A landmark deal by Canadian banks to embrace Apple Inc.’s mobile wallet payment system Tuesday came on slightly more favourable terms than U.S. financial services firms received, according to a source familiar with the arrangement.
While Apple Inc. will receive 0.15 per cent or 15 basis points on credit transactions — comparable to the widely reported figure for Apple Pay in the United States, which works out to 15 cents for every $100 purchased — a lower fee of four basis points will be applied to credit transactions after an annual payment of 50 cents per card.
The source characterized the arrangement as more in line with the lower fees paid to Apple in Australia and the United Kingdom.
The deal in Canada, which came after months of negotiations, will broaden the availability of the tech giant’s mobile wallet service Apple Pay. Financial terms were not disclosed by Apple or the banks.
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According to a report by the Canadian Payments Association, in 2014 there were more than $200 billion in debit transactions and more than $450 billion in credit card transactions in Canada.
The drivers of the deal clearly included Apple’s desire for more revenue and smartphone penetration, while the banks are seeking to satisfy tech-hungry customers that have so far shown reluctance to fully embrace mobile payments.
But industry watchers say the development comes as both the banking and smartphone industries face headwinds.
Apple has been losing ground in Canada to rival Android’s smartphone devices, according to Kaan Yigit, a longtime industry analyst and president of Solutions Research Group Consultants Inc.
He says Apple devices outnumbered Androids by a factor of two to one in Canada in 2011. Now, cheaper Android devices account for 51 per cent of the market, while iPhones hold just 39 per cent.
“Apple Pay makes iPhones more valuable to consumers because it now provides more utility to them,” Yigit says.
“So that’s also why Apple is now more agreeable to getting out there with Apple Pay after a sluggish start — in effect, it’s about protecting their market share and competing with cheaper options.”
Apple Pay was launched on a small scale in Canada late last year without the support of any of the country’s major banks. The initial rollout through American Express did not even include a co-branded American Express card issued by the Bank of Nova Scotia.
On Tuesday, Royal Bank of Canada and Canadian Imperial Bank of Commerce began supporting Apple Pay through Interac debit and major credit cards. Customers can load the cards onto the latest iPhones and Apple Watches and use them to make purchases in stores that accommodate a contactless or tap-and-pay option.
Toronto-Dominion Bank, Bank of Montreal, and Bank of Nova Scotia have indicated they will begin supporting the Apple payments technology in the coming weeks. Sources say the short delay was elected in some cases so both in-store and “in app” purchases on the phones can be rolled out at the same time, while, in another case, systems work is still required to enable the payments technology.
The big banks have embraced Apple’s mobile payments system after developing their own mobile wallets, such as Toronto-Dominion Bank’s UGO and TD Mobile Payment. While they remain committed to offering a full suite of options, a study in January by consumer and market research firm GfK revealed that mobile payments accounted for just three per cent of all transactions in Canada.
There were signs of growth, though, with 63 per cent of Canadian consumer reporting having made at least one mobile transaction per month, up from three per cent in 2014.
Analysts have suggested that Apple could get a benefit beyond a slice of the revenue if bank customers embrace Apple Pay: access to aggregated and anonymous data that can be analyzed provide insights into a much wider swathe of the Canadian population.
Creating more “value-added product for the end consumer … could theoretically place upward pressure on Apple’s share of the interchange revenue over time,” CIBC World Markets analysts Rob Sedran and Paul Holden said in a report last year.
The analysts suggested the banks would want to strike the best deal for themselves at the outset, because the advantage after that could tip to Apple.