Android Pay is a near identical clone of Apple Pay, but it won’t be anywhere near as lucrative, according to a new report. Unlike Apple, Google isn’t taking a cut from Android Pay transactions, so the service will literally be offered for free.
The Wall Street Journal reports that the reason for this is “because Visa Inc. and MasterCard Inc., which operate the dominant payment networks, recently standardized their “tokenization” card-security service and made it free, preventing payments services from charging fees to issuers.”
Tokenization is the system that swaps credit card data like account numbers, expiry dates, and security codes with a unique string of numbers (token) that can only be used once. It’s much safer than traditional transactions, because it means credit card details are never shared with merchants.
Apple is using its own tokenization process, so it has negotiated its own fees with banks and credit card issuers. For credit card purchases, the company takes 0.15%, while for a debit card purchase it’s 0.5%.
Google’s decision to use Visa’s tokenization service means it cannot negotiate a similar deal, and so it won’t earn any revenue from Android Pay, unless it finds another way to monetize it. This could be good or bad for Android Pay users and the service as a whole.
One of the advantages to Google’s approach is that banks and credit card companies are much more likely to embrace Android Pay. But if Google decides it wants to make money from the service somehow, it could mean Android Pay users see targeted ads, coupons, and other sponsored services.
“The new rules are a blow to Google, which had been negotiating with large banks to get the same deal as Apple, people familiar with the situation” told WSJ.
But it could mean that Apple’s existing deals will have to change, too. The company currently has three-year contracts for Apple Pay, and many of them only have around two years left to run. When it’s time to renew them, banks may decide Apple Pay should be free just like Android Pay.
Rick Oglesby, head of research at Double Diamond Payments Research, described the decisions made by Visa and MasterCard as “a bold move on behalf of the banks,” which, after agreeing the deals for Apple Pay, are “now taking a stand against similar deals.”