Will Apple open NFC?

Apple has already been under scrutiny of the EU authorities in several occasions: in a case that is not yet settled, the tech giant is accused of harming competition in the books and music streaming services within its App Store. This time, the European Commission has informed Apple of its preliminary view that it abuses its dominant position in markets for mobile wallets on iOS devices.

According to the EU “Statement of Objections,” a preliminary step in the investigation, Apple is accused of breaking EU law in the way it operates its Apple Pay wallet as it prevents mobile wallet app developers from accessing the NFC hardware and software on its devices. Competition Commissioner and Executive Vice-President of the European Commission Margrethe Vestager says: “We have indications that Apple restricted third-party access to key technology necessary to develop rival mobile wallet solutions on Apple's devices. (…) Apple may have restricted competition, to the benefit of its own solution Apple Pay.” According to the EU, Apple’s exclusionary behavior “leads to less innovation and less choice for consumers for mobile wallets on iPhones.”

The EU has the ability to levy fines up to 10% of Apple’s global revenue, which was US$ 378 billion (EUR 359 billion) in 2021, as well as force changes to the company’s business practices.

The case had been started in 2020. As of now, only Apple is in a position to enroll cards onto its Apple Pay NFC wallet and only Apple has access to its built-in Secure Element, which includes the tokenized PAN and other card data. In addition, Apple Pay transactions are authenticated thanks to biometrics, fingerprint or face recognition, which is under control of the Secure Element. Consequently, Apple Pay is the only option on iPhones, at least as of now. Apple Pay is used by more than 2,500 banks in Europe and over 250 FinTech and challenger banks.

However, over the last couple of years, Apple has already been slightly opening access to the NFC functions on iPhones and iPads by providing APIs that support the NFC Tag Read functions. The API allows to read ISO7816, ISO15693, FeliCa, and Mifare tags, but Apple states explicitly that “Core NFC doesn't support payment-related Application IDs,” and does not provide any access to its Secure Element. Also, Apple already announced it was opening access to more NFC and Secure Element functions to developers to allow the use of an iPhone as a SoftPOS, a feature they call “Tap to pay.”

Apple’s defense goes along the same lines as usual: the company claims that by controlling more parts of the ecosystem, they provide a safer and more privacy-friendly environment. Nonetheless, Margrethe Vestager declared: “Our investigation to date did not reveal any evidence that would point to such a higher security risk. On the contrary, evidence on our file indicates that Apple's conduct cannot be justified by security concerns.”

This action takes place while the DSA, European Digital Service Act, and DMA, Digital Markets Act are under discussion along the EU legislative process. The DSA and DMA attempt to make competition more even for all players by restricting the powers of the giant players in the digital field. Apple has objected to a number of provisions outlined by the EU, particularly those that loosen the company’s grip over the App Store (from which Apple collects significant revenue), according to The Verge.

While we all know lobbying plays a significant but obscure role in political decision making, this time, the tip of the iceberg is becoming to appear. PayPal is reportedly behind the European Commission's (EC) decision to take a closer look at how Apple locks down NFC payments on its iPhone hardware. PayPal, which has its own NFC payment service running on Android, was one of multiple companies making informal complaints about the situation to the commission, according to Bloomberg. One may also relate the launch of this legal action in the payment field with rumors that surfaced a couple months ago saying that Apple was considering expanding its offer in the payment field, a project that would face a strong opposition by established players.

Photo credits: Photo by Rubaitul Azad on Unsplash, by Hưng Nguyễn on Unsplash and by zhang kaiyv on Unsplash