Apple Pay is set to face a significant legal challenge as a judge has ruled against the tech giant’s motion to dismiss an antitrust lawsuit. The case, brought by three credit unions, alleges that Apple has established a 100% monopoly on mobile wallets for iPhones and Apple Watches, which has raised concerns about competition and fees within the mobile payments industry.
Antitrust Issue at the Core: While this lawsuit is the latest development, the underlying issue has been a point of contention for some time. At the heart of the various Apple Pay antitrust cases lies a fundamental fact: Apple does not permit competing mobile wallet apps to access the NFC (Near Field Communication) chip in iPhones and Apple Watches. This limitation means that Apple’s own Wallet app is the exclusive option for conducting contactless transactions on these devices.
The European Union’s Investigation: The European Union initiated an investigation into this practice in 2019, probing it as a potential antitrust violation. Similar concerns have been raised by competition regulators worldwide. Apple’s approach has drawn scrutiny because it restricts consumer choice and requires banks, credit unions, and financial institutions to partner with Apple Pay to enable contactless payments on Apple devices—a partnership that involves transaction fees.
Payment Limits Differentiate Mobile Wallets: One critical factor that sets mobile wallet apps apart from contactless cards is payment limits. While contactless cards have transaction value limits and can be misused immediately upon theft, mobile wallets like Apple Pay employ a security standard called EMV Payment Tokenization. This standard mandates user authentication, making it impossible for thieves to use stolen devices for unauthorized transactions. Apple Pay and similar services are not subject to the same transaction limits as contactless cards, offering enhanced security.
The Credit Union Lawsuit: In response to Apple’s restrictions, three U.S. credit unions filed a lawsuit, accusing Apple of monopolistic behavior. Apple argued its case, emphasizing the availability of alternatives like physical cards and QR code-based mobile wallets. However, the judge has now ruled against Apple’s motion to dismiss the case.
U.S. District Judge Jeffrey White has allowed the plaintiffs to proceed in their attempt to prove that Apple violated the federal Sherman antitrust law. The lawsuit, led by Illinois’ Consumers Co-op Credit Union and joined by Iowa’s Affinity Credit Union and GreenState Credit Union, asserts that Apple’s practices result in over $1 billion in excess fees for more than 4,000 banks and credit unions using Apple Pay. Additionally, it claims that consumers are adversely affected by these practices, as they diminish incentives to enhance the safety and convenience of Apple Pay.
Apple Pay’s legal battle is gaining momentum as the antitrust lawsuit advances. The outcome of this case could have significant implications for the future of mobile payments and competition within the industry. It remains to be seen whether Apple will be required to open up its NFC chip to competing mobile wallet apps or face regulatory consequences.
