Banking News

Aussie banks negotiate with Apple over payments fees

(18 August 2015 – Australia) Australia’s big banks have been in negotiations with Apple as the multinational corporation looks to offer Apple Pay.

A big issue of the negotiations is over the banks not wanting to give the world’s largest technology company a slice of the A$2 billion in fees that banks earn each year.

These interchange fees are paid by merchants for the use of payments infrastructure.

At present in the United States, Apple earns around 15c on every US$100 of transactions.

It is asking for the same amount of interchange fee in Australia.

This amount is a sticking point for the big banks as interchange fees in Australia are about half the US level – equivalent to around 50c per A$100 of transaction compared to US$1 for US$100 of transaction fees in the US.

Apple Pay allows users of an iPhone 6 or Apple Watch to use a tap-and-go terminal to pay for items by holding their fingerprint on the phone or double-tapping the face of the smartwatch.

But to be switched on in a market, Apple needs to strike a deal with banks to use the payments system.

It may not make as much money in the Australian market with most of the big banks offering similar services through their bank applications.

For the past two years Commonwealth Bank of Australia (CBA) offers users of Android or Apple the tap and pay feature as well as the ability to withdraw money from an ATM and other cardless services.

Westpac also allows customers to pay through tap-and-go through its bank app.

The Reserve Bank of Australia is trying to push interchange fees down even further, to an average of 30¢ per A$100 of transactions.

This has increased the concern between the banks and Apple in how to share the interchange-fee pie.

The big banks are also reluctant to open their payments infrastructure to Apple for two other reasons. First, because they are being forced by the RBA to tip hundreds of millions of dollars into building the New Payments Platform, new infrastructure that will have real-time capability, there are concerns about Apple seeking to free ride on this investment.

Second, the negotiations are also challenged because banks are concerned about the prospect of Apple getting in between them and their customer at the point of sale, as banks recognise that future revenue growth will come from being the "interface" when customers pay for goods and services, which will allow them to cross-sell products.