A lawsuit has been filed against Apple accusing the iPhone maker of “illegally profiting” from payment card issuers through its Apple Pay policies, allegedly taking up to $1 billion a year in fees in breach of federal anti-trust law.
The lawsuit, filed in California on Monday, also accuses Apple of denying rivals access to the technology needed to develop a competing mobile wallet.
It said Apple “unlawfully” linked two of its products — mobile devices and its proprietary mobile wallet — compelling users to exclusively use Apple Pay and foreclosing rival tap-and-pay options, law firms Hagens Berman and Sperling & Slater said in the suit.
While payment card issuers pay nothing when their cardholders use rival Android wallets and other contactless cards, “Apple rakes in billions of dollars from fees from tap-and-pay payments on its platform”.
Apple Pay, the Californian company’s mobile wallet solution on iPhones and iPads, enables payments in shops and online.
“When you compare the functionality of Apple Pay to mobile wallets available on Android devices — Google Pay, Samsung Pay — you’re essentially holding up a mirror … they are essentially identical,” Hagens Berman’s co-founder and managing partner Steve Berman said.
“And yet, the same service on Android that card issuers pay absolutely nothing for costs them a collective $1bn annually through Apple Pay.
“The reason for this is simple … there is competition on Android devices, with multiple wallets offering contactless payments, whereas Apple has barred all rivals, making Apple Pay the only option."
Whenever an Apple Pay transaction is completed on a US issuer’s card, the issuer must pay Apple a fee — 15 basis points on credit and 0.5 cents on debit, according to Hagens Berman.
These fees reportedly generate Apple $1bn a year, and this same service on Android wallets costs payment card issuers nothing.
This revenue stream is predicted to quadruple by next year, the law firm said.
“On the surface, Apple Pay’s fees pushed on to card issuers may seem small, but truly the devil is in the details of Apple’s policies and these fees add up, big time,” Mr Berman said.
The lawsuit has sought Apple to reimburse payment card issuers who have been charged Apple Pay’s fees and demanded injunctive relief to end the company's policies.
In a similar case in May, the EU hit Apple with anti-trust charges for abusing its dominant position in the mobile wallets market by restricting competition.
The 27-nation bloc's executive arm, the European Commission, said Apple had restricted competition in the mobile wallets market by limiting third-party access to key technology necessary to develop rival mobile wallet solutions on its devices.
A mobile or digital wallet stores users’ credit and debit card information, and links it to a payment gateway to allow purchases at a point of sale.
As with credit cards, they only work at merchants that accept them.
Google was the first major company to launch a mobile wallet, in 2011. Today, consumers have a number of digital wallets to choose from, including Samsung Pay, PayPal and Apple Pay.
Consumer spending through digital wallets is expected to reach more than $10 trillion in 2025 — up from $5.5tn in 2020, a 2021 report by Juniper Research in the UK showed.
This is the third time Hagens Berman has sued the Cupertino-based company for anti-trust matters.
In 2015, it secured a combined $560 million settlement against Apple and publishing companies regarding price-fixing of e-books.
Earlier this year, the firm achieved a $100m settlement on behalf of iOS developers who were harmed by Apple’s stifling App Store policies.