DOJ Targets Apple’s Billion-Dollar Payment Business in Antitrust Complaint
The U.S. Department of Justice’s extensive antitrust complaint against Apple and its iPhone business specifically targets the company’s thriving financial arm, particularly how it leverages Apple Pay to hinder competition and generate billions in revenue annually.
Allegations of Stifling Competition and Innovation
According to the DOJ, Apple is not only suppressing competition among payment services but also potentially impeding innovation. The fees that banks and other entities pay to participate in Apple Pay may discourage them from developing alternative services that could challenge Apple’s dominance.
Apple Pay’s Regulatory Controversies
Apple Pay has faced regulatory scrutiny in the past. The European Commission launched an antitrust investigation into the service in 2020. In January 2024, perhaps anticipating the impending regulatory battles, Apple offered concessions, agreeing to grant third parties access to its NFC technology to create their own tap-to-pay payment services, bypassing Apple Wallet and Apple Pay. The EU is still evaluating Apple’s proposal.
Apple’s Growing Revenue from Transaction Fees
Apple currently charges a 0.15% fee on every Apple Pay transaction. In 2021, this amounted to $1 billion, which grew to $1.9 billion in 2022. Estimates suggest that the figure more than doubled to $4 billion in 2023. While these sums are relatively small compared to Apple’s overall revenue of more than $383 billion in 2023, the company sees payments as central to people’s daily lives and the iPhone ecosystem.
Apple’s Control Over Tap-to-Pay Functionality
The DOJ argues that Apple maintains complete control over how users make tap-to-pay payments using the NFC functionality of their iPhones in the U.S. This control has not only prevented other companies from developing tap-to-pay features in third-party mobile wallets but also limited the potential applications of the technology.
The Potential of Apple Wallet as a Super App
The DOJ expresses concern that Apple Wallet could become a super app, providing much more than just financial functionality. Apple envisions Apple Wallet eventually replacing multiple functions of physical wallets, becoming a single app for shopping, digital keys, transit, identification, travel, entertainment, and more.
The Importance of Customer Data
At the core of Apple’s interest in payment functionality is its ability to “own” all the associated customer data. The DOJ ties this to Apple’s strategy of selling smartphones, arguing that if third-party developers could create cross-platform wallets, users transitioning away from the iPhone could continue using the same wallet, making it easier to switch smartphones.
Apple’s One-Sided Development Direction
While Apple encourages banks, payment companies, and merchants to incorporate Apple Pay functionality into their workflows, it simultaneously uses its smartphone monopoly to prevent these partners from developing better payment products and services for iPhone users.
The Significance of Apple Pay Transactions
Although Apple Pay and Apple Wallet contribute a small portion to Apple’s overall revenue, the DOJ cites estimates from the U.S. Consumer Financial Protection Bureau indicating that Apple Pay enabled nearly $200 billion in transactions in the United States in 2022, with that figure expected to grow to $458 billion by 2028. This underscores the central role and potential impact of Apple Pay on the wider ecosystem, supporting the DOJ’s case for addressing the issue now.
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Does Apple think they’re the only tech giant on the block? Let’s see how this plays out.