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Following Apple’s announcement that it will open up its payments ecosystem to third parties, the Consumer Financial Protection Bureau (CFPB) has asked whether the move constitutes a "meaningful shift" from the company’s former practices.
The CFPB has called on iOS developers to submit feedback on Apple’s new policies regarding the use of its near-field communication (NFC) chip in contactless payments.
At the end of August, CFPB director Rohit Chopra wrote a blog post on “promoting competition in payments”, in which he questioned the impact of Apple’s latest plans.
“The CFPB is working to better understand further details about Apple’s announcement, to determine whether it is a meaningful shift away from blocking competitive payments offerings from banks, credit unions and technology companies,” said Chopra.
“We encourage developers and others with a stake in Apple’s regulations on contactless payments to contact the CFPB’s Office of Competition and Innovation.”
Last month, Apple announced that developers in the US, UK, Brazil, Canada, Japan, Australia and New Zealand will soon be able to offer NFC transactions through their own third-party apps.
The feature will go live with the launch of iOS 18.1, the forthcoming version of the iPhone operating system, which is expected to be released in late October.
In iOS 18.1, developers will be able to access new application programming interfaces (APIs) that will allow them to program the NFC and secure element within the iPhone for a range of use cases.
These include contactless payments for in-store payments, car keys, closed-loop transit, corporate badges, student IDs, home keys, hotel keys, event tickets and merchant rewards cards.
To make a contactless transaction within an app that uses these APIs, users can either open the app directly, or set the app as their default contactless option in iOS Settings.
Developers wishing to use this feature will need to enter into a new commercial agreement with Apple, request access to the NFC and secure element, and pay the associated fees.
However, as Chopra noted, Apple did not specify either the fees or the conditions that developers will be subject to.
Why is Apple opening up its payments ecosystem?
Apple’s decision to open up its NFC chip and secure element to third parties is the result of growing pressure both from regulators and from developers.
As Chopra highlighted, in September last year the CFPB published a report analysing the growing “tap-to-pay” market in the US, which relies on access to the NFC in the consumer’s device.
The bureau found that Apple’s contactless payments rules are “very restrictive”, prohibiting NFC access to third-party digital wallets.
In effect, this ensured that the only way Apple device users could make contactless mobile payments was to use Apple’s proprietary payment service, Apple Pay, which sits within its proprietary Apple Wallet.
The CFPB noted that Google does not currently restrict access to the NFC chip on Android, but it could reverse this position in future.
“Mobile device restrictions such as those related to NFC can inhibit choice and innovation in consumer payments,” said the CFPB.
“This type of arrangement may also increase roadblocks to open banking reaching its full potential in the US.”
Six months later, in March this year, the US Department of Justice (DOJ) announced a major antitrust lawsuit against Apple, alleging monopoly practices across a range of smartphone markets.
A key element of the lawsuit is Apple’s prohibition on third parties accessing the NFC chip to facilitate contactless payments.
“Apple uses its control over app creation and API access to selectively prohibit developers from accessing the NFC hardware needed to provide tap-to-pay through a digital wallet app,” said the DOJ.
“While Apple actively encourages banks, merchants and other parties to participate in Apple Wallet, Apple simultaneously exerts its smartphone monopoly to block these same partners from developing better payment products and services for iPhone users.”
As noted by the DOJ, Apple leverages its restriction of the NFC chip to extract fees from card issuers, whose customers spend via cards linked to Apple Pay.
Since the launch of Apple Pay in 2014, Apple has charged these issuers 0.15 percent per credit card transaction and one half penny ($0.005) per debit card transaction, according to the DOJ. In contrast, Google Pay and Samsung Pay are free to use for card issuers.
“Apple’s fees are a significant expense for issuing banks and cut into funding for features and benefits that banks might otherwise offer smartphone users,” said the DOJ. “The volume of impacted transactions is large and growing.”
In its September 2023 report, the CFPB referred to analyst estimates that Apple generated more than $1.9bn in revenue from Apple Pay fees in 2022.
EU regulators leads the way
Finally, as covered by Vixio, Apple had already bowed to pressure in the EU to open up its payments ecosystem.
In August, Apple announced that within iOS 17.4 or later, developers within the European Economic Area (EEA) will be able to access the NFC chip to facilitate contactless payments via third-party digital wallets.
Apple’s new payments rules in the EEA came in response to an antitrust lawsuit filed by Epic Games, in addition to the bloc’s Digital Markets Act (DMA), which designates Apple as one of six “gatekeepers” of core platform services.
