23 January 2019
Google's new payments service, Android Pay, will not earn transaction fees from credit card issuers. Photo: Bloomberg
Google's new payments service, Android Pay, will not earn transaction fees from credit card issuers. Photo: Bloomberg

Google misses out on Apple’s slice of mobile transactions

Google won’t earn any transaction fees from credit card issuers for its mobile-phone payments service because of the evolving ground rules for the business.

And credit card issuers hope the changes will pressure Apple to trim or eliminate its fees, the Wall Street Journal reported, citing industry executives.

When Apple launched its payments service Apple Pay late last year, hundreds of financial institutions scrambled to work with the technology giant, afraid of being left at a competitive disadvantage.

As a result, big banks and other card issuers agreed to give Apple 0.15 percent of the value of each credit card transaction, the newspaper said.

For bank debit cards, Apple collects a half-cent per purchase.

But then Google unveiled its payments service, Android Pay, in late May, stepping up the competition with Apple Pay.

Google, however, isn’t getting transaction fees from bank issuers, the Journal said, citing people familiar with the situation.

That is because Visa and MasterCard, which operate the dominant payment networks, recently standardized their “tokenization” card security service and made it free, preventing payments services from charging fees to issuers.

Tokenization swaps cardholder data such as account numbers with a unique set of numbers that validates a customer’s identity. Merchants never get the actual card data, eliminating one avenue for online data theft.

“There is one agreement with Visa and the banks can have confidence that there are no pass-through fees,” Visa president Ryan McInerney was quoted as saying.

Banks and payment services can make other deals including fees, such as marketing arrangements.

Visa unveiled its new tokenization service on May 28, the same day that Google announced Android Pay and said it had signed on to Visa’s service.

The rules may prompt changes in Apple’s agreements with banks, the report said. Some bank executives said they are unhappy with sharing fees and may use Google’s no-fee arrangement to try to persuade Apple to alter its deals.

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