use of the mobile payments platform and thereby reduce competition with their own proprietary wallets. Offering NFC access to the banks also creates significant costs, including negative effects on consumer security and data privacy, the ability for users to select their payment card at the point of sale, and a depreciated customer experience.”
The request by the banks was eventually denied by the ACCC, as the benefits were outweighed by the downsides of granting access to NFC.
The ruling stated among other reasons that mobile payments are still in its infancy, and in rapid change. it was also stated that this would give Apple a competitive disadvantage towards Google in the competition for mobile payments. On this note, it is worth mentioning that Google is paying Apple 3 billion USD per year to remain the default search engine on the iPhone, despite no technology lock-in on search. Another argument from the ruling states that Apple Wallet and other multi-issuer digital wallets could increase competition between the banks by making it easier for consumers to switch between card providers. which corresponds fairly well with the intentions of PSD2.
However, the main reason while Apple will remain unwilling to open up NFC-access is to maintain their competitiveness in the battle for mobile payments. While this market is still at an early stage, it is estimated to amount for 3,4 trillion USD by 2022, with a compound annual growth rate of 33.4 percent. This is a global battleground and Apple could easily be considered an underdog compared to Chinese competitors WeChat Pay and Alipay have a combined 1 billion users, followed by PayPal with 210 million users as of August last year and Apple Pay with 127 million users by the first quarter of 2018. While Apple is working to close that gap, proximity-based mobile payments such as NFC have proven to be a slow train coming despite continuous efforts to promote Apple Pay.
Mobile payments is undoubtedly a global clash of the titans, where Apple has entered the ring as a serious contender and seeks to utilize the iPhone as a competitive advantage. Opening up for third-party payment apps will significantly weaken that advantage, and that is why it is highly unlikely that Apple will grant NFC access anytime soon.