Apple’s efforts to dominate the contactless payments market and lock up the “digital key” space pose a profound threat to consumer privacy and the future of the auto industry.
Why can’t you use Android Pay or PayPal to pay at the grocery store using your iPhone? The answer to this question is at once complicated and very simple. It involves technical terms like “near-field communications operability,” but fundamentally, it is about power: Apple wants to lock its competitors out of valuable future markets and lock up valuable troves of data and is using its current market power to do so. Ultimately, Apple wants to take everything in your pocket—your cell phone, your wallet, even your car keys—and lock it into the Apple network.
Let’s start with the basics. Near-field communications (NFC) is the technology that enables contactless data transfer. NFC is simply an alternative technology for transmitting data, such as your credit card information. Instead of transmitting data by swiping a physical credit card, NFC technology enables you to use the Apple Pay app on your iPhone to send the card data to an NFC reader, such as at the checkout at the grocery store. Anyone who hates carrying too much plastic or who regularly leaves their wallet at home can vouch for the ease and convenience of Apple Pay.
So why can’t you use apps like Android Pay or PayPal with this same technology? Because Apple says so. Apple Pay is the only app that Apple allows to use the NFC chip on the iPhone. Android Pay doesn’t work on an iPhone, for example, because Apple bars it from wirelessly transferring payment data via the NFC chip. Apple locks its competitors out in this way for several reasons, including security concerns–and because it gets a cut of credit card payments made using Apple Pay. But the biggest reason is Apple’s goal of dominating the contactless payments market.
Antitrust enforcers have taken notice of Apple’s abuse of the NFC technology: the European Commission opened an investigation into Apple Pay in 2020 and, just this fall, Reuters reported that “Apple will be hit with an EU antitrust charge over its NFC chip technology.” As a result, Apple may have to pay a fine or open up its NFC technology to outside payment networks. Law enforcement officials in the US and around the world should follow the EU’s lead.
“Apple’s sole control over the iPhone NFC chip gives it the ability to lock out competitors in the payments and digital key space.”
Payments, however, are just the tip of the iceberg. Apple’s efforts to lock up the “digital key” space pose a profound threat to consumer privacy and the future of the auto industry. Drawing on NFC chip technology (or other technology like it), your phone can serve as a digital key—transferring data securely to unlock your car, just as it might transfer your credit card information at a gas station. An iPhone user, for example, can unlock her car with a digital key stored in her Apple Wallet. Apple has pushed auto manufacturers to add NFC technology to new cars to make such digital keys a reality. That full-court press led to some success: BMW announced a digital key partnership with Apple in 2020, and Hyundai followed early this year. Apple restricts sharing the digital key, and so far, Android users cannot use this technology to open their own cars.
The downside of this digital key push should be clear: Apple can use its control of the NFC chips to exclude competitors and wrest concessions (especially ones related to access to driver data) from automakers. Because Apple doesn’t allow competitors like Android to use NFC technology, it can prevent Android users from downloading a digital key to open their BMW or Hyundai. Each additional deal Apple strikes with an auto maker also props up Apple’s dominance in the phone market: a consumer on the fence between Android and iPhone might go with the iPhone not because the iPhone is the inherently better phone but because it’s the only way to open their car without a physical key.
The NFC chip also gives Apple additional leverage over the automakers. Apple can use its control of the chip to pry open other markets, such as by requiring an automaker to use an unrelated Apple product in a future digital key negotiation. And Apple can use control of the NFC chip to gobble up data, such as by using digital key leverage to gain access to driver data.
Why data? It’s the new oil, and the future of the car—as a “smartphone on wheels”—could allow Apple or its rivals to collect an ocean of new data about drivers and consumers. It is easy to imagine all of the ways Apple could monetize this data to deepen its competitive moat—think unimaginably granular location services, such as advertisements and offers that pop up on your car’s screen based on your proximity to a store, or maps that prioritize routes to particular stores in response to queries, or simply having Siri listening to everything that happens in and around a car. And Apple’s push for data isn’t limited to cars: the iPhone now also functions as a hotel room key, potentially giving Apple an in on all sorts of travel-related data.
Antitrust enforcers need to take a hard look at Apple’s stranglehold over the iPhone’s NFC chip. Apple’s sole control over the iPhone NFC chip gives it the ability to lock out competitors in the payments and digital key space. Control over the iPhone’s NFC chip also gives Apple the leverage to launch itself into new markets or swallow up oceans of new consumer data. Competitors may find themselves over-reliant and manipulated by Apple, or just another node in the “Apple Borg.” Or they may be left in the dust, as Apple uses its power to standard set with the successor to the NFC.
Either way, consumers and the competitive landscape deserve better.
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