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Apple Pay faces antitrust investigation from European Commission

The EC is launching an investigation into Apple Pay and whether it undermines competition by limiting access to NFC for contactless payment in stores.

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Apple Pay faces antitrust investigation from European Commission

Margrethe Vestager, the EU’s competition chief, says: “It appears that Apple sets the conditions on how Apple Pay should be used in merchants’ apps and websites. It also reserves the ‘tap and go’ functionality of iPhones to Apple Pay. It is important that Apple’s measures do not deny consumers the benefits of new payment technologies, including better choice, quality, innovation and competitive prices.”

Apple said the company followed the law and embraced competition. It response it posted: “It’s disappointing the European Commission is advancing baseless complaints from a handful of companies who simply want a free ride, and don’t want to play by the same rules as everyone else.”

The European Commission has the power to shut down tech services and charge US tech firms 10% of their annual revenues. Apple said it was “disappointing” that the Commission is listening to “baseless complaints” from a small number of businesses.

“Throughout our history, Apple has created groundbreaking new products and services in some of the most fiercely competitive markets in the world. We follow the law in everything we do and we embrace competition at every stage because we believe it pushes us to deliver even better results,” the company said in a statement.

In a double blow for the US tech giant, the EC has also opened a formal antitrust investigations into Apple’s App Store. The investigation into the App Store comes after a complaint from Spotify in March 2019 and a subsequent complaint from ereader company Kobo, over how Apple takes a 30% commission on every subscription signed up through its App Store in the first year, and then a 15% cut. At the same time, the companies complained, Apple has promoted its own music and books services.

In the past, the company has defended its fees by saying that its businesses are free not to sell through the App Store, but that the platform allows access to billions of users. Apps that pay the 30% commission are able to sell directly to consumers and to charge upfront for downloads.

Apple’s global App Store fees are estimated to generate more than $1 billion for the company every month. The EU said that, following a preliminary investigation, “the commission has concerns that Apple’s restrictions may distort competition for music streaming services on Apple’s devices”. It added that by forcing companies to sell to customers through Apple’s own in-app payments system, Apple seemed to have “full control over the relationship with customers of its competitors”. The commission said that Apple appeared to cut off its rivals from data about their customers and was able to obtain “valuable data about the activities and offers of its competitors”.

Strong momentum in Apple’s services business has become increasingly important to the company in recent years, especially as iPhone sales have fluctuated. At about 18% of Apple’s annual sales, services are its second-largest source of income after the iPhone. Overall services revenues grew 16% last year to $46.3 billion, including App Store commissions, its own music and video services, iCloud and AppleCare extended warranties.

As well as growing more rapidly than most of its hardware products, these services are much more profitable, with gross margins increasing from 55% in 2017 to 64% last year — a total of $29.5 billion — compared with 32% for devices.

“Apple sets the rules for the distribution of apps to users of iPhones and iPads. It appears that Apple obtained a ‘gatekeeper’ role when it comes to the distribution of apps and content to users of Apple’s popular devices,” concludes Margrethe Vestager, the EU’s competition chief.

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