Regulating Internet Payments in the Digital Era: The Case of Apple Pay and the Apple Ecosystem

Abstract

This paper discusses the impact of Apple Pay on the processes of collection and distribution of electronic payments. In particular the discussion is focused on the applicability and enforcement of banking, privacy and security practices to Apple Pay compared to other payment systems.

Apple Pay is a disruptor and innovator that is a latecomer to the industry. Apple, the platform owner of the Apple pay application, decided not to enable NFC features in Apple devices running iOS hardware or software due to incompatibilities with their platform. The growth in the market for devices that could perform electronic payments, in particular mobile payments, was not slowed by their decision (Mayo, 2016).

In 2018, Apple recorded 44% of the total transactions for the USA market. Apple has a 30% market share worldwide of devices (451 Research, 2018). Traditionally electronic payments have been made through highly regulated banking systems that clear payment and keep detailed information on transactions. Apple Pay’s business model puts its service proposition as a broker between a user and the provision of the service and the banks, adding an extra layer of complexity and splitting the share of revenue from each transaction away from the service provider and banks.

Questions arise as to how to ensure that Apple usage of the data mined from these transactions complies with banking regulations and whether the position Apple Pay is gaining allows them to shift rules determining their relationships with the banks. Apple has conflicted with, and won suits against publishers, health data collectors, etc. Another standoff could occur with a financial institution.

Challenges are ahead for regulators and those involved in analyzing the evolution and sustainability of digital ecosystems. Apple Pay as a product is not a pure innovator but a result of Apple’s ability to be good repacker of technology – as was shown in 2007 with the design of the iTunes interface – and implementing regulation of electronic payment transactions might not achieve the goal of preventing market domination but instead affect innovation by startups causing new development to stagnate.

But if that is the case, couldn't we say that Apple Pay’s dominant role and growth inhibits new players or service providers from joining this market? How to ensure that the mobile electronic payment market is not dominated by just one firm?

Moreover, Apple has access to data and information that banks have not been able to consolidate, which has been collected from the start with the goal of analysis at the level of meta and individual data, giving Apple a head start in offering financial services to their users.

In our process of analysis of the evidence we propose a dynamic model of assessment of Apple Pay data collection to ensure there is an open ecosystem of innovation in the mobile payment sector, whilst at the same time making individual data accessible and usable by all of those willing to provide services.

References:

2016 Mayo, “Apple Says Opening up iPhone NFC Would ‘Fundamentally Diminish’ Security as Australian Banks Resist Apple Pay.” 9to5Mac.

2018 451 Research. “451 Research: Apple’s Gamble on Three New IPhones Pays Off.” Insight in the Age of Digital Disruption. New York, USA, 2018.

Keywords: ApplePay, Mobile Payments, Competition, Open Ecosystem, Big Data, Privacy