Are Interchange Fees Holding Apple Pay Canada Back?

Apple Pay Canada

iPhone fans rejoice – Apple Pay is officially set to enter the Canadian market. The third-party payment app, which allows users to upload their credit cards and tap their phones to pay for purchases, will roll out sometime in the final months of 2015 for iPhone 6 and up. Unlike its widespread presence in the U.S., though, the Canadian app will only be compatible with American Express credit cards – for now.

Update: As of Tuesday, November 17, the app is available for use with all American Express-issued credit cards.

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The app will also be made available in Australia this year, and will come to Spain, Singapore and Hong Kong in 2016.

Why Only American Express?

Apple Pay in Canada has been hotly anticipated ever since its initial U.S. launch in September 2014 – but Apple dragged its heels on bringing it north of the border. Why the holdup? That contention exists between the tech giant and Canada’s big banks over fees has been a prevailing theory – and that Amex provided a red-tape-free option that allowed Apple to sidestep lenders for the initial launch.

In Canada, Visas and Mastercards aren’t provided to consumers by the credit card companies directly; they partner with banks, who issue the cards under their own product umbrellas. American Express takes a unique route with its “closed loop” system, meaning they issue their cards directly to the consumer with no third-party bank affiliation.

American Express alludes to this “seamless experience” in a release announcing the partnership: “With our global reach, we are able to bring Apple Pay to Card Members quickly in these important countries,” stated Tony Prentice, vice president of mobile products and payments at American Express. “We believe it is critical to be on the forefront of seamless and innovative payment solutions for our Card Members and we are pleased to be able to deliver on that with Apple Pay.”

Are Interchange Fees Part of the Problem?

Hashing out Apple Pay’s fee structure may be a main hurdle; for every $100 spent via Apple Pay, the tech company takes a $0.15 cut in fees, similar to the interchange fees paid by retail merchants when credit cards are used as payment in their stores. These fees are paid to the credit card-issuing bank and are a source of revenue for Canada’s lenders.

Last autumn, a federal mandate was introduced to cap these fees at an average of 1.5 per cent. It’s not clear how Apple Pay’s fee would factor in, as Canada does not yet have official interchange fee regulations for mobile apps.

Because American Express’s closed system does not charge merchants a bank interchange fee, they were not impacted by the new regulations – a convenient option for Apple to break into the market now, as it (theoretically) remains in negotiations with Visa and MasterCard.

Will Canadians Go For Apple Pay?

Canadian shoppers have been notoriously slow to adopt mobile payments – an early 2015 survey by Accenture found only 10 per cent of their Canadian respondents use them. A somewhat fragmented mobile landscape may to be blame – several of the banks have the tech on hand with limited card options. Third-party apps Suretap and UGO have been slow to gain traction.

However, an additional 11 per cent of Accenture’s respondents said they’d start using mobile payments should Apple Pay ever come to Canada. Perhaps it’ll be the magic mix of brand recognition and cool factor that’ll finally persuade Canadians to get hip to the tap. And, perhaps Apple is anticipating customer demand to be a convincing factor with the other card networks. In an interview with the Globe and Mail, Rob Cameron, chief product and marketing officer at Moneris Solutions Corp., said, “In Canada, for Apple Pay to really take off, Apple will need to make it easier on the average consumer to participate by signing up more of the issuers than just AmEx. Part of it will be driven by the consumer response.”

So fear not, MasterCard and Visa cardholders – there’s certainly hope for a wider app launch to come.

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