Apple Pay antitrust lawsuit will go ahead after credit unions defeat motion to dismiss

An Apple Pay antitrust lawsuit will go ahead, after the judge rejected the iPhone maker’s motion to dismiss the case.

Three credit unions are suing Apple for what it says is a 100% monopoly on mobile wallets on iPhones and Apple Watches …

Why Apple Pay is an antitrust issue

While this particular lawsuit is new, the issue isn’t. All of the various Apple Pay antitrust cases center on one fact: Apple does not grant competing mobile wallet apps access to the NFC chip in iPhones and Apple Watches.

This means that Apple’s own Wallet app is the only app capable of making contactless transactions.

If a bank, credit union, or other financial institution wants to allow their cardholders to make contactless purchases on an iPhone or Apple Watch, the only way they can do so is signing up to Apple Pay – and the Cupertino company charges a fee on each transaction.

The European Union has been investigating this as a potential antitrust violation since 2019, alongside other competition regulators around the world.

There’s a second factor: Payment limits

Apple argues that this is irrelevant, as consumers can simply use physical cards to make contactless payments. It also points to other mobile wallet options, like QR codes.

While technically true, Apple’s argument is clearly disingenuous, as many consumers greatly prefer the convenience of using a mobile wallet over physical cards, and QR code based mobile wallets are a ridiculous, failed model that don’t work with standard payment terminals.

But there’s a second factor, which means that a contactless card and a mobile wallet app are not equivalent: payment limits.

A thief who steals your card can immediately use it to make purchases, with no signature or PIN required. To mitigate this risk, contactless card payments have maximum transaction values.

In contrast, Apple Pay, Google Pay, and the like use a standard called EMV Payment Tokenization. Part of this standard is that user authentication is required. A thief can’t use your iPhone to make Apple Pay transactions, because Face ID or Touch ID authentication is needed. Similarly, they can’t use your Apple Watch because it requires a passcode to activate once it’s removed from your wrist.

This authentication means that Apple Pay is not subject to the contactless card transaction limit, and there have even been cases of people using it to buy cars.

Credit union lawsuit

Three US credit unions took Apple to court, alleging monopolistic behavior by the company for not granting their apps access to the NFC chip. Apple filed a motion to dismiss the case, using the above arguments, as well as saying its own fees were “nominal,” but Reuters reports that the judge has now rejected this.

U.S. District Judge Jeffrey White said the plaintiffs could try to prove that Apple violated the federal Sherman antitrust law by enforcing a 100% monopoly over the domestic market for tap-and-pay wallets for iPhones, iPads and Apple Watches […]

The proposed class action is led by Illinois’ Consumers Co-op Credit Union, and Iowa’s Affinity Credit Union and GreenState Credit Union […]

According to the complaint, Apple’s conduct forces more than 4,000 banks and credit unions that use Apple Pay to pay at least $1 billion of excess fees, and harms consumers by minimizing the incentive to make Apple Pay safer and easier to use.

The idea that Apple Pay could be made safer and easier to use seems a stretch, but all card fees are ultimately paid by cardholders, so the fees argument is more tenable.

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