Apple Pay's expansion to Canada faces cost and security questions

A Wall Street Journal report casts aspersions on service’s cost, security and ease of use

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Apple Pay will be expanding into Canada this fall, according to unnamed sources cited by the Wall Street Journal. The newspaper report adds a few more questions about Apple’s mobile payment system to what is already a long list of unknowns.

One of the big questions is just how successful and desirable Apple Pay would be if and when it launches in Canada.

As the WSJ report notes, Canada is in good shape to accommodate the payment system, which lets iPhone 6 and Apple Watch owners pay by waving their devices over a point-of-sale terminal. More than three-quarters of Canadian merchants are already equipped with the technology for contact-less payments, compared to just 2% in the United States. The infrastructure to allow mobile payments is firmly in place here.

However, that same near-ubiquity is also an obstacle for Apple. Tapping a credit card to make a payment, after all, is just as simple as waving a phone or watch. Apple would need to convince its customers that its method is somehow superior.

That could be tough given some of the doubts raised by the WSJ report. Canada’s big six banks—Royal Bank, Toronto-Dominion, CIBC, Scotia, National and Bank of Montreal—are apparently concerned about costs and security. If either of those issues develop legs, Apply Pay could be dead on arrival or give Canada a pass altogether.

Apple is reportedly asking for a higher base cost per transaction than in the United States, although the article doesn’t say why. An unnamed source says the cost could be up to 25 basis points per transaction, compared to 15 down south (a basis point is 1/100th of a percentage point).

The banks apparently find this “onerous,” which means the extra cost would likely be passed on to consumers and could make Apple Pay more expensive to use than credit cards. That would be an immediate non-starter for the majority of users.

A spokesperson for Apple would not comment on the report.

The newspaper’s sources also say the banks have formed a consortium and hired consultancy McKinsey & Co. to develop an additional security protocol for Apple Pay. The banks are apparently spooked by reports of a rise in fraud activity over the system and are looking to add a secondary verification measure, such as requiring users to input a PIN code.

Apple Pay’s big selling point is ease of use, so adding an extra step would also be a big detractor to its uptake. It’s hard to imagine Apple accepting such terms.

It’ll be interesting to see how Apple’s talks with the Canadian banks plays out, but at this point it looks suspiciously like someone is trying to negotiate through the media. Casting aspersions on the cost, security risks or ease of use for Apple Pay seems like a good way to get the company to budge on some of its demands and requirements.