Apple Pay nets favorable transaction fees from banks, denied support from Walmart and Best BuyA detailed look at Apple's new Apple Pay mobile and online payments solution reveals the reasoning behind decisions from credit card issuing banks to not only adopt the service, but offer low per-transaction fees.
As explained by The New York Times, by supporting Apple Pay, major banks like JPMorgan Chase run the risk of losing potential revenue to the tech giant as it shoulders into the finance sector. But the partnerships were struck anyway, thanks to Apple's vast market reach and new threats to traditional credit card networks.
Part of the concern stems from new out-of-network payment initiatives created by consortiums made up of powerful retailers, like the Merchant Customer Exchange, which counts Walmart and Best Buy as members. Not coincidentally, the two big-box stores on Thursday announced they will not be accepting Apple Pay.
"There are schemes that don't respect and honor the payment networks," said MasterCard's SVP for mobile product development James Anderson. "We want to invest in programs that respect our role in the ecosystem."
According to the report, Apple began working closely with banks and credit card network partners in January 2013. Apple Pay will launch with support from major companies Visa, MasterCard and American Express.
The publication reiterates rumors circulating prior to Apple Pay's debut on Tuesday, saying banks are offering Apple transaction fees lower than what is normally charged for credit card processing. These rates are not only lower than so-called "card not present" fees assigned to touch-less systems, but also traditional "card present" fees.
Banks are supposedly hoping to make up the difference by adding transaction volume driven by Apple Pay adoption. For example, customers may move from paying with cash or check to Apple's system.
In addition, The Times says credit card networks will not assume any additional cost in partnering with Apple, though analysts speculate Apple Pay may drive down interest rates. A large portion of credit card network fees go toward preventing fraud, but those expenses may drop once Apple Pay and Touch ID roll out, the report says.
Financial institutions have been researching and developing credit card technology on their own for years and Apple Pay is one of the few outside protocols to be adopted on such a wide scale. The system will also be the first to utilize a tokenized transaction process, which swaps out actual card numbers with generated codes, thus inhibiting would-be thieves' ability to capture usable personal data.
Apple has published a number of patents describing such a system, including properties covering Apple Pay's touch-less NFC implementation.
Apple Pay will be available on iPhone 6 and iPhone 6 Plus handsets, as well as the upcoming Apple Watch, which is expected to launch early next year.
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