Apple Pay: three questions to understand what the European Commission blames the digital giant for

Customers visit an Apple store in Shanghai on October 5, 2021.

Customers visit an Apple store in Shanghai on October 5, 2021.


Abuse of dominant position

The European Commission accuses Apple of anti-competitive practices by requiring iPhone users to use its Apple Pay digital wallet, to the exclusion of all others, to make a mobile payment.

Atlantico: This Monday, May 2, the European Commission accused Apple of “abuse of a dominant position” in connection with its contactless payment systems. What exactly does she blame Apple for? What are the economic underpinnings of the case?

Julien Pillot: First of all, it should be understood that the European Commission has opened an investigation for suspected abuse of a dominant position in 2020 on the mobile wallet market, to follow up on indications suggesting that Apple could have voluntarily restricted the access to competing technical solutions on its iPhone terminals. This would therefore have allowed Apple Pay, Apple’s proprietary solution, to become the de facto standard for contactless electronic payment for all iPhone owners, for lack of an alternative. What the European Commission did on Monday, May 2, was to officially communicate the grievances to Apple. This is the logical continuation of the procedure, which gives Apple access to the various parts of the file, and which can allow it to organize its defense.

This procedure fully complies with competition law in Europe, which tends to prevent dominant operators from abusing their market power, for example to hinder innovation, foreclose markets or impose their prices. The European agreement recently concluded around the DMA (Digital Markets Act, European legislation on digital markets) also imposes special monitoring and supervision on players considered to be “gatekeepers” (access controller) who, by their quality , are in a position to impose the conditions of access to certain markets. What Apple is precisely since it is, as the architect of the iPhone and its software infrastructure (iOS, Apple Store, etc.), able to choose whether or not to open its infrastructure to third parties , and if necessary, the technical and commercial conditions under which he would agree to do so.

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The economic basis of cases of this type is to consider that the abuse of a dominant position could ultimately result in a reduction in consumer surplus. In the present case, it is to be feared – according to the European Commission – that the hegemonic position of Apple Pay will result in the exclusion of more efficient solutions, or at the very least, likely to oppose price competition. . Remember that a service like Apple Pay is monetized on the basis of sharing commissions with banking organizations on all transactions carried out through it. Without competition, Apple not only captures all volumes, but is in a strong position to impose its prices on banking organizations. Which could, in turn, shift the costs to end customers. It is this risk that the European Commission seeks to prevent.

For its part, Apple justifies the access restrictions by a concern to ensure the security of its customers. What to think?

It is commonplace for technology players to invoke the argument of security in cases of this type. The logic is also implacable: the more you open your interfaces, and the more they are exploited by a large number of players offering third-party solutions, and the more you mechanically increase the risks of security breaches occurring (and the costs related). However, security is precisely one of Apple’s main commercial arguments: part of the price premium that its customers agree to pay stem from this security promise. Apple knows this, and that is why it denies having wanted to authorize access to its NFC functions to electronic payment services other than its own in order to preserve this security, and the trust that goes with it.

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What do you think of this argument in this specific case? I believe that the market for mobile payments via iPhone (iOS) and phones running Android should be looked at together.

  • On the one hand, Apple controls with its iPhones around 14% of the global market share (30% in Europe) in the telephony market. Apple Pay, a unique payment solution for iPhones, captures 100% of electronic transactions made via an Apple phone.
  • On the other hand, it is estimated that Alphabet captures 84% ​​of the world market share via Android (69.32% in Europe). Its NFC protocols are more open than those of Apple but, in fact, only two mobile payment solutions are really emerging (Google Pay and Samsung Pay) and share most of the market.

However, it is precisely there that lies precisely the most interesting point of the case. If we rely on these figures, Apple Pay should more or less represent only a small fraction of the entire mobile payment market since iPhones are in the minority compared to Android terminals. But this is not the case. In the United States, for example, an estimated 90% of mobile contactless payments are made via Apple Pay. Conclusion: iPhone owners are much more inclined to pay via their mobile terminals than owners of phones running Android. You would think that Apple customers are tech-savvy and have more buying power. But one could also object that Apple’s promise of security is not unrelated to these volumes of use of Apple Pay… I believe that this reflection will be at the heart of the instruction.

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Do we have elements which indicate that Apple was indeed guilty of abuse of dominant position?

The comments made at a press conference by Margrethe Vestager, the European Commissioner for Competition, seem to indicate this clearly: “we have elements indicating to us that Apple has restricted third party access to the key technology necessary to develop competing mobile wallet solutions on Apple devices (…) in favor of Apple Pay, its proprietary solution”.

But beware, if the practices aimed at limiting competition are obvious in this case, they are not devoid of justification as we have seen previously. They are not new either, since Apple has always strived to create a proprietary ecosystem around its devices. We do not discover these practices today!

It would therefore be necessary, it seems to me, first to characterize the dominant position of Apple. On this point, it will be a question of being clear on the definition of the relevant market. While Apple Pay has a monopoly on the contactless payment market operated via an iPhone, it faces competition from Google Pay and Sampung Pay on the contactless payment market via smartphones, and it is clearly marginal in the more global market for contactless payment. contact (very largely dominated by bank cards).

Finally, it will be necessary to justify that Apple’s unilateral refusal to open up its NFC protocols to solutions likely to compete with Apple Pay constitutes an abuse of a dominant position, causing harm to consumers. This is where Apple can make the arguments around security that we discussed earlier. With, in the background, two major questions that need to be answered: 1° can we accept a situation of monopoly of access to a service against a promise of data security? ; 2° are the additional costs linked to security in the event of the opening of the protocols justified, in particular from the point of view of the consumer’s interest?


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