The price of Apple Pay: A hard bargain for Canada's banks

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Apple Inc. is taking its biggest step yet into Canada's financial services industry – and sources say this country's largest banks have paid a steep price to be a part of the journey.

After months of negotiations, Canada's big banks announced a deal on Tuesday that will give their customers access to the Cupertino, Calif.-based tech behemoth's iPhone payment app, Apple Pay.

Royal Bank of Canada and Canadian Imperial Bank of Commerce introduced Apple Pay to their customers on Tuesday, allowing them to store their credit cards and debit cards on their smartphones and make purchases of $100 or less. ATB Financial and Canadian Tire Financial Services are also offering the service, though initially only for credit cards.

Bank of Montreal, Toronto-Dominion Bank and Bank of Nova Scotia will follow, with a launch date expected some time in mid-June.

But sources said the terms of the deal suggest that the banks were not in the driver's seat at the negotiating table. Two sources said Canadian banks agreed to pay Apple 15 cents per $100 credit-card transaction made through Apple Pay – or 15 basis points – and four cents on debit-card transactions.

That structure would be similar to transaction fees reportedly agreed to by U.S. banks when they launched the service in 2014. Some commentators believe that the U.S. banks moved too quickly in agreeing to Apple's terms.

Apple does not comment on fees. The Big Five Canadian banks either declined to comment or did not respond to calls.

In statements, the banks are lauding Apple Pay as an important step toward offering mobile payment options to their customers, even though they have long offered similar payment services to customers using Android or BlackBerry devices.

"We're happy to provide RBC clients with convenience and choice of using Apple Pay," Linda Mantia, executive vice-president, digital, payments and cards at RBC, said in a statement. "As mobile payments technology continues to mature in Canada, these kinds of innovative payment solutions give clients the ability to make mobile transactions seamless."

However, the announcements on Tuesday further an uncomfortable relationship between Canada's big banks and Apple.

The banks have expressed concerns about allowing Apple – and other technology brands – to build deeper relationships with their customers at a time when the banks are beset by potential competition from nimble financial technology firms, or fintech.

Apple Pay first became available in Canada in October. But the initial rollout was limited to non-bank-issued American Express cards – a small slice of the Canadian market – because Apple and the big banks were not able to agree on terms.

Notable holdouts in other countries have also been announcing agreements with Apple recently.

Barclays introduced Apple Pay to its customers in early April, making it the last among major British lenders to offer the service. Terms of the agreement were not disclosed.

In late April, Australia and New Zealand Banking Group Ltd. (ANZ), Australia's fourth-largest bank, announced that it would offer the service ahead of its larger competitors.

The widespread availability of Apple Pay in Canada is expected to drive greater use of smartphones at merchant terminals, a payment option currently seen as little more than a novelty.

The banks have not been marketing their own digital wallets because the technology has been limited to consumers using the right phones at the right merchant terminals, or those that are equipped to handle contactless payment. As well, traditional credit-card and debit-card transactions in Canada – along with tap-and-go payments for small purchases – tend to be smooth, giving consumers little incentive to try out the new approach.

As a result, mobile payments are still a novelty in Canada. According to a recent survey by GfK Canada, these payments accounted for just 3 per cent of all payments in 2015 – and they included payments made through PayPal and the popular Starbucks app.