Apple Inc is expected to collect roughly S$10 million from Singapore banks and financial institutions here that now offer Apple Pay to customers, The Business Times has learnt.
This is on top of relatively high transaction fees that the tech giant will earn from leeching off banks' existing payment systems - all of which speak to the looming control that Apple has after building up a cult of iPhone users. And this power has pushed the backs of financial giants against the wall.
Sources said Apple charged banks and financial institutions between S$2 million and S$5 million each for what it called a "marketing fee" to support Apple Pay branding. Sources saw this as no different from padding up the tech giant's marketing budget.
Four banks - DBS, OCBC, Standard Chartered, and UOB - and American Express now offer Apple Pay. Each financial institution pays a different "marketing fee", it is understood.
At the most conservative estimate, assuming each of the five financial institutions paid S$2 million, Apple would walk away with a cool S$10 million for this deal. Apple did not comment.
What is often talked about is the transaction fees Apple has charged banks. And financial institutions here will indeed have to pay a transaction fee, said to be between 0.1 per cent and 0.2 per cent per transaction - or between 10 and 20 cents per hundred dollars.
This is not far from what the US banks reportedly paid, at 15 cents per hundred US dollars. Chinese banks are reportedly paying seven cents per hundred yuan, while in the UK, it's a few pence per 100 pounds.
What is far less talked about is Apple's "marketing fee" which is seen as a one-off cost - at least, that's what banks are putting their foot down on - though it has nonetheless earned the irritation of financial institutions behind closed doors.
Many used unprintable words to describe Apple's heavy-handed ways; some words were in Hokkien.
"The joke is Apple was known as the one who must not be named," said one source. "This is basically its exclusive membership fee. It's a sunk cost."
And in the clearest sign and standard of ire, another source called Apple "worse than MAS".
Banks are particularly irritated because Apple does not take credit risk for Apple Pay. If there are fraud incidences as a result of Apple Pay, banks bear the cost. Meanwhile, it is players such as Visa and Mastercard that largely provide the security measure known as tokenisation. This allows users to verify mobile contactless transactions using either their thumbprint, or a PIN. A tokenisation process replaces the card number with a unique digital number, known as a token.
Merchants only see this token, not customers' credit card number, which limits the odds of credit card details stolen from merchants.
Several banks and financial institutions were also cheesed off by Apple's nanny and litigious control over the Apple Pay launch in Singapore in May.
But even as these financial institutions have the infrastructure in place, they grudgingly - for now - need the buy-in of the consumer giant, which will then allow Apple users to set up digital wallets and register thumbprints for verification.
As a nod to game theory, Singapore banks could have co-operated by standing ground together against this fee. But they lost ironically because they were "kiasu" - Singapore's distinct brand of fear of losing - and chose not to call Apple's "bluff", as one source put it.
Singapore banks also found less leverage against the tech giant. Globally, Apple sold 74.8 million iPhones from October to December last year.
But this also explains why banks are eager to broaden their contactless offerings to Samsung Pay and Android Pay, sources said. As one example, Citibank, a major credit card player in Singapore, has sat out on Apple Pay. But it offers Samsung Pay.
While banks want to cover extensively the contactless payment space and extend this service to as many customers as possible, the power play dynamics cannot be discounted. Samsung does not charge fees. Google, which runs Android Pay, is not expected to charge fees, too.
There are also significant global developments that could shake up the mobile payments market here in time. Visa and PayPal in July signed a deal in the US to allow PayPal's app as a payment option in American brick-and-mortar stores that accept contactless Visa payments.
All of these could change the negotiating power that banks have over Apple in time in the digital payments space, a fiercely competition arena.
Contactless payment is a way for banks here to rev up transactions in Singapore and abroad, and over time, cut costs by nudging customers to go cashless. The Singapore government has also made it a priority for the country to move towards more seamless, cashless, payment systems.
There are plans to standardise the retail point-of-sale terminals, so customers need only to use one single terminal to read all sorts of credit and debit cards. In time, more banks should also allow interbank fund transfers via mobile phones.
In a related move, the Land Transport Authority will, by the end of this year, roll out a pilot to allow commuters to tap their credit and debit cards to pay for bus and train rides. This means commuters can stop having to top up their stored value cards.
Meanwhile, checks on Apple Pay's success over time may be tough. About 100,000 bank-issued cards in Singapore were enabled for Apple Pay in the first two weeks of the launch. Banks have since stopped providing Apple Pay figures - it is understood the one who controls the numbers for now, is Apple.
This article was first published on August 2, 2016.
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