Apple Inc. was served with an antitrust lawsuit on Monday regarding its mobile wallet, Apple Pay.
Payment card issuers filed the class-action complaint, alleging that the tech giant is abusing its dominance in the mobile device market to ward off competition from other payment apps and charge card issuers fees just to increase its profits.
Customers can make purchases using their mobile devices with the help of mobile wallets like Apple Pay. Users can save credit and other payment cards on their mobile devices and make a safe payment to retailers with just a tap at the point of sale.
“Near Field Communication” technology, also known as “NFC,” is used to do this. Any smart device with an NFC chip can transmit a wireless signal to a payment terminal that supports NFC from a near distance.
At least 70% of Americans use mobile wallets, which more than 90% of U.S. retailers accept. The industry is worth a trillion dollars and is expanding exponentially. With a 43.9 percent market share, Apple Pay rules the US mobile payment industry.
Apple Pay made about two billion debit transactions in 2020 or 92 percent of all payments. Less than 10% of all payments were made using Google Pay, Samsung Pay, and other mobile wallets, with the latter accounting for only 3%.
In contrast to Apple, although GooglePay and Samsung Pay lead the Android mobile wallet segment, Android device users have access to various wallets, and issuers pay $0 when their cardholders use contactless cards.
Google, which owns Android, does not impose any limitations on who can use NFC technology on Android smartphones; this includes third-party digital wallets that compete with Google Pay.
On the other hand, Apple Pay is the only tap-and-pay mobile wallet that iOS users can use. According to the lawsuit filed by Affinity Credit Union,
“Having barred all competitors from its devices, Apple charges payment card issuers fees that no other mobile wallet ventures to impose. Whenever an Apple Pay transaction is completed on a U.S. issuer’s payment card, the issuer must pay Apple a fee—15 basis points on credit (.15%) and a flat 0.5 cents ($0.005) on debit. These fees generated a reported $1 billion for Apple in 2019, and this revenue stream—earned from card issuers—is predicted to quadruple by 2023.”
This is not the first time Apple inc. has been involved in an antitrust case. After completing a preliminary investigation, the European Commission issued Apple a statement of objections on May 2nd, 2022. In a press release posted on the European Commission website, Executive Vice-President Margrethe Vestager, in charge of competition policy, is reported to have said,
“Mobile payments play a rapidly growing role in our digital economy. It is important for the integration of European Payments markets that consumers benefit from a competitive and innovative payments landscape. We have indications that Apple restricted third-party access to key technology necessary to develop rival mobile wallet solutions on Apple’s devices. In our Statement of Objections, we preliminarily found that Apple may have restricted competition, to the benefit of its own solution Apple Pay. If confirmed, such conduct would be illegal under our competition rules.”
Affinity Credit Union subsequently accused Apple Pay of violating the Sherman Act in two ways:
- Apple has unlawfully “tied” two of its products together. The plaintiff and other payment card issuers continue to suffer economic injury because Apple forces them to pay its supra-competitive fee on each transaction. The tie negates consumer choice and is per se unlawful under the Sherman Act.
- Apple unlawfully monopolized the market for tap and pay mobile wallets on iOS. Apple Pay charges a substantial premium over all conceivable substitutes, yet demand remains inelastic. If other payment forms were substitutes, without significant quality differentiation, demand would have shifted to them in response to Apple Pay’s fees.
Affinity Credit Union states in the lawsuit that its goal is to hold Apple accountable. And on behalf of a proposed class of issuers (including banks, credit unions, and other institutions offering payment cards enabled for Apple Pay), it seeks monetary relief, injunctive relief, and all other relief available to stop Apple’s ongoing exclusionary practices and redress the harm they have caused.