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ApplePay in Europe - Will it work?
It would seem that the 15 - 25 b.p. that have been negotiated in the US are based upon the VERY HIGH fraud rate that the US are seeing and the rinsing / growing problem faced there with the abysmal technical architecture there. The transfer of a chunk of the infrastructure onto the ApplePay architecture will create a test-bed for a new platform with a leap-frog in the technology, mankind it something that the issuers in the USA would have 'jumped at' in where delight, as it solves a problem that they have.
In contrast the motivation for EU issuers is not there. The EMV being 100% rolled out in most places for POS, has reduced the POS fraud to about €0/£0 - which takes away any possibility for a risk margin to be present for removal from the equation. Accordingly, and on the basis that it is a discussion between Apple and issuers on what interchange amount can be conceded to introduce this as a solution - these discussions may stall on this basis. So how will EU address this?
If we exclude the interchange concession being big enough to interest issuers to develop a process / and Apple to generate revenues, then it will need to be 'sold' in the EU as customer (and merchant) utility, rather than issuer savings. And we know that merchants feel overcharged, and customers not prepared to pay (in general).
1. Apple to buy/create a stake in the currency-conversion part of the infrastructure
2. Apple to start thinking about disintermediating the scheme involvement in the EU (test-bed) removing transactions from the interchange regimen by negotiating the deals directly with the acquirers. This would then mean that Apple becomes a pseudo-scheme and would need to have 'skin in the game' in managing the risks and disputes too.
3. Apple and Schemes to enter a longer term agreement not to do 2 (above) but to enter negotiations around a part-disintermediation, with a removal of scheme elements of interchange and a bypassing of the scheme with the transactions, but then with the transactions reported into the schemes so that they can stay franchised and setting the rules (and see the transactions without taking the risk - which would now be significantly reduced.
These are of course options that would of course generate more revenues in the USA, if they adopt these there too thereafter.
I would imagine that this whole set-up is a major threat to the schemes - so I would imagine that the 'heads of term' agreements on the current infrastructure design includes some 'in partnership' / 'will not destroy' long term agreements between these parties for having 'allowed' Apple to play in this space OR some very big threats from Apple to the schemes that they would go for full-disintermediation if they did not 'play game'.
Only time will tell, but what we do know, is that this is going to stir things up and lead to some big legal / court-room disputers in due course and all the parties here have BIG muscles and are very prepared to be aggressive in 'defending their ground' in the courts.
Author of this press release, Bill Trueman is director of RiskSkill.com a global risk review and risk management organization which is specialist in providing all risk and compliance solutions to commercial organizations. For more information about RiskSkill visit http://www.riskskill.com/