Financial site Bank Innovation reports that Apple has negotiated lower transaction fees with American Express, Bank of America, Capital One, Citigroup, and JP Morgan Chase ahead of the debut of its mobile payment system expected to be announced alongside the new iPhone models next week. The report notes that the banks were likely willing to lower rates to ensure participation and due to Apple’s security measures including the iPhone’s Touch ID sensor.
The first thing Apple has done is convince these four FIs to consider transactions from Apple’s upcoming payments venture — said to launch with its forthcoming iPhone 6 introduction — as “card present” transactions, which carry a lower discount rate than “card not present” transactions, because of lower fraud risk.
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The report goes on to say that Apple has managed to actually considerably lower the card present rates the company was able to reach with each bank.
Beyond that, Apple has also managed to bump down the actual “card present” rate by 15 to 25 basis points, according to people with knowledge of the talks. Normal “card present” discount rates, which are shared by issuers and networks but determined by the network, are about 1.5%, which means that Apple appears as though it will get around a 10% discount on the processing rate it will pay. Last quarter, Apple generated $4.5 billion of iTunes revenue — this implies that Apple will save at least $27 million as a result of these deals with the banks. Of course, more revenue volume is expected upon launch of Apple’s payments venture.
Leading up to Apple’s iPhone event next week, several media outlets have reported Apple has secured deals with Via, MasterCard, and American Express to support its iPhone-powered mobile payment system. 9to5Mac first reported on Apple’s expected payment system earlier this year in May. Recent reports have echoed our earlier coverage.
Apple is expected to announce the new payment system alongside new iPhone models at a media event next week. The new iPhone models are expected to incorporate NFC technology to support the payment system. Apple announced earlier today it plans to live stream the event to the public.