The European Commission says Apple Inc. must change its app store practices or potentially risk steep fines, but industry experts are unsure whether the commission’s actions are necessary.
The commission’s competition authority issued a statement of objections on May 2, claiming that the consumer electronics giant had unlawfully blocked third-party app developers from using near-field communication technology, or NFC, for their mobile wallets. Apple Pay is the only mobile wallet that can access the NFC input needed on iOS devices like the iPhone and iPad to enable contactless payments.
“We found beforehand that Apple may have restricted competition, to the benefit of its own Apple Pay solution. If confirmed, such behavior would be illegal under our antitrust rules,” Margrethe Vestager said. , head of the commission’s competition policy authority, in a prepared statement. Remarks.
Apple quickly denied the allegations.
“Apple Pay is just one of many options available to European consumers to make payments, and has ensured equal access to NFC while setting industry-leading standards for privacy and security,” a company spokesperson told S&P Global Market Intelligence. “We will continue to work with the Commission to ensure that European consumers have access to the payment option of their choice in a safe and secure environment.”
Domination versus competition
Although the mobile wallet market remains competitive, some experts disagree on whether the European Commission’s latest actions will enhance or hinder future innovation.
“The European Commission is trying to make this argument that Apple Pay or Apple has some kind of dominance here that they’re abusing,” said Mark Jamison, senior fellow at the American Enterprise Institute. “If it abuses it, it doesn’t do it very well. Some of these other companies do quite well.”
It named PayPal Holdings Inc. as the world’s most downloaded payment app in the first half of 2021, citing data from Apptopia.
the European Commission efforts to spur competition and innovation could end up having the opposite effect, he warned. Regulatory risk creates a deterrent to developing new features if government officials force them to cede their intellectual property to competitors, Jamison said.
“Companies build things with a business plan that makes them invest in those features,” Jamison said. “Having the government step in and say, ‘Oh, no, I’m going to take control of this’ really discourages innovation in the future.”
To open the door
NFC is a communication tool, not a payment protocol or piece of intellectual property, said Chris Meserole, a foreign policy fellow at the Brookings Institution and research director for the Brookings Artificial Intelligence and Emerging Technology Initiative.
He also takes issue with Apple’s longstanding argument that it limits third-party access to contactless payments to increase security.
“It’s entirely possible for a third-party vendor to write an app that also has access to NFC and also addresses most security issues,” Meserole said.
Other leading tech companies are eager to capitalize on the digital payments area of the fintech space. Alphabet Inc.’s Google Pay and Samsung Electronics’ Samsung Pay are NFC-enabled contactless mobile payment apps that allow users to pay at public transit turnstiles or grocery store cash registers by waving their Android device over a payment terminal.
Plus other alternative payment methods like Zelle, Venmo, PayPal, Google’s Android and Samsung could use sideloading apps to take advantage of NFC technology to create a more competitive mobile payment market, Meserole said. Sideloading, which Apple does not allow, gives users the ability to install apps from third-party app stores.
“The more choices consumers have, the more likely it is that consumer demands will be met,” meserole mentioned.
Apple’s price tag
Following the statement of objections, Apple will have a deadline to respond and request a meeting. If the competition authority decides to take legal action, Jamison said most likely mechanism would be heavy fines.
Under EU competition law, fines can reach up to 30% of a company’s relevant sales, depending on the seriousness of the infringement. In this case, it would represent revenue from Apple’s mobile wallets and related services, a Commission spokesperson told Market Intelligence. . The fine is capped at 10% of the company’s global annual turnover.
Notably, the company’s battle with European regulators is being fought on several fronts.
The company also faces the Digital Markets Act, an upcoming European law that aims to regulate online platforms. Among the law’s many provisions, it would prohibit major online platforms from self-preferring, where tech companies promote their own products over those of their competitors. Apple could no longer give preference to its own application store, and should therefore allow sideloading.
Apple CEO Tim Cook called the practice a threat to Apple and its consumers at a privacy conference last month.
“When you start doing things like sideloading, you start creating the risk of new security and vulnerabilities,” said Daniel Newman, principal analyst at Futurum Research. He called the regulatory environment a growing threat to tech and social media companies, arguing that consumer experiences could be affected.
“Consumers are happy with the platforms. They’re more secure. They’re easier to use,” he said.
Wedbush analyst Dan Ives, in a statement to Market Intelligence, said Wall Street analysts hadn’t weighed much on the latest case, but his risk to Apple and other tech giants would rise with the weather.