According to the term sheet, which was picked up by equity analyst at Keefe, Bruyette & Woods, Sanjay Sakhrani, Apple will receive 15 basis points (0.15 percent) per credit card transaction, as well as a half a penny for each debit transaction.
The contract also stipulates that issuers must make available at least
95% of the cards in their portfolio to iPhone users.
The US banks are prepared to pay a high price for the privilege of placing their cards on Apple Pay, with the tech giant demanding not just cash but also detailed reports and analytics on card usage data, according to the leaked draft of a 19-page commercial agreement with issuers.
Brett King, CEO, Moven commented: “US Banks are paying a high price for being slow on EMV & Mobile Payments and having to outsource to Apple”
While the financial terms were widely suspected, Sakhrani was surprised to find that the fees paid to Apple would be collected by the major card schemes Visa and MasterCard, with Apple maintaining the right to audit the issuer’s Apple Pay records at least twice a year.
Apple is also demanding a large number of data points from banks on card usage, including purchase volume, in-store vs. in-app purchase mix, the top 100 merchants by purchase volume and the average purchase amount.
The fees paid to Apple, while significant, pale next to the charges levied by Visa and MasterCard for issuing tokens in place of card numbers, with MasterCard charging 50 cents for each token provisioned through the network.
As for the proposed European launch, Apple needs to rethink its business model prior to launching this service in Europe.
European issuers will from next year receive the maximum of 0.20% in interchange fees for debit and 0.30% for credit and may receive less in some countries. So no space for 0.15% sharing there.
Furthermore the customer data sharing may be a violation of the data protection and privacy laws in Europe. And last but not least, Apple may be accused of misusing its dominant position in some markets where their market share on devices is +30% – an offence that can render up to 10% of the Apple turnover in fines.
Microsoft can explain this risk to Apple… and these rules are monitored by the EU Commission who are not big fans of American companies.