A report by the Wall Street Journal revealed that Google will not be charging fees from credit card issuers for transactions paid for using Android Pay, which will put pressure on Apple to do the same for its mobile payment system.
Industry executives are hoping that Apple Pay will follow suit in charging no transaction fees, showing how quickly the mobile payments industry is changing.
Google only announced Android pay in May, months after Apple unveiled Apple Pay in late 2014. Upon the launch of Apple Pay, a long list of financial institutions hurried to hammer out deals with Apple for the mobile payment system, as the firms were wary of being left behind in the new technology.
The resulting scramble made banks and other credit card providers agree to provide Apple with 0.15 percent of the total value of credit card transactions that go through Apple Pay. Transactions using bank debit cards, on the other hand, has Apple collecting a half of a cent per purchase, according to the Wall Street Journal's sources.
Sources revealed that Google will not charge such transaction fees, as Visa and MasterCard, the operators of the dominant global payment networks, recently applied standardization on their "tokenization" card security service and made it free, which prevents payment services from charging fees to card issuers.
Tokenization replaces the data of cardholders with a unique batch of numbers to validate the identity of the customer. Merchants do not get to handle the actual data of the credit card, which eliminates one possible channel for theft of online data.
The new tokenization service of Visa was unveiled on May 28, which is the same day that Google unveiled Android Pay. Google signed up Android Pay with Visa's new service, with other companies to likely follow due to the massive influence of Visa and MasterCard.
The new system could also force Apple to make changes in the agreements that it has in place with its partner banks. Executives of banks are reportedly unhappy in having to share fees with Apple Pay, and could use Android Pay's no-charge scheme to convince Apple Pay to likewise eliminate fees.
While charging no fees will have Google earning much less from Android Pay compared with Apple's revenues from Apple Pay, the long-term effect of the strategy could prove to be beneficial for Google as more companies are willing to sign partnerships to incorporate Android Pay into their systems.
