Analyst View: Apple likely keen to launch in Australia but key players are less sure

The upcoming UK launch is a big step in the global roll out of Apple Pay, and Australia is likely high on the target country list. Here are thoughts from Ovum’s Financial Services Technology Analyst:

“The UK launch is a big step in the global roll out of Apple Pay, and Australia is likely high on the target country list due to the relatively high penetration of Apple devices here, alongside the very high contactless infrastructure base (ie. paywave and paypass) that is both already in store and widely used by consumers. There are no dates set yet for Apple Pay to launch in Australia and the market is likely waiting a bit before progressing. Apple is likely keen to launch now, but Australian players are less sure.

There are a few key drivers here. Number one of which is Apple Pays payment model in which Apple collects 0.15% of every credit card transaction. They reached this agreement with participating banks in the UK and US but the challenge is interchange rates (the fee collected on every transaction) is already much lower here due to regulatory drivers (closer to 0.33%) , and the banks cannot, and will not be able to hand over such a big chunk of what is already a low margin business.

One aspect currently shaking up the market is there appears to be a battle going on in the background between Apple and Visa at the moment, and Ovum’s assumption is a lot of Australian banks are waiting to see how that pans out. Apple Pay uses Visa Tokenization technology, and it’s a key feature of the platform. Visa however has also launched a new framework called the Visa Digital Enablement Program (VDEP) which acts as a means of any Visa bank connecting to any participating wallet platform, in a smooth process without the need for individual agreements between each bank and wallet. The big catch is the business conditions associated with VDEP mandate no pass through fees on transactions, meaning no wallet can collect revenue per transaction. Android Pay is the first major wallet to sign up to VDEP.

A> pple is understandably unhappy as they had an agreement with Visa to use their Tokenization technology, and now Visa is turning around and asking Apple to sign up to their business terms, sinking Apple Pay’s revenue model. This is all happening behind the scenes, but a lot of players will be watching and waiting. With no per transaction fees involved, at this rate Android Pay could possibly hit Australia before Apple Pay.

Another point worth mentioning is that Ovum has spoken to a few retailers who are skeptical on the grounds that Australia already has contactless cards, which are extremely convenient. Apple Pay as it stands now actually takes potentially longer with minimal clear benefit, and without a stronger incentive to using it (ie. loyalty) there is little real point. The key issue here is what Coles and Woolworths do, and they are the ones to watch in terms of opening up acceptance. Apple could get away with some but not all of the banks in launching Apple Pay, but they will definitely need both of the big supermarkets.”