Wed. Sep 18th, 2024

Commission accepts commitments by Apple opening access to ‘tap and go’ technology on iPhones

Jul 11, 2024 , , , ,

Brussels, 11 July 2024 

The European Commission has made commitments offered by Apple legally binding under EU antitrust rules. The commitments address the Commission’s competition concerns relating to Apple’s refusal to grant rivals access to a standard technology used for contactless payments with iPhones in stores (‘Near-Field-Communication (NFC)’ or ‘tap and go’).

The Commission’s competition concerns

Apple Pay is Apple’s own mobile wallet used to allow iPhone users to pay with their devices in stores and online. Apple’s iPhones run exclusively on Apple’s operating system ‘iOS’. Apple controls every aspect of its ecosystem, including access conditions for mobile wallet developers.

The Commission preliminarily found that Apple has significant market power in the market for smart mobile devices and a dominant position on the in-store mobile wallet market on iOS. Apple Pay is the only mobile wallet that may access the NFC hardware and software (‘NFC input’) on iOS to make payments in stores, as Apple does not make it available to third-party mobile wallet developers.

In its investigation, the Commission preliminarily concluded that Apple abused its dominant position by refusing to supply the NFC input on iOS to competing mobile wallet developers, while reserving such access only to Apple Pay.

The Commission’s preliminary view is that Apple’s refusal excluded Apple Pay’s rivals from the market and led to less innovation and choice for iPhone mobile wallets users.

Such behaviour may breach Article 102 of the Treaty on the Functioning of the European Union (‘TFEU’), which prohibits the abuse of a dominant position.

The commitments

To address the Commission’s competition concerns, Apple initially offered the following commitments:

  • To allow third-party wallet providers access to the NFC input on iOS devices free of charge, without having to use Apple Pay or Apple Wallet. Apple will enable access to NFC in Host Card Emulation mode (‘HCE’). HCE allows to securely store payment credentials and complete transactions using NFC, without relying on an in-device secure element.
  • To apply a fair, objective, transparent and non-discriminatory procedure and eligibility criteria to grant NFC access to third-party mobile wallet app developers.
  • To enable users to easily set an HCE payment app as their default app for payments in stores and to use relevant functionalities such as Field Detect (which opens the user’s default payment app when a locked iPhone is presented to an NFC reader), Double-click (which launches the default payment app when double clicking the phone’s side or home button), and authentication tools such as Touch ID, Face ID, and device passcode.
  • To establish a monitoring mechanism and separate dispute settlement system to allow for independent review of Apple’s decisions restricting access.
  • To apply the abovementioned commitments to all third-party mobile app developers established in the European Economic Area (‘EEA’) and to all iOS users with an Apple ID registered in the EEA, also while traveling temporarily outside the EEA.

Between 19 January 2024 and 19 February 2024, the Commission market tested Apple’s commitments and consulted all interested third parties to verify whether they would remove its competition concerns. In light of the outcome of this market test, Apple amended the initial proposal and committed:

  • To extend the possibility to initiate payments with HCE payment apps at other industry-certified terminals, such as merchant phones or devices used as terminal (so called SoftPOS), if this is enabled.
  • To explicitly acknowledge that HCE developers are not prevented from combining the HCE payment function with other NFC functionalities or use cases.
  • To remove the requirement for developers to have a licence as a Payment Service Provider (‘PSP’) or a binding agreement with a PSP to access the NFC input.
  • To allow NFC access for developers to pre-build payment apps for third party mobile wallet providers.
  • To update the HCE architecture to comply with evolving industry standards used by Apple Pay, and to continue to update standards even if they are no longer implemented by Apple Pay, under certain conditions.
  • To enable developers to prompt users to easily set up their default payment app and redirect users to the default NFC settings page, enabling defaulting with only a few clicks.
  • To comply with the same industry standard-specifications as developers of HCE payment apps and to protect confidential information obtained in the context of an audit.
  • To shorten deadlines for resolving disputes. Moreover, Apple offered additional independence and procedural guarantees for the monitoring trustee.

Apple’s commitments regarding mobile payments. Source: EU Commission

The Commission concluded that Apple’s final commitments would address its competition concerns over Apple’s restriction of third-party mobile wallet developers’ access to NFC payments in stores for EEA iOS users. It therefore decided to make them legally binding on Apple.

