Why Apple's Next Antitrust Battle Is Likely to Be Over Payments

Apple, Inc. AAPL gave in to pressure from regulators and App Store developers and made some concessions, but the next battleground will be on payments, according to Bloomberg columnist Mark Gurman

Financial Services Key For Services Hitting Target: Apple's policy of mandating that iPhone owners use Apple Pay if they want to buy via phone tap is frustrating to rival financial apps, Gurman noted.

This policy means PayPal Holdings, Inc. PYPL and Block, Inc. SQ as well as financial institutions like JPMorgan Chase & Co.'s JPM Chase, Citigroup, Inc. C and American Express Company AXP cannot launch tap-to-pay iPhone apps with their own features and interface, the Apple writer said. Additionally, they must pay up to a 0.15% fee for every Apple Pay credit card transaction, if they want to use the iPhone user base, he added.

Although this has been an issue for more than two years, the European Union is now getting involved by making a formal antitrust complaint, Gurman said.

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Sales from Apple Pay and other financial services now account for a small proportion of Apple's services business, likely fetching $1 billion per year out of the $20 billion run-rate for the services business, the Apple specialist estimates.

"While $1 billion per year may seem small for Apple, that could be the difference between reaching or not reaching annual growth targets in the services segment," Gurman said.

Apple Could Finally Yield: Gurman said the bigger concern is future revenue, given expectations for contactless transactions as a percentage of total transactions will increase significantly. The analyst estimates that in the future, it would cost Apple many billions of dollars if it gives the tap-to-pay option to third-party apps.

Apple, however, maintains that its insistence on reserving tap-to-pay capabilities for Apple Pay has more to do with privacy and security than with money.

"The company says that opening up NFC [near-field communication] could harm its system and pointed to a report from 2016 that said NFC access on Android has been compromised by hackers," Gurman said.

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Even though Apple Pay is more convenient than anything third-party banks may come up with, it shouldn't hurt the tech giant to at least give consumers the option, the Apple writer said.

Gurman is of the view that the European Commission could force Apple to make the change.

Apple closed Friday's session 0.47% higher at $157.28, according to Benzinga Pro data.

Photo: Courtesy of apple.com