Apple vs. Banks: The Digital-Wallet War, Explained | WSJ

When you pay for your morning coffee.

Do you reach for this or this?

This is still what most people prefer.

But digital wallets like Apple Pay,

Google Pay and paypal have become more popular over the last several

years,

especially for online payments.

And that's making the banks whose cards are in your physical wallet.

Worried as Chase Ceo Jamie Dimon said about the growth of new financial

technology in 2021.

We should be scared about that.

And Apple is one of big banks,

biggest threats.

Here's how the tech company is encroaching on traditional finances territory and how

banks are gearing up to fight back.

We've created an entirely new payment

process and we call it Apple Pay.

When Apple Pay was introduced in 2014,

it wasn't the first digital wallet but it had a big advantage over its

competitors.

The iphone and now Apple Pay is activated on 78% of iPhones

in the US.

If you want to use an iphone in store,

it's very difficult to use a different wallet.

Like when you tap and pay at the register than Apple Pay,

it was also the only digital wallet that banks agreed to pay a fee for every

transaction.

Here's why banks make money on debit and credit card purchases from

interchange fees which merchants pay to the bank that issued your card when you shop with it,

those fees are usually 1 to 3% of your purchase when you shop with a credit

card.

So if you buy that coffee for $5 and your credit card has a roughly

2% interchange fee,

the bank gets about 10 cents.

But if you use Apple pay,

the bank has to pay three quarters of a cent to Apple rather than pocketing 10 cents on

the $5 transaction.

The bank would instead keep just over nine cents on one small transaction

that doesn't seem like much,