Written by Chen Gen

Under regulatory pressure, Apple is gradually opening up its previously rigid 'payment walls'.

On August 14, local time, Apple announced that starting from iOS 18.1, developers will be able to use the Secure Element to provide NFC contactless transactions within their iPhone apps, separate from Apple Pay and Apple Wallet.

To use these new in-app features, Apple users can directly open the app or set the app as the default support in iOS settings, then double-click the side button on the iPhone to initiate a transaction.

In short, Apple has officially opened up NFC, meaning iPhone users will soon be able to use their phones for payments, car keys, residential access control, smart door locks, and more, just like Android users. This also means that the 'exclusive' advantages of Apple Pay and Apple Wallet will gradually disappear.

Opening NFC does not equal opening third-party payments

First, it's important to distinguish between opening NFC and opening third-party payments. After Apple announced the opening of NFC, many people, including some self-media articles, mistakenly believed that Apple had fully opened up its third-party payment system, but this is clearly a misunderstanding of the two concepts.

NFC, or Near Field Communication, is a wireless communication technology that allows devices to exchange data over short distances. Today, NFC is widely used, such as for payments through Apple Pay or opening smart door locks with mobile phones. iPhone's NFC functionality is handled by the built-in Secure Element, which processes sensitive information to ensure the security of payments and authentication operations.

The opening of Apple's NFC functionality means that developers can use iPhone hardware, such as the Secure Element, to enable NFC payments and other contactless transaction functions. This includes digital car keys, access control, smart door locks, and other application scenarios. Developers can create their own apps that allow users to perform contactless operations through these apps, not just limited to Apple Pay.

However, these apps are not equivalent to a comprehensive third-party payment system. In fact, despite the opening of NFC functionality, Apple still imposes strict restrictions on the use of third-party payment systems.

Apple Pay and Apple Wallet remain the primary payment methods for iPhones, and Apple has not opened up its full payment system API to third parties. This means that although developers can utilize NFC for specific contactless payments, using the iPhone for payments across a wide range of scenarios, similar to Apple Pay, still faces significant hurdles.

For example, let's say you have a third-party app that utilizes the iPhone's NFC functionality to open access control doors. You can communicate with the access control system via NFC to open the door in front of a building. This operation does not involve any monetary transactions, but rather utilizes the NFC's contactless communication capabilities and the iPhone's Secure Element for authentication.

However, if you want to use the same app to make a payment at a supermarket, you will encounter a problem. Even if the app supports NFC communication, it cannot directly use the iPhone's payment system to complete the transaction. To check out at the supermarket, you would still need to use Apple Pay or Apple Wallet, as Apple has not opened up its payment system API to third-party apps.

This means that although third-party apps can utilize NFC for functions like opening access control doors, they cannot be widely used for payments like Apple Pay. In other words, third-party apps can leverage NFC for specific contactless operations, but Apple retains strict control over the broader payment landscape, ensuring Apple Pay's dominance in most payment scenarios.

Apple Pay's 'exclusive' advantage will gradually fade

Even the opening of NFC is a reluctant choice made by Apple after weighing the pros and cons.

Previously, Apple had been reluctant to open up its payment chip to developers, citing security concerns. However, Apple's decision was also influenced by clear commercial considerations beyond security.

As part of Apple's ecosystem, Apple Pay provides users with a convenient payment method through devices like the iPhone. In this process, Apple earns a commission from each transaction made through Apple Pay, which is an important source of revenue for the company.

If Apple opened NFC to third-party payment systems, users might choose other payment methods instead of relying solely on Apple Pay. This would directly reduce Apple's revenue stream from Apple Pay transactions.

Moreover, the exclusivity of Apple Pay has long been a selling point of Apple devices. Many users choose the iPhone partly because of the convenience and security of its payment system. If NFC functionality were open to all apps, the competitive advantage of the iPhone in the payment sector would weaken, potentially impacting device sales and market share.

Despite Apple's arguments about security and commercial interests, regulatory pressure from entities like the European Union ultimately forced the company to compromise. The EU's antitrust investigation pointed out that by restricting access to NFC technology, Apple was abusing its market dominance, stifling competition, and limiting user choice. This behavior not only hindered fair competition but also restrained innovation.

Finally, at the end of last year, in response to the EU's antitrust investigation, Apple proposed opening NFC access to third-party payment platforms in Europe. After months of negotiation, both sides reached a consensus. In July, the EU officially released a press release announcing its acceptance of Apple's proposal and making it legally binding.

Under this new policy, Apple will allow third-party payment platforms to use the iPhone's NFC module for payments through Host Card Emulation (HCE) technology. This method is more open than traditional NFC interaction but slightly less secure.

However, according to the latest announcement, under the new approach, developers need to sign a commercial agreement with Apple, apply for NFC and SE authorization, and pay relevant fees.

It is clear that opening NFC was a reluctant choice for Apple. On the one hand, it could weaken user dependency. The success of Apple Pay and Apple Wallet can be attributed in large part to their status as core components of Apple's ecosystem, providing a seamless and secure payment experience that enhances user reliance on iPhones and iOS. When users choose an iPhone, Apple Pay becomes an essential tool for their daily payments, further consolidating the appeal of Apple devices.

However, as third-party payment systems gradually enter the iOS platform, users will have more options, meaning they no longer need to rely solely on Apple Pay or Apple Wallet. Competitors like Samsung Pay or Google Pay may gain more traction on iOS, thereby weakening Apple's control over users.

On the other hand, this move will also impact Apple's revenue model. In the past, Apple profited by earning commissions from each Apple Pay transaction, which was a significant source of revenue, especially with a large user base. With the introduction of third-party payment systems, users may switch to these systems for payments, reducing the number of transactions completed through Apple Pay.

Moreover, with the opening of NFC functionality, market competition will intensify further. Third-party payment platforms will be able to operate more freely on iOS and offer more attractive features or lower fees, attracting users who would otherwise use Apple Pay. This competition may force Apple to adjust its Apple Pay fee structure or enhance its capabilities in the future to maintain market share. However, such adjustments will undoubtedly increase Apple's operational pressure and erode its profit margins.

It's important to note that Apple's success relies heavily on its closed and tightly integrated ecosystem, which ensures seamless connectivity between hardware, software, and services. When Apple opens up NFC functionality and allows third-party payment systems to integrate, this integration may weaken. Users will no longer be forced to use Apple's payment system and can choose from various payment methods and apps. This decentralization may gradually diminish the overall appeal of Apple's ecosystem, making it easier for users of other platforms to switch between iOS and other operating systems.

It's worth noting that the regulatory tug-of-war between the European Commission and Apple continues. Undeniably, Apple's ecosystem has helped the company create a business legend, but under the trend, Apple ultimately had to compromise.