The commitments will remain in force for ten years and apply throughout the EEA. Their implementation will be monitored by a monitoring trustee appointed by Apple who will report to the Commission for the same time period.

Apple’s commitments are without prejudice to Apple’s current or future obligations under other regulations, in particular relating to other use cases and functionalities within the scope of the Digital Markets Act (Regulation 2022/1925) and the implementation of the Digital Euro.

Background

Article 102 of the TFEU prohibits the abuse of a dominant position that may affect trade within the EU and prevent or restrict competition. The implementation of this provision is defined in Regulation No 1/2003, which can also be applied by the national competition authorities.

Following the opening of a formal antitrust investigation into Apple’s behaviour in June 2020, the Commission sent Apple a Statement of Objections in May 2022. In January 2024, the Commission market tested Apple’s first set of commitments. In parallel to today’s Article 9 commitments decision, the Commission also adopted today a second decision closing its investigation into online restrictions and alleged refusals of access to Apple Pay for specific products of rivals that the Commission also opened in June 2020. This second decision also closes all proceedings in relation to the UK, which no longer forms part of the EEA.

Article 9 (1) of Regulation 1/2003 enables companies investigated by the Commission to offer commitments in order to meet the Commission’s concerns and empowers the Commission to adopt a decision to make such commitments binding on the companies. Article 27(4) of Regulation 1/2003 requires that before adopting such decision the Commission shall provide interested third parties with an opportunity to comment on the offered commitments.

If the market test indicates that the commitments are a satisfactory way of addressing the Commission’s competition concerns, the Commission may adopt a decision making the commitments legally binding on the company concerned. Such a decision would not conclude that there is an infringement of EU antitrust rules but would legally bind the company to comply with the commitments it has offered.

If the company concerned does not honour such commitments, the Commission may impose a fine of up to 10% of its total annual turnover, without having to find an infringement of EU antitrust rules, or a periodic penalty payment of 5% per day of its daily turnover for every day of non-compliance.

More information, including the full text of today’s Article 9 commitments decision and the full version of the commitments will be available on the Commission’s competition website in the public case register under the case number AT.40452.

Quote

It is safe and convenient to pay with your phone. Apple has committed to allow rivals to access the ‘tap and go’ technology of iPhones. Today’s decision makes Apple’ commitments binding. It opens up competition in this crucial sector, by preventing Apple from excluding other mobile wallets from the iPhone’s ecosystem. From now on, competitors will be able to effectively compete with Apple Pay for mobile payments with the iPhone in shops. So consumers will have a wider range of safe and innovative mobile wallets to choose from.

Margrethe Vestager, Executive Vice-President in charge of competition policy

Source – EU Commission

 

Remarks by Executive Vice-President Vestager on the decision to make binding commitments offered by Apple

Brussels, 11 July 2024

“Check against delivery”

Today, the Commission has decided to accept commitments offered by Apple. These commitments address our preliminary concerns that Apple may have illegally restricted competition for mobile wallets on iPhones.

Before I go into the commitments, I will describe our preliminary findings.

Apple has built a closed ecosystem around its devices and their operating systems.

And within this ecosystem, there are multiple markets for services. Among those services, are mobile payment apps – so-called ‘mobile wallets.’

Mobile wallets allow for payments with a mobile device, in shops and online. They also integrate other services, like loyalty cards, contactless tickets for events, boarding pass or digital identity credentials.

In the last years, mobile wallets have grown considerably. In Europe, the use of mobile wallets in shops has tripled over the last four years.

So, what did Apple do wrong?

In 2022, we raised concerns over Apple’s conduct. We did that in relation to its own mobile wallet solution. Our preliminary finding was that Apple abused its dominant position by restricting access to the technology needed to make payments by iPhones.

In Europe, the most widely available technology for mobile payments in stores is called ‘Near Field Communication’, or “NFC”. This technology enables wireless communication between a mobile phone and a store’s payments terminal. It allows you to ‘tap and go’ with your mobile phone.

NFC technology was not developed by Apple. It is a standardised technology. It is made available for free. Compared to other technologies, like payments using QR codes, it allows for the safest and most seamless mobile payment experience. It is the most widespread solution in the EU.

To develop viable mobile payment apps, access to NFC technology is therefore essential.

