Apple Pay is facing an antitrust investigation by The European Commission

• This story was delivered to Insider Intelligence Payments & Commerce Briefing subscribers earlier this morning.

The European Commission (EC) is set to undertake two probes evaluating if Apple has violated the region's competition laws — a move that falls amid broader tech antitrust investigations in Europe, per The Wall Street Journal.

Of these two probes, one is focused on Apple Pay, specifically on complaints that Apple is "abusing" its control of the wallet through a policy that blocks third-party payment access to its NFC hardware, which enables contactless payments. Apple objects to the complaints, which the EC said were accelerated in response to the coronavirus pandemic since it has rapidly increased contactless payment usage as customers look for ways to limit physical contact.

The EU probe isn't the first time that Apple has been challenged on its walled garden approach to NFC access. Apple's policy restricting payments access to NFC effectively ensures that Apple Pay is the only NFC-based contactless wallet on its platform.

This differs substantially from Google's policy, which offers open access to third-party developers. The EC's challenge isn't the first that Apple has contended with: A similar complaint in Australia filed by major banks was settled in favor of Apple, and both Germany and South Korea have raised red flags as well. If Apple loses the complaint, it could have to pay a fine of up to 10% of its annual revenue or adjust its business practices in Europe — likely opening up NFC access — which could bring about a wave of changes to the wallet worldwide.

If the inquiry finds that Apple has violated anticompetitive practices, it could ultimately lose sole access to its NFC technology — but that might not matter for Apple's market share.

Apple's practice of sole access has given it a leg up in the space. It's likely that Apple's approach has been helpful for customer acquisition and habit formation. Any customer with an iPhone who wants to make contactless mobile payments has no option but to onboard with Apple Pay, meaning any issuer that wants to capitalize on contactless payment demand has to team up with the brand, giving Apple revenue in turn.

This works in the firm's favor: In Australia, for example, pent-up demand for contactless payments among wallet users spiked account openings among banks that were early to partner with the tech giant. And because Apple is iPhone users' main option, they can turn to it repeatedly, which might accelerate habit formation.

But phone-based wallets tend to be entrenched and convenient enough that there isn't compelling evidence that customers would switch to third-party wallets if they became available. Apple Pay has already existed in Europe for nearly four years, meaning it likely counts a sizable customer base.

Further, phone-based wallets have the advantage of interoperability: Because customers can store all their cards in one place and spend with it everywhere, rather than across different bank-based or retailer-specific options, they're likely perceived as more convenient. That could ultimately help Apple maintain its advantage among iPhone users regardless of policy, particularly because in high-contactless markets, third-party Android wallets have been shuttering since usage is declining, perhaps because customers prefer Google Pay or Samsung Pay.

Want to read more stories like this one? Here's how you can gain access:

1. Join other Insider Intelligence clients who receive this Briefing, along with other Payments & Commerce forecasts, briefings, charts, and research reports to their inboxes each day. >> Become a Client
2. Explore related topics more in depth. >> Browse Our Coverage

Are you a current Insider Intelligence client? Log in here.