“Apple reportedly has reached deals to lower its card transaction fees with five of the largest financial institutions in the nation as part of the Silicon Valley giant’s to-be-launched payments venture,” Ian Kar reports for Bank Innovation. “The financial institutions are American Express, JP Morgan Chase, Citigroup, Capital One, and Bank of America.”

“The first thing Apple has done is convince these [five] FIs to consider transactions from Apple’s upcoming payments venture — said to launch with its forthcoming iPhone 6 introduction — as ‘card present’ transactions, which carry a lower discount rate than ‘card not present’ transactions, because of lower fraud risk,” Kar reports. “Beyond that, Apple has also managed to bump down the actual ‘card present’ rate by 15 to 25 basis points, according to people with knowledge of the talks. Normal ‘card present’ discount rates, which are shared by issuers and networks but determined by the network, are about 1.5%, which means that Apple appears as though it will get around a 10% discount on the processing rate it will pay.”

“Apple was apparently adamant about getting the card-present rates and told issuers that it would assume some of the fraud risk inherent in every transaction by providing a secure element via biometric authentication (its TouchID feature) and location data provided through an NFC chip. The Apple payments platform will work with all of their cards,” Kar reports. “Banks offered the discounted fee for two reasons: for the Apple payments platform to accept all of the cards from the issuers, and for Apple to assume some of the liability by including two secure elements that will authenticate transactions — location data via the NFC chip, and biometric security. This is essentially a wash for the financial services industry: they lowered fees for Apple for the privilege of being included in Apple’s payments initiative, but managed to put some of the transaction risk to Apple.”

Much more in the full article here.

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