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Why the government wants to rearrange your Apple Wallet

LawWhy the government wants to rearrange your Apple Wallet


The Department of Justice’s landmark antitrust case against Apple could affect how consumers pay for everything from coffee to clothes.

In their nearly 90-page suit filed last week, state and federal prosecutors say that Apple’s alleged monopoly over the smartphone market extends to its handling of digital payments. As more people tap their phone screens at retail registers and pay for e-commerce purchases through wallet apps, the iPhone’s features for consumers and policies toward developers create an unfair advantage for Apple, the DOJ claims.

The tech giant rejects that view and has vowed to contest the government’s allegations in court — a process that will likely entail years of legal wrangling. But with the nature of smartphone transactions in play, here’s what could eventually change if prosecutors get everything they want.

More wallet apps

Antitrust enforcers want to give smartphone users more options and control over how they pay with their devices.

Apple currently restricts outside developers from creating their own digital wallets. The Justice Department argues that the policy limits users’ payment options and traps them within the Apple Wallet, the iPhone app that lets users load their debit and credit cards onto their devices. Authorities want to allow developers and banks to create wallet apps of their own that could operate on both Apple’s iOS platform and rival ones like Android.

That would let users transition more seamlessly to non-Apple devices, the suit says, because users could take their digital wallets and financial data with them — potentially spurring greater competition to develop better consumer financial apps and features.

The Apple wallet.
The Apple Wallet app lets users load their credit cards and other payment methods onto their devices.Apple

The lawsuit also challenges Apple’s practice of charging banks up to 15% for credit card transactions on Apple Pay, its digital payments platform, arguing that the fees cut into lenders’ ability to invest in improving the mobile banking experience.

In digital payments and elsewhere, Apple has argued its successes were won fair and square, attested by its huge, loyal customer base. A spokesperson pointed to the statement the company released following the DOJ lawsuit, highlighting Apple’s product design that it said emphasizes privacy, security and seamlessness.

The antitrust suit “threatens who we are and the principles that set Apple products apart in fiercely competitive markets,” the company said. “If successful, it would hinder our ability to create the kind of technology people expect from Apple — where hardware, software, and services intersect.”

Tap-to-pay in more places

The battle over Apple’s digital payments has also put a spotlight on contactless transactions, the method of paying at restaurants and retailers that has become a fixture of consumers’ brick-and-mortar spending.

As part of its restrictions on third parties, Apple limits developers’ access to the iPhone’s near-field communication (NFC) capabilities, the technology that enables the frictionless experience users enjoy with Apple Pay. The DOJ wants Apple to release its hold on NFC, which the agency says would result in a “proliferation of other payment apps” to compete with Apple Pay.

“It’s increasingly an important way that we transact,” said Matt Platkins, the attorney general of New Jersey, one of 15 states and Washington, D.C., that joined the DOJ’s case and the state where authorities filed the suit. “And yet Apple has decided to prohibit you from using it, except on their specific wallet, which is only available on an iPhone.”

“All of that is hurting consumers,” Platkin said, “and limiting their choices in ways that we think violates the law.”

Some of the changes U.S. prosecutors are seeking have already been won in the European Union, where regulators successfully pushed Apple to allow third-party developers direct access to the iPhone’s NFC functionality. That was the only E.U. case mentioned in the DOJ’s sprawling suit.

“It is not an accident that iPhone users can only use one type of digital wallet to tap to pay,” said Adam Rust, director of financial services at the Consumer Federation of America, an advocacy group. “Apple did not invent the near-field-communication technology that powers tap-to-pay, but they are trying to use its iPhone platform to be the exclusive provider for it in digital wallets inside its ecosystem.”

Despite its concessions on NFC access in other parts of the world, Apple has said it remains concerned about users’ security under that approach.

Stiffer competition for other digital banking products

Apple has made strides in recent years to expand its footprint in financial services, from launching Apple Pay in 2014 to the Apple Card in 2019, which gives users 2% cash back on purchases made with an iPhone or Apple Watch. These moves have increasingly drawn the attention of government watchdogs who say they see Apple as another Big Tech player attempting to dominate a core U.S. industry.

In remarks at a Federal Reserve event last fall, Rohit Chopra, director of the Consumer Financial Protection Bureau, said “there is real concern that the large technology firms will be able to erect even more gates and toll booths that will prevent small firms from emerging and succeeding, even when they offer superior products.”

Rust called these efforts “part of a long-term shift from open markets to walled-off gardens,” nodding to Apple’s recent launch of Apple Pay Later — its own buy now, pay later service that competes with the likes of Affirm, Afterpay, Klarna and PayPal. While the antitrust suit didn’t take direct aim at the installment loan offering, Rust said its integration within Apple Pay could give Apple an edge over other lenders.

“It’s not hard to see how a general shift toward mobile-centric commerce could also mean a move away from open competition in financial services,” he said.

Apple has countered that the antitrust push reflects regulatory overreach, saying in its statement that it would “set a dangerous precedent, empowering government to take a heavy hand in designing people’s technology.”



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