Apple Pay is near ubiquitous in the US despite the relative lack of terminals to support them. But in Australia, those terminals are all over the place yet the only card accepted on Apple Pay is American Express; a card not issued by the major banks.
Why?
For those who don’t know, Apple Pay is as convenient as a tap and pay card but with the security that no one can use it other than you because of the finger print identification. It came to Australia and Canada last week but only with AmEx. I have used it this week and it works beautifully. As magically as Apple claim.
With iPhones capable of doing this the now largest set of iPhones out there, why is the use of Apple Pay so constrained in Australia but not in the US.
In this morning’s SMH, Ed Husic, a Labor politician, lays blame at the big banks and specifically at some sort of collusion or coordinated boycott by them of Apple.
Normally when politicians suggest the banks are colluding they are off base; tapping into our generic distrust of banks. But this time around, it is hard to come up with an alternative rationale.
The card issuing market is supposed to be relatively competitive and the banks pay a ton of money in terms of loyalty programs to get users to use them. As Apple Pay makes it easier to do just that, why isn’t competitive pressure driving adoption?
The banks appear to be claiming that Apple are negotiating for too high a fee. That may be true but two things run counter to it. First, Apple are providing a real cost saving in terms of radically decreasing the probability of card fraud through the touch ID system. Second, this hasn’t been a problem in the US and the UK. Why would Apple be different? I suspect they are offering exactly the same model to the banks as AmEx.
Now one possibility is that the banks actually earn margins over the fraud costs on transactions and so Apple eliminating those costs threatens their business.
But another that I am unable to readily dismiss is that there is some coordinated conduct going on. I am not saying that there is but, in my opinion, I am struggling to provide alternative explanations. Credit cards is one area where the banks cooperative in order to have a system and for that reason the Reserve Bank and ACCC have always paid closer attention to it. The question is: where are they now?
Core Economics 
Is Apple Pay only using the finger touchpad? Access to the phone has pin as being the primary entry with finger touch as a secondary alternative.
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Joshua,
Are you perhaps chasing butterflies? Apple Pay is interesting technology, and Apple’s end-to-end product control allows Apple to overcome some of the problems with Google Wallet which has failed, but Apple Pay is still tiny in the total world of transactions services. It’s fun, but just at this moment it is commercially fairly irrelevant. It will get here soon enough.
And by the way, comparing technology adoption among Australian banks with that of US banks does not leave a favorable balance with US banks; think paper cheques (checks if you like). The BPay system in Australia is maybe not as good as similar capabilities in Scandinavia, but it is miles ahead of the US banks. And what about pin numbers on credit cards that are now quite uniformly enforced in Australia for in-store purchases? The skimming of credit cards in the US is massive. Oh, and maybe go to CitiBank and ask for a copy of your TD account statements for the past two years, now that a fun way to waste a couple of hours.
It would bring joy to my heart if you and your colleagues in academia focused your efforts on the big ticket items that make the Australian banking oligopoly such a racket. The big ticket items are the lending margins, and the near total absence of price competition in favour of every imaginable form of non-price competition. And why would the Reserve Bank do something so stupid as to order banks to restrict lending for mortgages, and so give them a total free-kick to raise lending margins? These are big issues and the economics profession has gone missing.
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