In our investigation, we came to three preliminary conclusions.

First, Apple holds a significant position in the market for smart mobile devices.

Second, Apple is dominant in the market for NFC functionalities and for mobile wallets for iPhones.

Third, Apple refused to give access to the NFC technology on the iPhone to rival wallet developers. Instead, Apple reserved the use of the NFC technology on the iPhone to its own mobile wallet solution.

Without access to the iPhone’s NFC functionalities, competitors cannot reach Apple users. So, iPhone users can only pay with the ‘tap and go’ function with Apple Pay. They cannot pay with other wallets.

This behaviour prevented developers from bringing new and competing mobile wallets to iPhone users.

By excluding others, Apple unfairly shielded its own mobile wallet from competition.

Our preliminary finding was therefore that Apple abused its dominant position by refusing to supply the NFC technology to competing mobile wallet developers.

By excluding competitors from the market, it may have had a negative impact on innovation. This reduction in choice and innovation is harmful. It is harmful to consumers and it is illegal under EU competition rules.

To address these concerns, Apple offered a set of commitments earlier this year.

Over the last months, we tested the package. We got feedback on whether the remedies could work. If they could address our concerns.

The issue raised a lot of interest. Many banks, app developers, card issuers, and financial associations gave us their feedback. We looked very carefully at those comments and asked Apple to improve their  commitments. Then Apple offered improved remedies. And here we are today, making these remedies binding on Apple.

The commitments bring important changes to how Apple operates in Europe to the benefit of competitors and customers.

First, Apple commits to give access to NFC functionality to third-party mobile wallets. This access will be free of charge.

It will take place in what is called “Host Card Emulation mode”. This is a software solution that allows rival wallets to make secure NFC payments. Apple Pay, on the other hand, relies on access to the hardware “secure element” in the iPhone. We accept Apple’s commitment because it offers an equivalent solution in terms of security and user experience. And it is easier to implement both for Apple and wallet developers. Indeed, other wallets already use this solution in an Android environment.

Second, Apple committed to enable access to important functionalities available on iPhones. This includes Double-Click and Face ID. iPhone users will be able to double-click the side button of their iPhones to launch their preferred payment application. Competing wallets will also be able to use Face ID, Touch ID and passcode to verify users’ identities.

Third, Apple will also enable users to make the wallet of their choice the standard option on their iPhones. This is also known as setting the default option.

These commitments are applicable to users registered in the European Economic Area, including when they travel abroad.

And Apple will not prevent developers from combining NFC payments with other use cases, for instance transit cards, access control, concert tickets,  digital identity credentials. Everything that you could have in a wallet.

Apple has until the 25th of July to implement their commitments. As of this date, developers will be able to offer a mobile wallet on the iPhone with the same “tap and go” experience that so far has been reserved for Apple Pay.

The commitments would remain in force for ten years. Apple’s compliance will be ensured by a monitoring trustee. And there will be a fast dispute resolution mechanism, which will also allow for an independent review of Apple’s implementation.

Today’s commitments end our Apple Pay investigation.

Thanks to these commitments, iPhone users will be able to use their preferred mobile wallet for payments in stores. They will be able to do so while enjoying all the iPhone’s functionalities, including tap-and-go, Double-Click and FaceID.

Finally, the commitments will apply in parallel to Apple’s obligations under other regulations.

The European Central Bank confirmed its support for these commitments. The commitments are without prejudice to further obligations that may apply under the digital euro, which will be regulated separately.

Apple also has obligations under the Digital Markets Act. Indeed, the DMA requires gatekeepers to ensure effective interoperability with hardware and software features that they use within their ecosystems. This includes access to NFC technology for mobile payments.

Today’s decision therefore concerns business practices that are covered by the DMA: in-store payments with iPhone using NFC technology.

The commitments also bring more than what is required by the DMA. For instance, they include monitoring and dispute resolution mechanisms. We are looking forward to see the implementation in practice. These provisions will help us to do that.

This shows that antitrust enforcement goes hand in hand with the DMA.

From now on, Apple can no longer use its control over the iPhone ecosystem to keep other mobile wallets out of the market. Competing wallet developers, as well as consumers, will benefit from these changes, opening up innovation and choice, while keeping payments secure.

Thank you for your attention.

Source – EU Commission

 

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