This new piece from John Gruber, regarding the European Commission’s investigation into anticompetitive behaviours of the NFC system in the iPhone, is split roughly in two parts. In the first, Gruber claims Apple Pay was the factor in driving widespread adoption of contactless payments, but this seems more true in the United States than anywhere else. The second half is an exploration of the user experience perspective of locking NFC payments to Apple Pay on the iPhone; I think this is the more noteworthy and compelling part of this article.
Apple took a vibrant, perfectly balanced market where NFC payments were used by almost no one and turned it into a market where Apple Pay is accepted at most brick and mortar retailers and millions of iPhone users enjoy using it, with whatever credit and debit cards they choose. Let’s get back to a balanced market, right?
At the outset, this is framed as a market where Apple Pay enabled tap-and-go payments over swiping cards. The CNBC article Gruber links to is explicitly about that transition — not from swiping cards to phone-based payments, but from swiping cards to tapping anything. In the U.S., this was seen as a major hurdle. When I was in Los Angeles in 2014, I noticed restaurant patrons were often expected to give their card to waitstaff and the staff member would swipe it. That was wild to me.
Elsewhere, it was a different story. Paying by tapping a card was extremely common before the announcement of Apple Pay in Canada, in several regions in Asia, and in many parts of Europe, which is Vestanger’s jurisdiction. Was it less common for people to tap to pay for stuff than it is now? Sure, but not in a way that is necessarily tied to Apple Pay.
For example, by February 2015 in the U.K., financial institutions had issued 58 million cards with support for tap payments in a country that had, at the time, about 64 million residents. While Apple Pay was announced in September 2014, it did not launch in the U.K. until mid-2015. A contemporary press release touts 320 million contactless payments in 2014 in the U.K. alone, made nearly entirely by card. That is about a million transactions a day against 58 million capable cards, or about a 2 percent usage rate. Not extraordinary — but not bad, as you will see later.
A little later in the piece, Gruber argues that Apple Pay has disproportionately high use among phone-based payment platforms:
The E.C. complaint wavers between claiming Apple Pay dominates NFC payments on iPhones and dominates the entire industry. The latter was true as recently as October 2017, when Apple Pay accounted for 90 percent of all contactless transactions globally, where it was available. As I noted at the time, that’s a remarkable achievement for a platform that by all accounts is a distant second to Android in global market share.
Here’s a study from last year that claims in the U.S., Google Pay has 3 percent share, Samsung Pay 5 percent, and Apple Pay 92 percent. You know, your classic three-way neck-and-neck horse race.
The first statement was made by Apple’s Jennifer Bailey during a presentation at Money 20/20. Bailey said that Apple Pay accounted for 90 percent of contactless mobile transactions, where it was available, not 90 percent of global contactless transactions. Unfortunately, I have been unable to find a citation or a study that makes a similar statement.
The second claim is more checkable. While that study of U.S. debit transactions — it did not include credit cards — found Apple’s market share was 92 percent among mobile wallets, it also says about 2 billion transactions were made with phone-based wallets, comprising about 2.6 percent of all debit transactions. Perhaps most surprising to me is the study’s claim that only about 30% of debit cards in the U.S., as of the end of 2020, were capable of contactless payments. The study says a little over 5 percent of contactless cards were used for a transaction, or 1.6 percent of all debit payments. That is a full percentage point lower than the proportion of payments made through mobile wallets, though probably because most Americans do not have a debit card with contactless support.
In Europe, only 14 percent of contactless payments are made by phone or watch, according to a May 2020 Mastercard study; 86 percent are made using contactless cards. This surely varies country to country. In Canada, where tapping to pay for stuff has been similarly commonplace for years, people use their cards about twice as often as they use a mobile wallet, according to a 2021 report from Payments Canada:
Overall, Canadians chose contactless card payments over mobile contactless payments in 2020. Consumers not using mobile contactless payments indicated they were satisfied with their current payment methods, had security concerns using mobile contactless payments, and did not want to store their financial information on their mobile device.
