There's more trouble on the horizon for Apple's (NASDAQ: AAPL) mobile payment system. The company is preparing to launch Apple Pay in Canada this coming November, but that may be easier said than done.
The Wall Street Journal reported last week that Canada's six major banks -- which control about 90% of the retail bank accounts in the country -- are concerned about Apple's cut of the mobile payments and fear the system has too many security issues.
Apple Pay obstacles
WSJ is saying Canadian banks aren't happy with Apple's transaction fees and want to see Apple take a lower cut. In the U.S., Apple charges 0.15% of every 2% credit card transaction fee, but it could charge Canadian banks up to 0.25% for the same service.
This sounds similar to Apple Pay's current problems in China. The major state-controlled bank in China, UnionPay, isn't happy with Apple's transaction fees either. Apple's still trying to convince the bank, and others, to come on board in the country, and it may have to lower its transaction fee percentage in order to do so.
But the other problem Apple is facing in Canada is over concerns of its perceived lack of security. When the service launched in thee U.S., there were some very public instances of people adding stolen credit card numbers into Apple Pay, because it was easy to do so without having to prove the person entering the information actually owned the card. To stop that, banks have had to set up additional authentication processes for Apple Pay. To be fair, banks are responsible for the security of their own cards, but the ease of entering a stolen card number into Apple Pay makes Apple's system look bad.
Canadian banks will likely have to do the same, but it could cost them money to do so. Setting up a two-step verification process exclusively for Apple Pay probably wouldn't come cheap for the banks, and this gives them some negotiating power in lowering transaction fees.
Apple likely doesn't want to create too many extra hoops for users to jump through to use Apple Pay, since every extra step, no matter how simple, could keep iPhone and Apple Watch users from using the mobile payment feature. But Canadian banks don't want a repeat of the U.S. Apple Pay launch, and they could make security an issue in their negotiations.
This may take some time
Of course, Apple wants Pay to be a worldwide mobile payment system, and adding Canada is the next piece of that. Even with the company's current hiccups, I think there's a lot of promise with this system. Investors need to remember that launching a mobile payment platform isn't the same as releasing a device to masses. There are lots of companies that need to be negotiated with, contracts to be made, and security technologies to be updated.
I think Apple will get all of this straightened out, but it may take a bit longer than the company wants, and it may mean Apple has to charge less for transaction fees in other countries than it does in the U.S. Apple should be open to making less money from Pay in order to get the system into more countries, and then renegotiate deals once Apple Pay has truly taken off. Until then, investors should be patient with the company's mobile payment progress and realize that Apple's playing the long game with this service.