The ACCC Will Decide The Future Of Mobile Payments In Australia

Australia’s corporate watchdog, the Australian Competition and Consumer Commission (ACCC) has a tough job ahead of it this week as it seeks to referee a 12-round grudge match between the nation’s big banks and Apple over the introduction of Apple Pay to Australia.

In a submission spanning over 100-pages, a group of the nation’s biggest banks — including CBA, NAB and Westpac — have revealed the reasons why they should get to dictate the terms of a deal with Apple, while also naming other high-profile backers who want a sweeter contactless deal in Australia

The ACCC is in the process of ruling on the dispute between some of Australia’s biggest banks — namely Commonwealth Bank, Westpac, NAB and Bendigo and Adelaide Bank. The banks are currently seeking authority from the ACCC to form a negotiating bloc for their discussions with Apple, claiming that it would facilitate a stronger negotiating position.

The ACCC delayed making a decision back in August, saying it needed more time to consider the case. Since then, Apple has made a submission to the corporate watchdog, and now the banks have hit back at Cupertino.

In this new text, the banks have hit back at claims that allowing access to the secure element of the iPhone’s NFC chip would compromise user security. Banks have cleverly flipped this back on Apple, however, saying that the apps required to use third-party banking are authorised by Cupertino before they land in the App Store, adding that it’s “difficult to imagine that Apple would approve an app that used the iPhone’s NFC functionality to compromise card details”.

The banks also claim that the introduction of an alternative payment system -- that would be required as a workaround for not having access to Apple Pay -- would fragment the Australian payments space and confuse consumers (our emphasis added):

In Australia, [point of sale] transaction “behaviour” and the series of steps required to make a contactless payment is well understood by consumers. That is, there is no confusion about the process necessary to pay for goods or services at POS via a contactless payment, which generates efficiency and reduces POS transaction times for both consumers and merchants. This level of understanding is a direct result of education initiatives undertaken by the industry in general, such as the [email protected] campaign.    This is a direct contrast to the current situation in the US, where there is widespread consumer dissatisfaction and confusion about the series of steps necessary to make an electronic payment with a potential mixture of signing, “chip dipping” and swiping and no clear standard – to the extent that some POS terminals have elements disabled or taped over by the merchant, and every POS transaction is “a horrible guessing game”.     The introduction of an alternative to the already ubiquitous NFC standard is likely to lead to similar confusion (and the resulting inefficiencies) around the correct POS transaction process for consumers in Australia.

Most importantly to the ACCC, the banks claim that the introduction of Apple Pay into Australia would stifle competition from third-party wallets. Apple wrote in its submission that the big banks are free to continue building third-party wallets for the iPhone, but the banks say that without access to the iPhone’s NFC secure enclave, there’s little to no point developing one. Standard cards don’t provide the benefits to customers, retailers or banks that phone-based payments do; mobile banking apps can’t integrate with the NFC chip on the iPhone the same way they do on Android, and QR-code wallets are inconvenient and annoying to use. Ergo:

Without authorisation [to negotiate as a group], there will be less choice and competition in relation to mobile payments and mobile wallets because Australian iPhone users will have no choice in integrated mobile wallet other than Apple Pay, and there will be no competition between integrated mobile wallets on iPhone devices.

The applicants even outline how mobile wallets on the iPhone have failed overseas due to a lack of NFC integration. CurrentC in the US, Semble in New Zealand and SureTap in Canada all get a shoutout. A notable omission from the submission is the Commonwealth Bank’s own attempts at building a mobile wallet without using the iPhone’s NFC chip, which first included the use of an iCarte case that attached to the iPhone 4 and 4S, followed by a Mastercard-issued NFC sticker that users would attach to the back of their devices.

That's because, the submission says, workarounds like stickers and wristbands just "inefficiently duplicate and overbuild" Apple's own NFC implementation. Stickers also cause a "card clash" with any future Apple Pay implementation for a bank, because both compete for that unique NFC marker.

Overall, the banks aren’t a fan of how Apple is negotiating its way into markets like Australia, and claims it is pushing for the collective bargaining authorisation so as to have a stronger negotiating position overall. The banking group has accused the gadget monolith of playing parties off against each other in order to get what it wants:

…Apple persuades each [card] issuer to accept its terms by playing each issuer off against the others with the prospect that unless an issuer agrees, it will find itself at a competitive disadvantage, as its competitors will be able to offer customers the ability to use Apple Pay while it will not. This dynamic is already in motion in Australia with ANZ Bank noting the following on its website:     Not with ANZ? You won’t find Apple Pay at the other big banks, so make sure you’re ready with an eligible ANZ card.

The banks confirmed, however, that customers are voting with their feet when it comes to Apple Pay (again, emphasis added):

Apple has around a 40% share of the smartphone market in Australia and controls a critical segment of mobile phone users. It is clear that customers are far more likely to change cards in order to use Apple Pay than they are to give up their iPhones in order to use mobile payments, as demonstrated by the increase in card applications reported by ANZ Bank since it launched Apple Pay.     This results in a significant disparity in bargaining power between Apple and any Australian card issuer when it comes to negotiating the terms of Apple Pay, and these are precisely the circumstances in which collective negotiations are recognised to promote fairer and more efficient outcomes, and collective boycotts may be required to bring a more powerful party to the negotiating table.

Banks say that this is evidence that they must be allowed to negotiate as a group with Apple.

The big banks aren’t alone in their crusade to collectively negotiate on Apple Pay in Australia, however. A number of parties have skin in the game when it comes to how you pay for stuff, including Coles, the Australian Retailers Association (which speaks for a multi-billion dollar point-of-sale industry), payments provider Tyro, EFTPOS Australia, the Australian Payments Clearing Association and MasterCard.

The ACCC expects to release the draft decision in October. You can read the full report here.

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