Apple Pay to expand into Canada

Apple (NASDAQ:AAPL) is gearing up to expand Apple Pay internationally, starting with Canada.

The company is already in negotiations with Canada's six biggest banks, a source familiar with the matter told the The Wall Street Journal. If the rumors are true, Apple Pay could extend into Canada as soon as November, giving Canadian consumers the ability to shop goods via mobile debit and credit payments completed using their iPhones and Apple Watches.

Canadian banks are open to an agreement despite an aversion to Apple's fee proposals and uncertainty regarding security vulnerabilities, such as those that have already been experienced by U.S. banks that have rolled out the service.

Lenders purported to be engaged in talks with Apple include the Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada. These banks account for more than 90 percent of retail bank accounts in Canada, meaning Apple Pay's Canadian launch would be nearly ubiquitous if talks reach a successful conclusion, according to WSJ.

Apple Pay's swift entry into Canada shouldn't be surprising. Research firm Catalyst reported that iPhones account for about one-third of the Canadian smartphone market, compared with the iPhone's roughly 20 percent share globally.

Apple first introduced Apple Pay in the U.S. market in October, meaning a successful launch in Canada would come just one year after its global debut. According to Apple, Apple Pay accounted for two-thirds of all contactless payments conducted on the three major credit card Networks—Visa, MasterCard and American Express—by late January.

The international expansion of Apple Pay has already been publically discussed by Apple, with Canada and China as the suspected forerunners in the global rollout. Now that Canada has largely been confirmed as the next national recipient of the service, the question remains as to when China will adopt it as well.

For Canada, the biggest hinderance to the deal with Apple may be what banks consider "onerous" terms of commercial agreements for Apple Pay, according to knowledgable sources, and Canadian banks may face higher costs than their U.S. counterparts.

Apple charges 15 basis points per credit card transaction and half-a-cent per debit transaction on Apple Pay, according to payments industry professionals, reported WSJ. But while U.S. banks are only accountable for 15 basis points per credit card transaction, Canadian banks may fall in the range of 15 to 25 basis points, according to one of the knowledgable sources.

Apple has never publicly acknowledged its take from Apple Pay transactions.

Canadian banks are already struggling with declining credit card revenue and worries about the potential need to absorb higher costs for mobile payments. Payment networks don't currently charge higher fees for mobile payments than for transactions using physical cards, but many merchants think fees could increase once mobile payments spread.

Fees aren't the only issue. U.S. banks have already been hit by incidents of fraud through Apple Pay when criminals exploited the insufficient verification systems used by some institutions, which forced banks to change security procedures.

As a precaution, Canadian banks are rumored to want Apple Pay to utilize "secondary authentication" that verifies customer information before using phones to process payments. Secondary authentication would entail the customer using a PIN to log in to a mobile banking app, or using a one-time passcode sent via text before cards can be used on Apple Pay, according to the sources.

The mobile payment market is expected to reach $142 billion by 2019, according to Forrester research, and new solutions currently deployed by retailers are already making mobile payments easier for shoppers. Canada may be hesitant about the terms of Apple Pay, but its overall benefits may prove to be a definite boon to Canadian retail.

For more:
-See this Wall Street Journal story

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