When Android Pay launches, there will be one big difference between Google’s mobile payment service and Apple’s: Google won’t get a cut of the interchange fees on transactions.
A Wall Street Journal report detailing the subject discusses how this could leave Google missing out on one of the ways that Apple has been able to monetize its mobile payments service. They say that the reason Google won’t be able to earn those same fees is due to the new terms of services that have come with pressure from credit card issuers.
When Apple launched Apple Pay, issuers were lining up to fork over a slice of credit card interchange to take a bite of Apple Pay. Apple and its brand popularity are the stuff tech legends and payments innovations are made of. No one wanted to miss out on the innovation that was Apple Pay. Their affluent demographic is the stuff that every issuer – and they hoped merchants – would covet enough to drive adoption. Apple asked and issuers gave.
Android Pay is a totally different kettle of fish. Some quoted in the article say that the “no fee” provision of Android Pay might “eventually give Google’s Android Pay an edge.” That part is a bit hard to understand. Android Pay is about Android and Apple Pay is about iOS. It’s not as if Android Pay can be used on Apple phones or vice versa so it’s hard to find where such an “edge” could exist. And since just about every bank that matters has signed on to Apple Pay, it is hard to see how Android Pay is going to get more banks because it’s free.
The reason that this is even news at all, according to sources cited by the WSJ, is that the major payment networks — Visa and MasterCard — recently implemented their tokenization card security service, making it free. That also prohibits payments services providers from charging issuers. That, the WSJ concludes, is why Google doesn’t get to charge issuers a slice of interchange fees and why Apple’s business model might be at risk.
“There is one agreement with Visa and the banks can have confidence that there are no pass-through fees,” Visa President Ryan McInerney told WSJ.
The fees Apple imposed on bank issuers weren’t ever popular, but feeling the pressure to keep up with the competitive mobile payments landscape, Apple was able to convince financial institutions the fees were worth offering the service.
Android Pay, which doesn’t have a set launch day, will allow consumers to pay via their mobile device in store using NFC technology. Android Pay will work with any phone that has an NFC chip installed and will run on KitKat operating systems or newer. And like Apple Pay, it has embraced partnerships with all four card networks – Amex, Discover, MasterCard and Visa – in an effort to make account provisioning easier.
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