November 5, 2014
An equity analyst has managed to get his hands on a copy of Apple’s ‘commercial agreement’ with credit card companies and issuing banks. The commercial agreement had been kept secret since Apple Pay’s launch. Sanjay Sakhrani, an analyst from Keefe, Bruyette & Woods, recently published some main points from the agreement.
In the revelation, he mentioned the fees Apple is collecting for Apple Pay payments. As per his analysis of the term sheet, Apple receives 15 basis points or 0.15% on each credit card transaction and half a cent on each debit card transaction. The process involves credit card networks collecting Apple’s transaction fees from the card-issuing banks and later transferring the aggregate to Apple.
The report by the analyst mentions that Apple is requiring card-issuing banks to allow at least 95% of MasterCard or Visa cards in their portfolio to participate in Apple Pay. The card-issuing banks are also required to collect loads of operational data for Apple. The revealed term sheet shows data points across three dozen categories. The data includes attributes like purchase volume data for both debit and credit cards, in-store vs in-app purchase mix, the top 100 merchants by purchase volume and average purchase amount.
This shows that the relationship between Apple, the credit card companies and issuing banks is pretty intense. Sanjay is also of the view that the credit card companies are highly involved in processing payments and are playing major operational roles for Apple. Apple also has the power to request, up to two times a year, that the amounts the issuers pay are accurate. Apple reserves the right to seek advice from independent auditors to verify this accuracy.
In addition to sharing details on Apple’s cut of transactions, the report has given clear insights on requirements from Apple’s terms and conditions that card issuers must follow to participate in the new payments service. This raises question as to whether Apple should demand much from its partners. With other competing mobile wallets also trying their best to rival Apple Pay, it’remains to be seen whether such demanding terms can be a barrier to future penetration of Apple Pay in the mobile wallet space.