When Google finally launches Android Pay, its mobile phone payment service, it will not get a cut of the interchange fees on transactions.
This is drastically different than Apple Pay. When Apple Pay was introduced, banks and merchants were clamoring to be part of the innovative new payment system. As a result, Apple was able to negotiate a .015% cut of every credit card transaction and a 0.5% fee on debit card purchases.
Part of the reason Android Pay will not get fees is that Visa and MasterCard have made a card security feature called tokenization free to all users. Tokenization switches account numbers and other sensitive card data with another random set of numbers that is then communicated with the credit card issuer to validate the user’s ID. A business will never actually see the actual card data and therefore a database breach like the one at Target will yield useless information to the hackers since the tokens can be used only once.
“There is one agreement with Visa and the banks can have confidence that there are no pass-through fees,” Visa President Ryan McInerney told The Wall Street Journal.
Apple Pay fees are not popular with banks, and many of these institutions hope this new agreement with Google combined with the free tokenization from Visa and MasterCard will eventually lead to a reduction or an elimination of the Apple Pay fees.
Apple and Google both see the main revenue opportunities in payment systems will come from advertisements and a loyalty program. One estimate is that a consumer will be worth $300 to Apple or Google from the marketing and advertising fees.