December 16, 2015 / 5:38 AM / 2 years ago

Australia banks agree Android Pay deal, Apple Pay still frozen out

An Apple iphone 6 with Apple Pay is shown in this photo illustration in Encinitas , California June 3, 2015. REUTERS/Mike Blake

SYDNEY (Reuters) - Big Australian banks have agreed to accept payments made on mobile devices using Google Inc’s (GOOGL.O) Android Pay, leaving Apple Inc’s APPL.O rival Apple Pay system out in the cold as the tech giant struggles to coax lenders to accept its terms.

Banks including Westpac Banking Corp (WBC.AX), ANZ Banking Group (ANZ.AX) and Macquarie (MQG.AX) will accept contactless payments via Android smartphones when Google rolls out the service in first-half 2016, the tech giant said on Wednesday. Westpac and Commonwealth Bank of Australia (CBA.AX) already operate their own mobile payment systems.

In contrast, Apple remains locked in talks with big banks in search of a deal to accept Apple Pay. The iPhone maker’s system launched in Australia last month, with support for American Express Co (AXP.N) cards, but remains adrift from 80 percent of consumers using other credit cards in a market Westpac sees as worth more than $2 billion this year.

“It’s a big bargaining chip for (Australian) banks to use to force a better deal with Apple,” said Foad Fadaghi, managing director of technology research firm Telsyte.

An Apple spokeswoman declined to comment.

Android Pay will support both MasterCard and Visa credit and debit cards, Pali Bhat, director of product management at Google wrote in a blog post Wednesday. Consumer favorites like McDonald’s Corp (MCD.N) and Domino’s Pizza (DMP.AX) have also signed up, Google said, enhancing Android Pay’s appeal.

The absence of a deal on Apple Pay hinges on banks’ unwillingness to give up a slice of a market for contactless payments they have cultivated that is now much bigger than in many other countries.

More than 60 percent of all card transactions in Australia are now contactless, ANZ bank said in a statement on Wednesday, announcing the Android Pay tie-up.

In the United States, meanwhile, a survey by Verifone and Wakefield Research released in January 2015 found mobile wallets accounted for just about 4 percent of the overall payments market for in-store retail transactions.

Fees in Australia’s lucrative mobile payments market remain a bone of contention in Apple’s talks with the main banks.

Apple is demanding 15 basis points in interchange fees that banks have refused to share, people familiar with such negotiations say. Android Pay has no such charges, the sources said.

“The four Australian banks aren’t prepared to give up the amount of interchange fees that the U.S., Canadian and UK banks have done,” said Grant Halverson, a payments consultant from McLean Roche.

Additional reporting by Matt Siegel; Editing by Diane Craft and Kenneth Maxwell

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