In its broad antitrust complaint against Apple and its iPhone business, the US Department of Justice is taking specific aim at Apple’s massive economic activity, namely how it uses Apple Pay to block competition and rake in billions of dollars a year in the process.
The Justice Department claims that Apple is not only stifling competition among payment services, but potentially stifling innovation, as the fees banks and others incur to play with Apple Pay make them less inclined to develop other kinds of services that they could compete with Apple. .
Apple Pay is no stranger to regulatory controversy. In 2020, the European Commission launched an antitrust investigation into it. And in January 2024, perhaps sobering up to the other looming regulatory battles it would face this year, Apple finally offered some concessions where it would allow third parties access to NFC and its related technology to create their own tap-to- pay payment services to bypass Apple Wallet and Apple Pay. (Apple’s offer is still being evaluated.)
It’s interesting that even though Europe has been the focus of Apple’s antitrust action — just earlier this month the EU fined Apple nearly $2 billion for violating antitrust rules on music streaming — that the Apple Pay case was the only reference to the European activity in nearly 90-page DOJ complaint.
PayPal — the payments behemoth with significant businesses in mobile transactions and point-of-sale technology — was obviously organic in the original EU complaint about Apple’s payments monopoly. Contacted today about the US DOJ complaint, a PayPal spokesperson said the company declined to comment. (He’s definitely keeping a close eye on the proceedings.)
The DOJ’s argument
Apple currently collects a 0.15% fee for every transaction made through Apple Pay. In 2021, this has reached $1 billion. by 2022, it has grown to $1.9 billion. and in 2023, it is is appreciated that amount more than doubled to $4 billion.
These are relatively small amounts for the company given that it booked more than $383 billion in 2023 in total revenue.
But Apple’s longer-term bet is that payments are central to the way people exist in today’s world — “Apple recognizes that paying for products and services with a digital wallet will eventually become “something people do every day of their lives,” as the DOJ notes — and thus central to the iPhone ecosystem, iPhone ownership and ubiquity, and the DOJ complaint.
Today, according to the DOJ, Apple retains “absolute control” over how users make tap-to-pay payments using the NFC feature of their iPhones in the US
His claim is that this not only prevented other companies from building tap-to-pay features into third-party mobile wallets, but also hindered what is being done with the technology. “Absent Apple’s conduct, cross-platform digital wallets could also be used to manage and pay for subscriptions and in-app purchases,” the DOJ alleges.
The DOJ is also concerned that Apple Wallet holds all the cards, literally and figuratively, and may essentially become a super app that provides much more than just financial functionality (something else Apple has been prohibited from developing on iOS, the DOJ points out in another point in his complaint).
“Apple envisions that Apple Wallet will eventually replace multiple functions of physical wallets to become a single app for shopping, digital keys, transportation, identification, travel, entertainment and more.”
At the heart of Apple’s interest in payments functionality is its ability to “own” all the customer data that comes with it. This is something that the Department of Justice identified and linked to how Apple’s playbook ultimately is for selling its smartphones.
“If third-party developers could create cross-platform wallets, users who move away from the iPhone could continue to use the same wallet, with the same cards, IDs, payment histories, peer-to-peer payment contacts and other information. easier smartphone switching.
“And since many users already use apps built by their preferred financial institutions, if those financial institutions offered digital wallets, then users would have access to new apps and technologies without having to share their private financial data with additional third parties, including Apple.” writes. “In the short term, these improved features will make the iPhone more attractive to users and more profitable for Apple. Accordingly, the absence of cross-platform tap-to-pay digital wallets on the iPhone makes it more difficult for iPhone users to purchase a different smartphone.”
For now, it’s a one-way development: Apple is encouraging banks, payment companies like PayPal, merchants and others who build payments-related businesses to integrate Apple Pay functionality into their own workflows, but for them it’s about by encouraging Apple Pay transactions by allowing credit cards to be added to Wallet, or by integrating payment facilities into payment apps to receive payments — more transaction revenue for Apple! — but not to create their own payment capabilities.
“Apple simultaneously monopolizes smartphones to prevent these same partners from developing better products and payment services for iPhone users,” he notes. In the meantime, Apple has continued to develop Apple Pay, launching — for example — its own buy now, pay later offer last fall (pictured above).
The Justice Department may have its own significant beef with Google, but it ironically seems a bit of a hero in this complaint. Both Google, which controls the rival Android smartphone platform, and Samsung are cited as two examples of payment app developers that do not charge fees for transactions made using their payment apps.
“Apple’s fees are a significant cost to issuing banks and cut off funding for features and benefits that banks might otherwise offer to smartphone users,” he notes.
Apple’s counterclaim is likely to be that Apple Pay has removed a significant piece of friction in the shopping cycle, which actually creates more transactions in total, no less.
That may well be true, but not the way Apple would frame it. Apple Pay and Apple Wallet are both a small part of Apple’s services revenue — which was more than $90 billion in 2023 — or indeed total revenue. But the Justice Department cites estimates from the U.S. Consumer Financial Protection Bureau that say Apple Pay enabled nearly $200 billion in transactions in the United States in 2022, with that amount expected to grow to $458 billion by 2028. .
That alone speaks to how central it is and will affect the wider ecosystem, another reason the DOJ believes it makes its case to withdraw it now.
For more on Apple’s antitrust lawsuit, check here:
