Somehow I always thought it was just a matter of using the phone’s NFC chip to mimic the credit card, but a shop owner told me they actually take a cut. Is it bullshit or have I been naïve?
Kinda
In a normal transaction without a phone you use a plastic card issued by MasterCard/Visa/Amex (or a local processor). The processing company charges a merchant a small percentage fee on that transaction to the business. In some places they might add that processing fee to the bill, but that’s illegal in my country nowadays.
When you add Google/Apple into the mix, they’re importantly not replacing anyone, they’re just adding themselves in to basically just replace the “plastic” part with “virtual” in what I said before. So the payment processor still takes the same fees they always have, it’s just a phone talking to the card reader rather than a chip in a card.
So how do they make money? I believe Apple just charges the bank a small percentage, which I imagine they reconcile out of the payment processor fees. Google, on the other hand, I think offers it to banks for free, because as is tradition, they’re more interested in the data.
