Visa and MasterCard, the two largest payment networks, has established a new standard that practically makes mobile payment transactions free of charge. This is a good news, bad news situation for Google, who just launched its Android Pay late last month. On the one hand, it might mean that merchants will be more willing to embrace the new payment system due to the absence of hidden fees. On the other hand, this means that Google won’t have one “feature” that Apple Pay has: a cut for every payment transaction made.
Visa and MasterCard’s new standard utilizes tokens instead of handing over users’ actual information. It has also made the service free of charge. Not only does this eliminate one possible venue for security problems, it also eliminates the need for processing and the accompanying processing fees. This is a relatively new development and was, in fact, only announced at the same time Android Pay was, making Google one of the first to use it.
Apple Pay, on the other hand, preceded this and was, therefore, able to make a much sweeter deal, at least for itself. Thanks to Apple’s weight, it was able to make banks and card issuers agree to a 0.15 percent cut of all credit card transactions and a half-cent per purchase “tax” for debit cards. This is one aspect that Google will be missing out on, but it might eventually work out in the long run.
There are other ways for Google and other mobile payment services to make money, as the new standard doesn’t exclude the possibility of charging for marketing or licensing. This might very well be how Google will profit directly from Android Pay. It just won’t be as fat a cash cow as Apple Pay. That said, this might actually help drive Android Pay adoption up, as merchants won’t have to fear having to share profits with Google.
Apple won’t be entirely unaffected either. For now, the contracts that allows them to receive cuts still stand, but sources claim that most of those will expire in two years. By then, Apple will have to renegotiate with card issuers and banks, and the latter are hoping to be able to use the new rules as a deterrent to any future profit sharing.
SOURCE: The Wall Street Journal