Three of Australia’s major banks have been prevented from collectively negotiating with Apple over the use of Apple Pay. The National Australia Bank, Commonwealth Bank of Australia, Westpac Banking Corporation, and the regional Bendigo and Adelaide bank, who collectively control 70% of Australia’s card payments had asked the Australian Competition & Consumer Commission (ACCC) to be allowed to challenge Apple collectively, arguing that Apple was stifling innovation by preventing the banks from offering their own digital payment apps through Apple’s mobile devices. The real sticking point however was likely to have been the insistence that Apple’s fees for Apple Pay could not be passed on to customers.
The ACCC ultimately disagreed with the banks that their action would be in the public’s interest. In a draft ruling, the ACCC declared that there was not sufficient evidence for this possible harm given that there were alternatives to Apple’s devices and to Apple Pay itself.
Of more relevance, if the banks were allowed to collude and collectively negotiate, there would be the danger of reduced competition between them. The ACCC argued that this would definitely be against the public’s interests.
In summary, the ACCC found that:
- Apple was not a monopoly supplier of mobile phones, accounting for only 36% of smart phones in Australia
- Australians are already used to using cards for tap and go payments and so it is not clear how popular using the phone instead will be
- Whilst Apple had an advantage in controlling the mobile phone hardware and software, the banks controlled most aspects of the payment chain
- Whilst there may be benefits to the banks getting direct access to the NFC chip, it was not clear how much of an advantage that was over workarounds such as; incorporating Apple Pay in their digital wallet, using an external NFC tag, or simply just supporting Android
- There was unclear benefits from being able to pass fees onto the public
Finally, and most interestingly, the ACCC argued that forcing Apple to be more like Android would actually distort the competition between mobile phone operating systems. Essentially they argued that people use Apple phones because of the very features the banks were trying to force them to change.
At the time of the original application to the ACCC, only ANZ and American Express were offering Apple Pay. This situation changed during the course of the adjudication process with payments provider Cuscal announcing that a further 31 financial institutions would be offering Apple Pay to their customers.
This move further isolated the banks holding out and highlighted that their delay in offering not only Apple Pay, but Samsung Pay and Android Pay was harming nobody other than their own customers.
This move by the banks was always motivated by their reluctance to give up any of the AU $1.4 billion of annual revenue that they currently make from credit card fees.
Consumers already pay multiple times for their credit card use. There are the annual costs of the cards depending on the type and then there are the optional charges that retailers add when cards are used. If these costs are not explicitly added to transactions they are often added to the product cost. The idea that customers would need to pay additionally to use a phone rather than their card would have guaranteed that phones wold not be used for payments. It would have also meant extra charges for using Apple Pay on the web as Apple users can now do instead of using other payment systems like PayPal.
The argument that Apple Pay represents a barrier to innovation in the mobile space is a weak one. The missing functionality in the consumer finance app space is not the actual payment system but the use of the data that is generated through these payments. Banks in other countries have understood this. Finland’s OP-Pohjola bank for example has released a digital wallet app called Pivo which provides data about spending, balances and analysis of the customer’s financial situation. Nearly 5 million people use the Swedish payment app Swish to transfer cash instantly and to make payments in stores. Swish succeeds because of the instantaneous transfer of money from one account to another rather than anything to do with technology associated with the payments.
Australian banks at best provide next day payment to other financial institutions. Credit card transactions can take up to 3 days to appear in apps. It is this type of functionality that customers want from their banks, not for them to replace what already works well through a native interface.
The decision by the ACCC doesn’t necessarily mean that the 3 banks are going to now support Apple Pay but at least it removes a very large reason for them not to. At least with the decision by Cuscal, there are many more options in terms of other banks that now support payments through Apple Pay and more options for customers to switch accounts to.
Authors: David Glance, Director of UWA Centre for Software Practice, University of Western Australia