by Byron Connolly

Updated: ACCC rules against banks in Apple Pay fight

Mar 31, 2017
Financial Services IndustryRisk ManagementTechnology Industry

A group of Australian banks have lost a fight to collectively negotiate with Apple and boycott the iPhone maker’s payments platform, Apple Pay.

The Australian Competition and Consumer Commission (ACCC) on Friday denied authorisation to the Commonwealth Bank, Westpac, NAB and Bendigo and Adelaide Bank to collectively bargain with the iPhone maker and boycott Apple Pay.

The banks sought authorisation to bargain with Apple for access to the near-field communication (NFC) controller in iPhones, and reasonable access terms to the App Store. This access would enable the banks to offer their own integrated digital wallets to iPhone customers in competition with Apple’s digital wallet, without using Apple Pay.

ANZ is currently the only big four bank in Australia offering Apple Pay.

The competition watchdog said it was not satisfied, on balance, that the likely benefits from the proposed conduct outweigh the likely detriments.

“We are concerned that the proposed conduct is likely to reduce or distort competition in a number of markets,” said ACCC chairman, Rod Sims.

“While the ACCC accepts that the opportunity for the banks to collectively negotiate and boycott would place them in a better bargaining position with Apple, the benefits would be outweighed by the detriments,” Sims said.

The banks argued that access to the NFC controller on iPhones would allow them to offer competing wallets on the iOS platform. They argued this would increase competition and consumer choice in digital wallets and payments; increased innovation and investment in these technologies and other mobile apps using NFC technology; and provide greater consumer confidence, leading to increased adoption of mobile payment platforms.

The ACCC said it accepted that Apple providing the banks access to the iPhone NFC controller is likely to lead to increased competition in mobile payment services.

But it considered the “likely distortions to and reductions in competition caused by the conduct would also be significant” with three detriments standing out.

“First, Apple and Android compete for consumers providing distinct business models. If the applicants are successful in obtaining NFC access, this would affect Apple’s current integrated hardware-software strategy for mobile payments and operating systems more generally, thereby impacting how Apple competes with Google,” Sims said.

“Second, digital wallets and mobile payments are in their infancy and subject to rapid change. In Australia, consumers are using to making tap and go payments with payment cards, which provide a very quick and convenient way to pay. There is also a range of alternative devices being released that allow mobile payments, for example, using a smartwatch or fitness device. It is therefore uncertain how competition may develop.”

Sims said that access to the NFC in iPhones for the banks could artificially direct the development of emerging markets to the use of the NFC controller in smartphones.

“This is likely to hamper the innovations that are currently occurring around different devices and technologies for mobile payments,” he said. “The conduct is also likely to reduce the competitive tension between the banks in the supply of payment cards.

“Finally, Apple Wallet and other multi-issuer digital wallets could increase competition between the banks by making it easier for consumers to switch between card providers and limiting any ‘lock-in’ effect bank digital wallets may cause,” Sims said.

Responding to the ACCC’s decision, the banks said they were disappointed that consumers will continue to be denied a choice in mobile wallets. The banks said they will individually review and determine their future strategy for mobile wallets and mobile payments.

“This case has always been about consumer choice,” said Lance Blockley, a payments specialist and spokesperson for the banks. “The applicants made this application to seek to ensure they could participate in the future of mobile wallets, and not have the course of development for mobile walletsin Australia dictated by a single overseas corporation,” he said.

“The application attracted strong support from many of Australia’s leading retailers and other financial institutions who also recognise the public benefits of open NFC access, and the subsequent flow on benefits for mobile wallet innovation and competition in Australia.”

“Whilst we thank the ACCC for their time and diligence in reviewing our application, and recognising both the imbalance in negotiating positions and that there were real issues for consideration, we are disappointed that the finely balanced draft determination was not tipped in the final decision, given our considerable effort to demonstrate the public benefits inherent in open NFC access, and the subsequent flow on benefits for mobile wallet innovation and competition in Australia,” he said.