If mobile wallet apps were so much more amazing to use, should they not have much greater adoption than this? It is ironic that the one clear benefit they provide — security — is cited as a reason against their use.
This report also found Apple Pay is used more than Samsung Pay only by four percentage points, even though iPhones are about twice as popular here as Samsung phones. The great disparity between Canadian and American adoption of Apple Pay compared to Samsung Pay is curious, especially given the similar device market share split. If nothing else, it underscores how weird the U.S. payments market is. Americans each have an average of four credit cards, while Europeans have far fewer, and the U.S. has been slower to adopt chip-and-PIN payments and contactless cards. It is an outlier among developed nations.
Even so, Apple Pay is huge, and Apple was closely involved with getting payment networks on board with more secure contactless transactions. Crediting it as even a primary driver of worldwide contactless adoption is, I think, a stretch. But because Apple’s digital wallet is the only one that can use the NFC system for payments, it must be the market leader among NFC-based payment options on iPhones. That is what Vestager seems worried about throughout this speech, from the second sentence on:
Today, the Commission has sent a Statement of Objections to Apple. We are concerned that Apple may have illegally distorted competition in the market for mobile wallets on Apple devices.
That is a problem if you are, say, attempting to launch a competing digital wallet with cross-platform availability.
The first chunk of this article does not seem to stand up to a closer look at the timeline of contactless payment adoption in several countries. I did not even mention the many countries in Asia where digital wallets have far higher levels of adoption. Apps like Paytm in India, GoPay in Indonesia, PayPay in Japan, and WeChat Pay in China are all way, way more popular locally than any of the digital wallets I have mentioned so far. But I did not include them for discussion because they are all reliant upon QR codes, not NFC.
The second part of Gruber’s piece makes the case that Apple does not permit alternative wallets because it would compromise the overall experience of paying for stuff with an iPhone:
I mean, it’s all just ones and zeroes. Apple could allow users to add third-party wallet apps and grant them permission to be invoked simply by double-pressing the side button. But what happens then? Do you get an extra step where the user has to choose which wallet to use, Apple Wallet or a third-party one? Or does the third-party one replace Apple Wallet? What happens when you add a second third-party wallet app? It would get confusing very quickly.
These arguments are persuasive, but some also besides the point. Nowhere in Vestanger’s remarks is there anything about the iPhone’s hardware buttons or making a third-party wallet the default. It is admittedly easy to see how those could be next steps. Mind you, I bet many PayPay or WeChat Pay users would prefer if double-clicking their iPhone’s side button would launch those apps instead of Apple’s own Wallet. All the Commission is asking about right now is why the iPhone does not permit third-party apps to use the NFC system for payments.
And you know what? There are probably some very good reasons. I can think of at least one unintended and horrible knock-on effect of permitting wider NFC use for payments: banks could require the use of their own apps instead of Apple’s Wallet. While they are at it, they could use the opportunity to up-sell people on financial products they do not need. That would suck — though at least one part of that does suck already — and it would be a worst-case scenario for this proposal. The way Apple Pay and the Wallet app work is far better than the apps my bank has come up with. This is a legitimate concern if you take Vestanger at her word. I hope this does not happen.
It also seems plausible there are legitimate security concerns for why other developers cannot be permitted to use NFC for payments. But Apple has not specifically explained any.
I look forward to Apple’s response to this inquiry. It seems like the European Commission has good reasons to be inquiring about this, but it also seems to be self-serving and I wish it would be more honest about that angle. I am most worried about the unintended effects of permitting widespread NFC use. It means Apple controls the platform less, but that seems to require giving more control to companies that people generally do not like. As much as I think NFC payments should be something usable by any developer, I can foresee how that seemingly simple change would make mobile payments a hell of a lot worse as banks will do what banks are wont to do.