Apple Negotiates Lower Transaction Fees With Credit Card Issuers for Mobile Payments Initiative

in_app_purchase_iconAs part of its upcoming payments initiative, Apple has reportedly negotiated deals for lower credit card transaction fees with several credit card issuers. According to Bank Innovation, Apple has entered into agreements with American Express, JP Morgan Chase, Citigroup, Capital One, and Bank of America.

The banks have agreed to allow all of Apple's transactions to be conducted as "card present," a set fee charged when a customer uses a card in a physical retail location. Typically, there's also a higher "card not present" fee that's charged when a card is used online, due to security issues. Apple's also managed to secure a lower "card present" fee on top of that, cutting its costs further.

Beyond that, Apple has also managed to bump down the actual "card present" rate by 15 to 25 basis points, according to people with knowledge of the talks. Normal "card present" discount rates, which are shared by issuers and networks but determined by the network, are about 1.5%, which means that Apple appears as though it will get around a 10% discount on the processing rate it will pay. Last quarter, Apple generated $4.5 billion of iTunes revenue -- this implies that Apple will save at least $27 million as a result of these deals with the banks. Of course, more revenue volume is expected upon launch of Apple's payments venture.

Apple has reportedly been able to negotiate this lower rate by ensuring banks that transactions will be secure, both through the use of the NFC chip which reports location, and through Touch ID, which will be used to authenticate transactions.

In addition to signing deals with several financial institutions, Apple has also managed to secure deals with major credit card companies Visa, MasterCard, and American Express, and it's also been speaking with various retailers about its upcoming payments service.

Rumors have suggested that Apple's payment service will allow iPhone owners to use their devices to make payments both online and in retail stores, possibly linking credit cards to existing iTunes accounts. Apple is expected to announce its mobile payments initiative during its September 9 media event.

Related Roundup: Apple Pay

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Top Rated Comments

Milese3 Avatar
127 months ago
You see, like the tablet, Apple is doing what it does best. Instead of inventing the tablet, it revolutionised the tablet industry and made people want one.

With NFC, Apple may not be the first to use it, however, they're likely to change the way people use it- enhancing it, for the better.
Score: 19 Votes (Like | Disagree)
markyr17 Avatar
127 months ago
This is very exciting :D If apple does it right, paying with smartphones may become the norm.
Score: 7 Votes (Like | Disagree)
PowerBook-G5 Avatar
127 months ago
That iPhone OS 3.0 In-App Purchase Icon...
Score: 5 Votes (Like | Disagree)
ianKent Avatar
127 months ago
And once again Apple defines what "an ecosystem" is to all the naysayers.
Score: 4 Votes (Like | Disagree)
osaga Avatar
127 months ago
You see, like the tablet, Apple is doing what it does best. Instead of inventing the tablet, it revolutionised the tablet industry and made people want one.

With NFC, Apple may not be the first to use it, however, they're likely to change the way people use it- enhancing it, for the better.

Thanks captain obvious
Score: 4 Votes (Like | Disagree)
monaarts Avatar
127 months ago
If this is true I think it confirms Touch ID is coming... The card not present additional fee is used for the banks to recoup losses because of the increased chance of fraud and therefor loss for the bank. I'd think the only way the banks would agree is if there was an increased security to ensure fraud isn't possible.

Matter of fact, if this is the case it would make my credit card more secure than using the actual credit card. iPhone/iWatch + fingerprint security > credit card with a signature
Score: 4 Votes (Like | Disagree)