Above a desk somewhere at Apple headquarters, someone has probably pasted the slogan “Another week, another trial”, and this week looks no different as the EU targets Apple Pay, or for to be more specific, how Apple limits the use of the NFC chip inside iPhones.
What is the claim?
The second charge in Europe this year, EU antitrust regulators alleged Apple was restricting competitors by denying access to the Near-Field Communications (NFC) technology it uses in its mobile wallet.
Apple received a Statement of Objections in which regulators detailed how it abused its dominant position in the markets for mobile wallets on iOS in violation of Article 102 TFEU.
Apple Pay has access to NFC input API, which the Company does not make available to third-party payment companies. However, other platforms allow third parties to access NFC technology to make such payments.
the EU statement says it “does not challenge online restrictions or alleged denials of access to Apple Pay for specific competitor products that the Commission raised concerns about when it opened the in-depth investigation into Apple’s practices”.
The case is different from the propositions in the EU Digital Markets Act, which will also affect Apple’s business. Apple faces intense scrutiny and regulation in most of its major markets, including the UK, US, Korea, Europe, Japan and elsewhere.
What the EU says
“In our statement of objections, we previously found that Apple may have restricted competition, to the benefit of its own Apple Pay solution. If confirmed, such conduct would be unlawful under our competition rules,” Executive Vice President Margrethe Vestager said in a statement.
Regulators say Apple wields significant market power in the mobile device market and dominates mobile wallets. The Commission argues that the company is abusing this power by restricting access to NFC technology on its devices to Apple Pay, to the detriment of competitors and consumers.
Apple will now have time to review the allegations and respond to them as part of the ongoing investigation.
The statement of objections should not be confused with a final judgment – although Vestager has already rejected counter-arguments about security and regulators seem deaf to users’ need for privacy.
What Apple says
In a statement provided to me, Apple defended itself by saying, “We designed Apple Pay to provide users with an easy and secure way to digitally present their existing payment cards and for banks and other financial institutions to offer contactless payments to their customers.
“Apple Pay is just one of many options available to European consumers to make payments and has ensured equal access to NFC while setting industry-leading standards for privacy and security. We will continue to work with the Commission to ensure that European consumers have access to the payment option of their choice in a safe and secure environment.”
It should be noted that Apple recently opened up the NFC chip to Apple developers for use with Apple’s Tap to Pay feature, which turns iPhones into card readers. This does not yet allow competitors to use the NFC chip to make payments from iPhones. apple too just published a report which showed how successful third-party apps could be on its platforms.
What’s the story?
Apple really started laying the groundwork for payment technology in iPhones years before Apple Pay was introduced in 2014. In 2010, it acquired contactless/near-field communications technology company VIVOtech and soon recruited sector expert Benjamin Vigier as a mobile commerce product manager.
Vigier was likely a key recruit to enable Apple’s plans; he also led the development of mobile payment systems for Starbucks and Paypal. This hiring was not random. Apple had already filed patents for the use of NFC technology by then, and speculation about Apple’s plans to hold airline tickets on iPhones had already begun.
When Apple launched the service, it was so far behind everyone else, but Apple Pay quickly eclipsed that of similar services from Samsung, HTC and others. It turned out that people making mobile payments wanted the brand’s trust, security, and biometric identity to seal those transactions.
Since then, Apple Pay has become probably the most widely used NFC-based payment system in the world; arguably the iPhone maker has done more than most to break down initial consumer resistance to mobile payment systems.
Why does this happen?
Apple is a victim of its own success. When the company introduced the iPod and launched its iTunes ecosystem, it was a small company fighting for survival against Microsoft and others.
The same basic business plan used by Apple with iTunes was then transposed around the iPhone and the App Store. Today, the company has become the most valuable technology company in the world, which means that it is subject to a different set of rules.
Whereas before it was a small actor who was struggling to position itself, today it has become a big company and must anticipate looks. It must also develop a new approach to this side of its business, while strengthening its income elsewhere.
It seems inevitable that the mobile payments space will get messy.
Arguably, most mobile payment systems have failed amidst industry-wide suspicions that appeared in 2010. Apple has built a much deeper currency of trust among its customer base and seems to have bigger ambitions in the financial services space. These ambitions inevitably pit the company against incumbents in the industry, so it’s no surprise to see regulators getting involved.
What’s at stake?
Money. If the EU finds Apple guilty, it could be fined up to 10% of its worldwide revenue, although it is unlikely to be punished that much. Apple Pay is used by more than 2,500 banks in Europe as well as more than 250 challenger banks and fintech services.
In the background, we also continued to speculate on Apple’s plans to introduce new payment services and expand Apple Card availability outside of the US. Coupled with this, we are also hearing rumors that the company may be planning to launch a Apple Plan as a Service.
What could happen?
Apple seems willing to fight tooth and nail to protect its strategy of making certain features platform-specific. Total control of its ecosystem has always been part of its approach, so this is philosophically in line with this strategy.
Nonetheless, the nuances of technology regulation cast a heavy shadow over the business at this time, and as with any conflict, resolution will ultimately be reached through a combination of negotiation and regulation.
It could take years, but the arguments made elsewhere about its ecosystem probably apply here as well.
I think the ultimate question will be how much Apple can charge third-party companies to access profitable parts of its system without being considered anti-competitive. And to what extent will regulatory activity dilute the user experience?
As events unfold, I imagine Apple will try to say that those who complain about its mobile payments business practices are trying to capitalize on its work, given other attempts to create systems as popular as its own. . have already failed.
This argument is unlikely to win regulators over to its position, but may help the company justify the right to demand a share of any future transactions made using its platforms on services provided by third parties. I doubt the latter will get a free spin.
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