As sure as the sun rises in the east, Apple gets sued. What’s the beef this time? Same old, same old: Apple’s iron grip over its ecosystem locks out other players, who are not too happy about it.
This time, the plaintiff is Affinity Credit Union, based in Iowa, who are suing Apple over Apple Pay. Here are the details.
Why Has Affinity Credit Union Sued Apple Over Apple Pay
The Affinity Credit Union has filed a suit in California accusing Apple of several misdeeds.
Apple Won’t Allow Third-Party Digital Wallets
First, Apple has blocked mobile wallets made by its rivals, such as Google Pay and Samsung Pay, from accessing the Near Field Communication (NFC) input chip on iOS devices (iPhones, iPads, and Apple Watches).
The NFC input chip is what enables you to pay at supermarkets and other places by simply tapping your phone on the payment terminal. The NFC input chip enables your phone and the payment terminal to communicate securely with each other, thus transferring money from your bank account or credit card to the payment terminal through the mobile wallet in your phone.
Therefore, by blocking other mobile wallets from accessing the NFC input chip on iOS devices, Apple has ensured that the only digital wallet available on iOS devices is its own Apple Pay.
Apple Charges a Fee to Card Companies
Second, the suit alleges that Apple Pay charges card companies a fee of up to 0.15 percent per transaction on credit card transactions and 0.5 cents ($0.005) on debit transactions. This is a cost that its Android rivals, such as Samsung Pay and Google Pay, do not impose.
Apple Pay forces card companies to absorb this cost, rather than pass it on to their users. This trick keeps Apple Pay artificially competitive against its Android rivals since, by shielding the user in this way, the Apple Pay service appears to be free of charge to the user. However, this is not true since the card companies are paying the transaction costs imposed by Apple Pay.
Apple Forces Card Companies to Enable Apple Pay
Third, Apple has bundled the “e-commerce” functionality within Apple Pay and has forced card companies to enable their cards for Apple Pay e-commerce transactions. This means that when an iOS user makes an online purchase on Amazon or E-bay, card companies are also charged transaction costs.
Affinity argues these transaction costs generated a reported $1 billion for Apple in 2019, and will increase to a whopping $4 billion by 2023.
What Does Affinity Want From the Court?
First, Affinity wants Apple to be forced to open up the NFC input chip in all iOS devices to other mobile wallets, not just Apple Pay.
Second, Affinity wants Apple to retroactively reimburse the “illegal” transaction fees it has charged card companies for processing payments via Apple Pay on iOS devices.
Third, Affinity is requesting the court to recognize this lawsuit as a class action suit, in hopes of enjoining banks and card issuing companies on its side.
Fourth, Affinity is demanding trial by jury.
Affinity has a potential ally in the European Commission, which sent a Statement of Objections to Apple that “takes issue with the decision by Apple to prevent mobile wallets app developers, from accessing the necessary hardware and software (‘NFC input’) on its devices, to the benefit of its own solution, Apple Pay.”
However, the EC’s statement is just a preliminary opinion. It is not legally binding (although it does trigger an investigation in Europe), and it certainly has no legal force in North America.
Not everyone is unhappy with Apple Pay, though. Halide developer Sebastiaan de With told The Verge:
“We’re honestly quite pleased with the smoothness of Apple’s offering for payments—from handling taxes all over the world to refunds, Apple Pay, and more—so we’re unlikely to change the way we do business at present.”
A Win for Affinity Would Be a Disaster for Apple
If Affinity wins this case, it would force Apple to open up NFC chip access on iOS devices to rivals like Google Pay and Samsung Pay. That could mean you have a choice of digital wallets to use on your iPhone at last.
Additionally, card companies would not have to pay transaction fees to Apple, since they could simply switch to Google Pay. This would cause Apple a loss of billions of dollars.
Affinity’s demand of a jury trial is potentially dangerous for Apple, since a jury may sympathize with Affinity’s arguments. So it will be interesting to see what the judge decides.
