Peter Guidi's Blog

“For their return home, the Greeks dedicate this offering to Athena”. Apple Pay and increased mobile payment fees.

In mobile payment, Retail Payment on October 23, 2014 at 12:00 pm

The Blogosphere has been alive with information on mobile payment and Apples introduction of Apple Pay. The flame-out of PayPal Off-line, Google, Amazon, ISIS (or whatever), and MCX (whenever) have the experts writing and talking about how, when and where mobile payment will become common place.

Enter Apple. While Apple may indeed be the first broad based mobile wallet to achieve consumer adoption, Retailers will remember Apple as Odysseus’ and Apple Pay as a wooden horse bearing higher payment fees. New fees may start arriving in the first statements and no doubt merchants will be asking about the tokenization, wallet storage and API fees. According to legend, “after a fruitless 10-year siege, the Greeks constructed a huge wooden horse, and hid a select force of men inside. Once inside the walls of Troy, the Greek force crept out of the horse and opened the gates to allow the Greeks to enter and destroy the city of Troy.” A fruitless siege might be a good way to describe the tug of war between retailers and banks; abetted by the technology, to describe the painful march to mobile payment. Apple brings scale and technology, but it is their Trojan Horse approach to payments fees and merchants opening the doors to Apple Pay seems eerily like the Troy opening it gates.

Apple deserves applause for devising a strategy that hides their transaction costs within the issuer as a share of interchange rather than charging the merchant directly. Herein the lies the “Trojan Horse” and the promise of higher fees in the future. Published reports indicate Apple will be paid 15 basis points by the issuer (Banks). Retailers need to ask themselves, how long before this cost is shifted to the merchant by way of a higher acceptance fees? My guess, about the same time Apple reaches 10 million Apple Pay consumers.

The big unknown is how high will fees go? The answer is as high as possible. Merchants often say there is little competition in the card fee world and therefore it’s a monopolistic business. Apple Pay can only add cost and another partner that needs to earn profit. 20 years ago banks convinced retailers to accept card based payment using low fees, the results are clear. As merchants open the gates and let Apple Pay in, they should hardly be surprised when Apple Pay is earning 100 basis points rather than 15, and it won’t be the issuer paying the bill.

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