What Does Apple Pay Mean for Small Business Credit Card Processing?

Jeff Zimmerman


Apple product announcements are known to generate buzz, and this week the payment processing industry was hit by the Apple PR machine. Countless articles have been written about Apple Pay already, so I won't bother repeating the basics here. Instead, I'll focus on what Apple Pay means for small- and medium-sized businesses.

Will small businesses be able to accept Apple Pay?

Yes, Apple Pay will work for small business credit card processing. When consumers use their iPhone to make in-store purchases, Apple Pay will use Near Field Communication (NFC) to send the payment token to the point-of-sale system. This means that credit card terminals and POS systems that have contactless readers for NFC should be able to accept payments via Apple Pay.

What equipment will be required for Apple Pay?

Because Apple Pay will use NFC, a merchant must have a credit card device with a contactless reader that supports NFC. Several models are already available from the leading device manufacturers, but adoption has been limited to date. If a business wants to upgrade their POS to support NFC, I highly recommend they choose a device that also supports smart cards (EMV).

Can all payment processing companies support Apple Pay?

Yes, but that doesn't mean that they all do at this time. As mentioned above, the company must offer a POS device that supports NFC. In addition, because Apple Pay uses the new tokenization standards of the payment networks, the processor must also support these new standards.

Will merchants have to pay to accept Apple Pay?

Apple will not charge merchants to use Apple Pay for payments. To the merchant, these transactions will look similar to other Visa, MasterCard, and American Express transactions, and their normal credit card processing rates are likely to apply. (The details will depend on the policy of each payment processing company.)

What interchange rates will apply to Apple Pay payments?

Visa provided guidance that Apple Pay payments using NFC would be treated as card present transactions, with their associated interchange rates. That should be good news for merchants. In-app purchases using Apple Pay will be treated as e-Commerce transactions by Visa.

What else do merchants need to know?

Don't get too excited just yet, and definitely do not panic. Apple Pay is major news, but it is likely to take some time to have a real impact in the market. First, consumers will need to buy the new iPhone 6 when it comes out. I'm sure Apple will sell millions of new phones, but that will still represent a small percentage of the overall market.

Second, Apple Pay will not be released until October, and it will only work at 220,000 stores at the beginning. That may sounds like a lot, but it's a small fraction of the 8 million card-accepting businesses in the U.S. So, it is likely to take some time to see meaningful use from a large number of consumers and merchants.

Finally, it's only been two days since the announcement, and many details remain to be learned. We'll be sure to share them here as they become available.