Apple Pay expanding to Canada without Canadian banks

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Apple Inc. has announced that it is expanding the reach of its Apple Pay mobile payments service to Canada later this year, as part of a global rollout. However, the service will be limited to American Express cardholders, suggesting that Canadian banks are not part of the initial launch.

Tim Cook, Apple's chief executive officer, made the announcement during a conference call on Tuesday, following the release of the company's fiscal fourth quarter financial results.

"Apple Pay will be available to eligible American Express customers in Australia and Canada this year, and is expected to expand to Spain, Singapore, and Hong Kong in 2016," Mr. Cook said.

Hours later, Canadian banks were quiet about the announcement despite speculation over the past six months that many of them would welcome the payments service for their customers.

Other than Bank of Nova Scotia, Canadian banks do not offer American Express cards. In Canada, Visa and MasterCard cards outnumber American Express cards by about 18 to 1.

"We believe the greatest success for Apple Pay is with adoption from card brands and issuers across the spectrum, and we look forward to even more payment choices for merchants and consumers over time," Angela Brown, chief executive officer of Moneris Solutions Corp., Canada's largest processor of credit- and debit-card purchases, in a statement.

A spokesperson at Bank of Nova Scotia pointed to the bank's own mobile payments solution that is available to Android and BlackBerry users.

"In addition to My Mobile Wallet, we are interested in other mobile wallet solutions – existing or new to market – and are assessing their value to our customers," the bank said in a statement.

Apple Pay is a service that allows owners of iPhone 6 models to make purchases with their smartphones at merchant terminals equipped with near field communication capabilities, or NFC. Approximately 85 per cent of terminals in Canada are already up-to-date with the technology, according to Moneris, making Apple Pay's launch in Canada a natural market after initial forays in the United States last year and the UK earlier this year.

Apple Pay isn't the first mobile payments service available to Canadians. Some of the big banks have already developed their own payments services, but they are largely restricted to Android and BlackBerry phones, making adoption among consumers limited.

A recent survey by consultancy Accenture found that 23 per cent of millennials are using their smartphones to make purchases, versus 18 per cent for other age groups.

Apple Pay is the first system available to owners of iPhones, which comprise about 40 per cent of the smart phone market in Canada.

Some observers believe this is a big deal, given Apple's uncanny ability to lead consumer trends. According to Juniper Research, the launch of Apple Pay in the UK earlier this year heightened the awareness of mobile payment options among the public, making the system a potentially critical factor in increasing usage among consumers.

Canadian banks have had an awkward relationship with Apple and other technology giants, though. On the one hand, the banks are keen to give their customers the ability to do their banking and purchasing how they want, when they want – and Apple Pay fits with that mandate.

However, the banks also have spoken of technology companies as potential rivals, noting that Apple Pay can push down the profile of banks among their customers.

"The last thing anybody wants is to have someone between you and your customer, and that's what we now have in the payments space," Dave McKay, Royal Bank of Canada's chief executive officer, told a New York audience in March.

There is also the issue of fees. When Apple Pay was launched in the United States in 2014, many U.S. banks rushed to offer the service to their customers. They reportedly agreed to pay Apple a fee of 0.15 per cent of all purchases, or 15 cents for every $100 – which a number of other banks now believe is onerous.

The Financial Times reported in July that UK banks struck an agreement with Apple for substantially lower fees, paying a few pence per 100-pound transaction.

Even then, Barclays was a notable holdout among UK banks during the initial rollout, preferring to focus on its own payments service called bBay, which allows consumers to pay with a variety of wearable devices, such as fobs and stickers, which can be pre-loaded with cash.

According to Robert Sedran, an analyst at CIBC World Markets, credit-card-fee revenue accounts for an average of just 2.9 per cent of the revenues of the Big Six. This suggests that even widespread use of Apple Pay wouldn't pose a big threat to the banks.

In the conference call with analysts, Mr. Cook said that Apple Pay is seeing double-digit growth in transactions.

However, some observers have noted that the adoption by consumers in the U.S. has been slow. Infoscout, a retail data analytics firm, said recently that the percentage of U.S. iPhone 6 users who have tried Apple Pay fell between March and June, to 13.1 per cent.

Editor's note: The online version of this story has been corrected to reflect the fact that Bank of Nova Scotia offers an American Express card.