Apple Pay Fees Vex Credit-Card Issuers

To change the way some Apple Pay transactions are processed, according to some. This change will reduce the fees that banks pay to Apple.

According to people familiar with the matter and a document seen by Businesshala, Visa plans to implement the change next year. Apple executives have told Visa officials they oppose the change, the people said. The two companies are in discussion and it is possible that the planned change will not start.

Currently, banks pay the fee to Apple when their cardholders use Apple Pay. Under the new process planned, the fee will not apply to automatic recurring payments such as gym memberships and streaming services.

The dispute reflects a long-running tension between the tech and finance giants. Companies like Apple and Amazon.com Inc.

Consumer payments have been expanding over the years. Banks often bargain with them for fear of being left behind. But deals don’t always work out: Alphabet Inc. NS

For example, Google is dropping plans to introduce bank accounts to users. Apple said in a statement that “our banking partners are an important part of the growth of Apple Pay.”

The company said, “Our bank partners continue to see the benefits of providing Apple Pay and invest in new ways to implement and promote Apple Pay for our customers for secure and private in-store and online purchases. “

Major networks including Visa and MasterCard Inc.

There are effective gateways between banks and Apple Pay, as they help to load banks’ cards into mobile wallets. The change will apply to Visa-branded cards, though other networks may follow suit.

Mobile wallets are smartphone apps on which people can load their debit or credit-card credentials and use their phones instead of tangible cards to make payments. The transaction fee is charged to the buyer’s card.

When Apple introduced Apple Pay in 2014, the iPhone had already discontinued the music player, camera, and GPS system. Banks and card networks are worried it will displace card payments as well.

Banks agreed to pay 0.15% to Apple for every purchase made by their credit cardholders. (They pay a separate fee on debit-card transactions.) Those charges account for most of the revenue Apple makes from its digital wallet, according to people familiar with the matter.

The terms had the potential to be uniquely attractive to Apple. Banks do not charge Google for its Wallet.

Visa and MasterCard also agreed to make an unusual concession to Apple: Apple will be able to choose which issuers it will allow on Apple Pay and which issuers will accept cards, according to people familiar with the matter. Visa and MasterCard generally require that all entities that accept their credit cards must accept them. Apple agreed not to develop the card network to compete against Visa and MasterCard, the people said.

But since then, customers have been slower to adopt Apple Pay than bank and card network executives expected. And some bank executives were outraged when Apple launched its own credit card with Goldman Sachs Group in 2019 Inc.,

People familiar with the matter said, because it made Apple a direct competitor.

Apple said in a statement that it “works closely with approximately 9,000 banking partners to offer Apple Pay to customers in approximately 60 countries and territories.”

Visa has shared its planned technological change with at least a few banks in recent months. A document reviewed by the Journal explains the new process that doesn’t mention fees, but details a change to so-called tokens issued by Visa for mobile-wallet payments.

When consumers load their credit cards on Apple Pay, Visa issues a special token that replaces the card number. This allows the card to work on Apple Pay and also helps protect the card in a potential data breach, among other benefits.

Visa is planning to start using a separate token on recurring automatic payments. This effectively means that after making the first payment on the subscription, Apple will not receive a fee on the following transactions.

According to people familiar with the matter, some of the larger banks first tried to lower their Apple Pay fees around 2017, but were not successful.

By: AnnaMaria Andriotis

AnnaMaria Andriotis reports on credit cards for The Wall Street Journal. She covers Visa, Mastercard, American Express and Discover as well as the big banks’ credit-card divisions. She also writes about consumer credit broadly, with a focus on issues that have a big impact on U.S. borrowers. She has been a reporter with The Wall Street Journal since 2014 and got her start at Dow Jones more than 10 years ago. You can email AnnaMaria at annamaria.andriotis@wsj.com and follow her on Twitter @AAndriotis.