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Why Apple Pay faces an uphill battle in Australia

Almost a year after Apple announced the launch of Apple Pay, Australia is still waiting for the service. But while reports suggest banks are clashing with Apple over fees, experts say there's a bigger obstacle to adoption.

Apple Pay has already rolled out in the US and UK. Andrew Hoyle/CNET

Since Apple CEO Tim Cook first announced the launch of Apple Pay in September last year, iFans have been eagerly awaiting the arrival of the contactless payments system in Australia.

But it hasn't been smooth sailing for the iPhone maker, as new reports suggest Apple may been stuck in negotiations with local banks and experts say the strength of Australia's current contactless payment landscape could curtail Apple's local success.

Apple Pay launched in the US in October 2014, partnering with credit card companies Visa, MasterCard and American Express and a number of banks to allow iPhone users to store their credit card details on their smartphone in order to make quick payments at stores such as McDonald's, Subway and Macy's -- all without ever touching their plastic cards.

The service came to the UK last month, but despite hopes that Apple Pay would roll out into Australia, the major local banks and Apple itself have stayed tight-lipped on an Australian launch date.

Now, a new report suggests Apple is facing a major hurdle in its Australian roadmap in the form of negotiations over payment fees.

Fairfax Media has reported negotiations with Australia's big banks have stalled amidst claims that Apple is seeking a larger share of interchange fees -- the small amount that financial institutions earn on credit and debit card transactions.

Apple is understood to earn 15 cents per $100 for Apple Pay transactions in the US. Fairfax reports the company is looking to maintain this rate in Australia, despite Australian banks earning roughly half the typical US fee.

But while Apple and the banks quibble over fees and charges, experts say a much larger issue could end up slowing the uptake of services such as Apple Pay in Australia.

Foad Fadaghi, managing director of technology analyst group Telsyte, says the current strength of contactless payment technologies in Australia could actually be proving a barrier to entry for tech companies trying to enter the space.

"The main issue is that Australia has had the tap-and-go system for a while," he said. "The reason Apple's approach has been adopted so readily in places like the US and the UK is because they haven't had the tap-and-go system. So from a consumer standpoint, there's little by way of advantage in having another payment approach other than tap-and-go, which seems to work for many people."

Fadaghi says the US market for contactless and mobile payments is "fragmented," with more players and a greater opportunity for disruption from the likes of Apple Pay and its chief rival Samsung Pay. Conversely, Australia has seen a quicker adoption of contactless payments, driven by a concerted push from the major financial institutions.

After CommBank's 2011 launch of contactless "Kaching" payments for iPhone (assisted by an NFC-enabled case), Australia has seen the arrival of cardless cash, fingerprint-access for payments, banking apps for wearables and even telco-driven payment solutions.

All this activity in the market means new arrivals such as Apple will have to work hard to disrupt established purchasing habits. While Apple declined to comment for this story, CommBank CEO Ian Narev used the company's yearly results call last week to reiterate that Apple wouldn't walk into an undeveloped market in Australia.

"By most global standards, the capability that the Australian banking sector has generally, and Commonwealth Bank has specifically, to provide for customers is ahead of a lot of the other markets around the world where Apple has done well," Narev was quoted in Fairfax.

"There is functionality associated with Apple Pay that we have had in the market for 18 months to two years."

In a system where the major banks have been giving customers what they want for some time, Fadaghi questions whether there's any incentive to rush Apple Pay to Australia.

"It's arguable if it's a benefit to the larger [financial institutions] that have already got existing investments in the tap-and-go system," he said. "And the fact that they've made these sizeable investments in technology -- where we haven't seen a similar effort overseas -- it's kind of blocked out Apple to a certain extent here.

"But it's not just Apple, it's other players too. There's very little opportunity to break into our market. We've been saying for a long time there's a lot of vested interest in the payments space and a technology disrupter will find it difficult given that it's not being ignored by the big players here.

"If a large company like Apple can't muscle its way into the marketplace here in Australia, I don't think a smaller operator has got the opportunity."

But it's not all grim news for Apple Pay in Australia. With more than 40 percent of Australian smartphone users opting to use an iPhone, Fadaghi said it could be well worth it for smaller banks to partner with Apple to get "the benefit of working with a large technology platform" with all the marketing bonuses that brings.

"One thing about these large, multi-national companies is they've got the ability to generate interest," he said.

All they need to do now is get the establishment on board.