Apple Pay is poised to cross the border into Canada this fall, but some Canadian banks are reportedly concerned that Apple wants a bigger cut of each transaction than it takes in the U.S.
The Canadian banks negotiating with Apple are Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada, according to the Wall Street Journal, citing people familiar with the talks.
In addition to worries over high fees paid to Apple, these banks also want greater security than is used for Apple Pay in most U.S. locations. The Canadian banks are reportedly working through McKinsey & Co. consultants to require secondary authentication before a transaction is completed in Canada, which could be done with a customer typing in a PIN or using a one-time passcode in addition to a fingerprint scan.
In the U.S., a customer with an iPhone 6 or iPhone 6S (and soon the Apple Watch) brings the device close to a payment terminal equipped with NFC (near field communication) capabilities and places a finger on the Touch ID fingerprint scanner on the phone to make a payment. On the Apple Watch, the customer presses the side button beneath the digital crown twice while holding the watch near the terminal.
A big advantage to Apple in moving Apple Pay to Canada is that an estimated 80% or more of payment terminals there are already equipped with NFC. By contrast, fewer than 1 million of the 12 million payment terminals in the U.S. are NFC-ready, according to estimates from U.S. banks and analysts.
In terms of fees that Canadian banks would pay Apple, the Journal reported that Canadians fear they might have to pay 15 to 25 basis points on credit card transactions to Apple, compared with the 15 basis points charged in the U.S. A basis point is 1/100th of a percent, or 0.001.
Moving to Canada is part of Apple's grand scheme to simplify mobile payments globally, including into China. Many of the Canadian banks reported to be talking to Apple already have branches in the U.S., primarily in the northeast.
The challenges that Canadian banks are placing on Apple Pay show that Apple won't have an easy task in going global with the service.
"The Canadian banks have carefully watched what has happened with Apple Pay in the U.S. and don't want to make the same mistakes the U.S. banks made with Apple," said Avivah Litan, an analyst at Gartner, in an email.
In the U.S. rollout of Apple Pay, both Apple and the banks have shared customer "ownership" responsibilities, she said, which means U.S. banks are responsible for any fraud involving the Apple Pay transactions, just as they have been with credit cards. "After that reality hit the banks in the face, I am sure the Canadian banks are questioning why they are paying relatively high fees to Apple when in fact the banks are bringing Apple good business."
Litan said the scrutiny that Canadian banks are applying toward Apple shows that "Apple won't have as easy a ride as they did in the U.S. when they go into other countries."
Apple and several of the banks would not comment on the move of Apple Pay to Canada.