Australian banks are incurring significantly higher fees for offering Apple Pay to debit cardholders than their counterparts in the US.
Banking Day has learned that Australian banks are paying between four and six basis points of the value of purchases when debit card users initiate payments through Apple Pay.
For over-the-counter transactions executed with an Apple Pay wallet a standard fee of four basis points is paid by the card issuing bank.
This equates to 2 cents on every A$50 transacted through the global technology company’s mobile wallet.
However, the standard fee rises to six basis points for in-app purchases and other card-not-present transactions. This equates to 3 cents on a $50 purchase.
While the fees set by Apple Pay in Australia appear modest, they are materially higher than the flat rate fee of half-of-a-cent levied on debit transactions in the US.
The marked deviation in Apple Pay’s pricing between the two countries indicates that Australian debit card issuers pay around three times the standard fee levied on US banks.
Details of the more lucrative Australian fee structure could attract the attention of Australian payments regulators who have been methodically screening fee structures in other parts of the debit market.
At the moment local debit card issuers appear to be absorbing the extra cost of linking customers’ debit accounts to Apple’s digital wallet service.
However, that would likely change as more customers adopt the global company’s digital wallet and magnify the costs borne by banks.
The fairness of Apple Pay’s fee structure could be tested by regulators when card issuers move to surcharge merchants or levy new fees on cardholders.
Apple Pay’s decision to impose higher fees in Australia might have been influenced by the comparative readiness of local consumers to adopt digital payments methods.
The boom in contactless payments in the last decade means that more than 85 per cent of debit cards issued in Australia are chip-enabled.
In the US a larger proportion of cards feature only magstripe functionality, which has inhibited growth of contactless transactions and digital wallets.
The relative willingness of Australian consumers to embrace new payment methods means there is less pressure on Apple Pay to throw pricing incentives at card issuers to link customer accounts to its wallet.
In other words, Australian banks and consumers might be viewed by global wallet providers as price-takers and “sitting ducks”.
Mozo banking analyst Peter Marshall said Australian demand for mobile wallet services such as Apple Pay was world-leading.
“There is no doubt that a rapidly growing number of consumers are embracing the mobile phone for everything,” he said.
“They find digital wallets the simplest way to do their banking.”
After mounting strong resistance to Apple Pay’s initial attempts to enter the Australian payments market three years ago, major banks such as CBA and National Australia Bank are now succumbing to pressure from customers to provide the service.
Two weeks after launching Apple Pay in January, CBA reported that more than 500,000 retail customers linked their debit accounts to the service.
That is remarkable growth by any measure but it also points to a ballooning cost line for the bank.
The thinking among some payments experts is that large banks such as CBA have been able to negotiate volume discounts on Apple Pay’s standard fee structure cited in this article.
However, confidentiality agreements signed with all card issuers mean that the cost of accepting Apple Pay in the Australian payments sector won’t become apparent to consumers, merchants and regulators until ADIs try to recoup losses.
“Until a regulator such as the Reserve Bank says the fees need to be disclosed, Apple Pay and the banks are going to keep that information to themselves,” said Marshall.
The leaking of Apple Pay’s standard fee schedule came as the country’s third largest deposit taker, the National Australia Bank, announced the launch of Apple Pay to its customer base. This takes to around 60 the number of banks offering Apple Pay to their Australian customers.
NAB’s head of customer experience Rachel Slade acknowledged that the decision to strike a deal with Apple Pay launch was done in response to requests from customers.
“We’re continuing to listen to customer feedback and take action to become the bank our customers want,” she said.
Westpac is the only major Australian bank not offering Apple Pay.