The European Union has accepted commitments from Apple over its operation of Apple Pay, settling a long-running competition investigation. Margrethe Vestager, the Executive Vice-President of the European Commission responsible for competition, announced this development at a press conference on Thursday.
Apple now has until July 25 to implement changes that will allow developers of rival mobile wallets to offer contactless payments via NFC (Near Field Communication) technology, the predominant standard in the EU. These changes will enable competitors to provide their users with “tap and go” payment functionality. Furthermore, they will gain access to key iOS features, such as the double-click function to launch apps, as well as Face ID, Touch ID, and passcodes for authentication.
Notably, Apple will also permit users to set third-party wallet apps as their default instead of Apple Wallet.
The Investigation Journey
The EU’s competition division launched a formal investigation into Apple Pay back in June 2020, following several complaints. Initially, the probe covered Apple Pay in its entirety but later narrowed to focus on contactless payment technology.
In May 2022, the EU reported preliminary findings indicating that Apple had abused its dominant position by blocking competitors from offering NFC-enabled contactless payments on the iPhone. This restriction prevented rivals from developing competitive mobile wallets, thereby skewing the market in favor of Apple Pay.
The EU specifically criticized Apple for restricting the ability of rival apps to communicate wirelessly with NFC payment terminals, a capability Apple Pay exclusively enjoyed. This limitation, according to the EU, unfairly bolstered Apple’s market share in contactless payments.
Apple’s Commitments
In response to the EU’s findings, Apple was invited to respond to the Statement of Objections in May 2022. By January 2024, Apple proposed a series of changes aimed at resolving the case. This proposal included allowing third-party developers to access NFC functionality on iOS devices via APIs free of charge, without relying on Apple’s payment or wallet technologies.
However, Apple’s initial offer still restricted access to a special chip known as the secure element, used to enhance transaction security in Apple Pay. Instead, Apple proposed using Host Card Emulation (HCE) mode to provide “equivalent access” to NFC components, enabling third-party wallets to store payment credentials and complete transactions securely without accessing the secure element.
Other promises from Apple included providing third parties with additional features and functionality, such as setting preferred payment apps by default and accessing authentication features like Face ID. Apple also committed to applying FRAND (Fair, Reasonable, and Non-Discriminatory) terms when deciding on NFC access.
Strengthened Commitments
Vestager announced that the EU had accepted Apple’s offer after requesting further improvements. She emphasized the negative impact on innovation and consumer choice due to Apple’s market exclusion of competitors, labeling such behavior as harmful and illegal under EU competition rules.
Following extensive feedback from banks, app developers, card issuers, and financial associations, Apple enhanced its commitments. The improved remedies, now legally binding on Apple, include:
- Removing the requirement for developers to have a Payment Service Provider (PSP) license or a binding agreement with a PSP to access NFC input.
- Evolving the HCE architecture to comply with industry standards used by Apple Pay.
- Shortening deadlines for resolving disputes, among others.
These commitments align with the EU’s updated competition rulebook, the Digital Markets Act (DMA), aimed at boosting competition by imposing upfront obligations on major platforms. Vestager noted that Apple’s commitments on Apple Pay exceed DMA requirements, incorporating monitoring and dispute resolution mechanisms.
A New Era of Competition
From now on, Apple can no longer use its control over the iPhone ecosystem to exclude mobile wallet competitors. This decision opens up opportunities for innovation and choice while maintaining secure payments. The commitments are binding for 10 years, with severe penalties for non-compliance.
An EU spokesperson stated, “Today’s decision makes the commitments offered by Apple legally binding. If Apple does not honor such commitments, the Commission may impose a fine of up to 10% of its total annual turnover or a periodic penalty payment of 5% per day of its daily turnover for every day of non-compliance.”
In response, an Apple spokesperson said, “Apple is providing developers in the European Economic Area with an option to enable NFC contactless payments and contactless transactions for various uses from within their iOS apps using Host Card Emulation based APIs. Apple Pay and Apple Wallet will continue to be available in the EEA for users and developers, providing an easy, secure, and private way to pay and present passes seamlessly.”
With this landmark decision, the EU aims to foster a more competitive and innovative market, benefiting consumers and developers alike.
