Apple Pay is a huge hit with America’s banks. Even though many retailers; including Walmart (NYSE: WMT) and Kroger (NYSE: KR), are saying no to the solution – 1,443 banks and credit unions are supporting Apple Pay.
The institutions supporting the app range from JP Morgan Chase (NYSE: JPM); America’s largest bank, to such local organizations as the Denver Fire Department Federal Credit Union and the Earlham Savings Bank.
The numbers indicate that Apple (NASDAQ: AAPL) has had little or no trouble selling the financial services industry on its payment solution. To see a full list of the banks supporting Apple Pay visit Apple’s official website.
Apple’s relationship with American banks is far better than the situation in Australia. Four of that country’s largest financial institutions are trying to force the Australian Competition and Consumer Commission to regulate Apple Pay. The banks are doing that by demanding the right to enter into a collective bargaining relationship with the tech giant, the Australian Broadcasting Corporation (ABC) reported.
How Uncle Sam is Subsidizing Apple Pay
There is an interesting reason for the widespread acceptance of Apple Pay among U.S. banks and credit unions that many Americans do not realize. Your Uncle Sam is partially subsidizing Apple Pay; by underwriting its insurance costs, through the Federal Deposit Insurance Corporation or FDIC.
The FDIC provides $250,000 in deposit insurance for every depositor at most banks and credit unions. That means it; and not Apple or the bank, might be responsible for the losses that might be incurred if Apple Pay failed or got hacked.
Retailers on the other hand would be responsible for losses if their systems failed. Target (NYSE: TGT) had to pay $10 million after hackers stole credit and debit card data for 40 million of its customers in 2013. The retailer also had to cover the costs of providing each victim with credit monitoring and identity theft protection for a year.
Since Apple reported having $61.76 billion in cash and short-term investments $220.29 billion in revenues on June 30, 2016. One has to wonder how long before charges of “corporate welfare” are raised about Apple Pay. Retailers like Kroger might lead that charge if the public starts demanding that they accept the solution.
Such an issue might come to the forefront if and when Apple Pay gets cracked by hackers. Walmart in particular might become very critical of Apple because it offers its own solution the form of Walmart Pay.
Another major problem for Apple here is that it is not subject to the kind of regulation or oversight that banks are. Sooner or later the FDIC, the US Federal Reserve or the US Treasury Department might have to take action. Walmart which offers financial services through many of its 4,600 stores presents an even bigger problem for the government.
An Opportunity for Chase Pay
All this presents an interesting opportunity for JPMorgan Chase which is slowly rolling its solution: Chase Pay. Since Chase is a bank, it is already subject to regulation and it is FDIC insured.
More importantly, Chase can legally offer a full range of banking services including loans, access to cash from ATMs and lines of credit that Apple cannot. That puts Chase in a unique opportunity to become the leader in the payment app sector fairly quickly.
Chase is expanding quickly it is now accepted at Phillips 66, 76 and Conoco gas stations, Business Insider reported. Phillips 66 (NYSE: PSX) does not accept Apple Pay; but it was part of the Merchant Customer Exchange, or MCX. The MCX is the consortium of retailers that tried to develop the now defunct Current C payment app.
It looks as if Chase Pay is slowly being accepted by the MCX members. That might give Chase a dominant position in payment that is sure to attract regulators’ attention. The MCX’s members included Walmart, CVS Pharmacies and Target.
The big opportunity for Chase would be to get Chase Pay integrated with Walmart Pay. Were that to happen, Chase might be in a position to force Apple and Alphabet (NASDAQ: GOOG); which offers Android Pay, to integrate their payment apps with it. Such a scenario would make Chase the dominant player in App payment and attract the attention of both politicians and regulators.
The widespread acceptance of payment applications by financial institutions is raising serious political questions that are not being answered. Apple in particular needs to look into these matters; because it might face a serious backlash over its foray into financial services.