The connection between banks and Apple Pay has been uneasy at times, and the introduction this week of Apple Pay Cash does little to assuage concerns about how far the tech giant’s tentacles may eventually extend into commerce.

Apple Pay Cash is promoted primarily as a person-to-person payment service leveraging Apple’s iMessage feature, similar to how Facebook enables P-to-P payments within Messenger.

But Apple Pay cash also supports purchases at stores, online and within apps, which could be a big deal to banks that reportedly are required to pay Apple up to 15 basis points for credit card transactions, and 1 cent for debit transactions, according to some analysts.

Apple store exterior
Bloomberg News

“Through the business model Apple has built, banks have paid the freight for building Apple Pay, and now Apple is powering merchant transactions through a pathway that essentially cuts banks out of the equation when Apple Pay Cash is used to pay merchants directly,” said Richard Crone, a principal with Crone Consulting.

Apple specifies consumers may only add funds to Apple Pay Cash Card via P-to-P or from a debit card, minimizing the role of credit cards in funding commercial transactions. But that could be small comfort to banks concerned about creeping disintermediation by third parties as mobile commerce expands.

“Apple Pay Cash creates a whole new tender type, and while it may only represent a small stream of transactions now, it will be interesting to see how actively consumers adopt it for making purchases,” Crone said.

Banks and processors contacted for this story referred all questions about Apple Pay Cash to Apple, which declined to comment on the toll banks pay for Apple Pay.

In a sense, Apple Pay Cash is just catching up now to the P-to-P market with a message-based service that also enables purchases. Venmo introduced Pay with Venmo at a handful of merchants in 2014, and in October Venmo expanded opened the feature to more than 2 million merchants that that accept payments from parent PayPal.

Facebook also is steadily building momentum for mobile commerce within Facebook Messenger, and recently expanded its relationship with PayPal to streamline purchases and customer service.

Apple Pay Cash also has much work to do in gaining adoption at this late stage of P-to-P, going up against long-established services like Venmo and Square Cash and now Zelle, introduced this year with broad bank support.

“I think Apple Pay Cash will do extremely well with heavy users of iMessage, but it’s not interoperable across platforms, so Venmo and Zelle will have dominant share,” said Thad Peterson, a senior analyst with Aite Group.

Building Apple Pay Cash required help from major partners.

Green Dot operates as the program manager of an FDIC-insured virtual debit account that consumers may fund for P-to-P transactions with their debit card at no charge, or by paying a 3% fee to add funds from a credit card.

At the merchant level, the Apple Pay Cash Card is issued on the Discover Network, which means users may only make purchases at retailers that accept both Apple Pay and Discover debit contactless transactions. Discover claims more than 90% coverage in the U.S., and most merchants that accept Apple Pay also accept Discover.

Apple Inc. said Apple Pay Cash’s primary function is to make its ecosystem stickier by expanding the ways users may pay for things, and its ultimate goal in doing so is to sell more devices.

Still, many banks don’t feel comfortable with Apple’s approach, underscored by last year’s standoff between the technology company and four of Australia’s largest banks, who complained to regulators that Apple’s refusal to grant them access to Apple’s NFC chip restricted their ability to support mobile payments. The regulators ruled in favor of Apple.

Apple refuses to confirm its arrangements from banks, noting that banks indicate Apple Pay has enabled them to expand transactions through more customer touchpoints since its introduction in October 2014.

Broadening payment functionality has clearly been on Apple’s road map for a long time. In 2015 Apple rebranded its Passbook feature as Wallet, and in the latest iteration, consumers can tap their screen or go into settings to change the default card for Apple Pay purchases, cycling easily between a credit, debit or prepaid card, or the Apple Pay Cash account.

Both the P-to-P feature and the commercial feature are necessary to make Apple's payments equation complete, Crone contends.

“When a consumer makes Apple Pay Cash their default card, they’re motivated to spend that money first instead of switching it to a credit or debit card, and that may create a whole new incentive structure for consumers to use Apple Pay, which is part of Apple’s long game,” Crone said.

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