The UK launch is a big step in the global rollout of Apple Pay. Australia is likely high on the target country list due to the relatively high penetration of Apple devices in the country and the large contactless infrastructure base that is both already in store and widely used by consumers. As yet no dates are set for Apple Pay to launch in Australia. Apple is likely keen to launch now, but Australian players are less sure.
Australian banks do not have 0.15% to give away
There are a few key drivers here, number one of which is Apple Pay’s payment model, in which Apple is thought to collect up to 0.15% of every credit card transaction among participating banks. As yet it is unclear what rates UK banks are paying, with some suggestion that varying rates may have been negotiated with particular banks. Furthermore, the UK will soon see a decline in overall interchange rates brought about by the upcoming PSD2 regulations, which may impact pricing models for Apple Pay. In Australia, however, the challenge is that interchange rates are already much lower today due to regulatory drivers, meaning the banks cannot and will not be able to hand over such a big chunk of what is already a low-margin business. With less room to maneuver, Australian banks are more reluctant to take the plunge.
One aspect currently shaking up the market is the apparent battle going on in the background between Apple and Visa; Ovum believes that a lot of Australian banks are waiting to see how that plays out. Visa tokenization technology is a key feature of the Apple Pay platform. Visa, however, has launched a new framework called the Visa Digital Enablement Program (VDEP) that acts as a way for any Visa bank to connect to any participating wallet platform in a smooth process without the need for individual agreements between each bank and wallet. The big catch is that the business conditions associated with VDEP mandate no pass-through fees on transactions, meaning no wallet can collect revenue per transaction. Android Pay is the first major wallet to sign up to VDEP.
Apple is understandably unhappy that it had an agreement with Visa to use its tokenization technology and that Visa is now asking Apple to agree to its business terms, sinking the Apple Pay revenue model. This is all happening behind the scenes, but a lot of players will be watching and waiting. With no per-transaction fees involved, at this rate Android Pay could possibly arrive in Australia before Apple Pay.
Ovum has spoken to a few retailers that are skeptical about the opportunity for Apple Pay in Australia on the grounds that the country already has wide adoption of contactless cards, which are extremely convenient. In its current form Apple Pay actually takes potentially longer with minimal clear benefit; without a strong incentive to use it (such as loyalty) there is little real point. The key issue here is what Coles and Woolworths do – they are the players to watch in terms of creating acceptance. Apple could launch Apple Pay with the support of some but not all of the big banks, but it will definitely need both of the big supermarkets.
“Visa’s Digital Enablement Program is shaking up the economics of mobile payments,” IT0059-000017 (July 2015)
“Payments innovation needs to go global for true disruption,” IT0059-000009 (April 2015)
“Android Pay is the next step in Google’s mutating payments strategy,” TE0003-000834 (March 2015)
2015 Trends to Watch: Payments, IT0003-000628 (November 2014)
Gilles Ubaghs, Senior Analyst, Financial Services Technology