Interchange fees, hubris key challenges to Australian Apple Pay rollout

Commonwealth Bank of Australia's CEO Ian Narev said Apple will find it difficult to market Apple Pay to Australian banks on innovation alone, because the country's financial institutions have offered touchless payment technology for years, reports The Sydney Morning Herald.

"By most global standards, the capability that the Australian banking sector has generally, and Commonwealth Bank has specifically, to provide for customers is ahead of a lot of the other markets around the world where Apple has done well," Narev said. "There is functionality associated with Apple Pay that we have had in the market for 18 months to two years."

According to Narev, Apple Pay made a splash in the U.S. because tap-to-pay transactions were not previously available. While not completely true — Google Wallet launched as a U.S.-only product in 2011 — Apple's system was one of the first to gain traction in a market where wide acceptance of NFC-based transactions floundered.

Perhaps more of a concern for Australian banks is Apple's cut of interchange fees. Apple is reportedly negotiating for a slice comparable to its U.S. operations, thought to stand at 15 cents per $100. The publication believes major banks are loathe to considering interchange fees in Australia are half that of the U.S. at roughly 50 cents per AU$100 transaction. And the Reserve Bank of Australia is pushing for even lower fees pegged at around 30 cents for AU$100.

Additionally, Apple Pay and its iPhone and Apple Watch interfaces represent an extra layer between banks and their customers at the point of sale. Australian institutions want to leverage this so-called "interface" level as a platform to sell other products, something that would prove difficult if Apple owns the space, the report said.

Finally, the publication argues Apple faces an uphill battle in negotiating from position of weakness, saying Apple Pay adoption is "sagging" in the U.S. just as competing services like Samsung Pay linger on the horizon. A questionable report published earlier this month by PYMENTS.com claimed consumers were losing interest in Apple Pay, though the firm only presented results without adequate background on its data gathering techniques.

In any case, a successful Australian deal looks to be a long time coming. If and when Apple Pay does launch in the region, the final fee structure might be closer to a model established by UK banks, which supposedly negotiated much lower rates compared to Apple's U.S. program.