Some of Australia’s biggest banks are seeking Australian Competition and Consumer Commission authorisation to engage in joint negotiations with third-party digital wallet providers, including Apple, Google and Samsung — and potentially engage in a collective boycott of the services.
The application, made under subsections 88 (1A) and 88 (1) of the Competition and Consumer Act 2010, has been lodged with the ACCC by three of Australia’s ‘Big Four’ banks — the Commonwealth Bank of Australia, National Australia Bank and Westpac — as well as Bendigo and Adelaide Bank.
The banks argue that some third
party wallet providers “by reason of their scale and influence, combined
with their control of key mobile hardware and/or operating systems,
could be in a position to negotiate terms that would be likely to result
in reduced competition and innovation, and increased risk in the
security and transparency of mobile payments.”
The application cites three digital wallets in particular: Apple Pay, Android Pay and Samsung Pay.
As creator of the Android OS, Google has “significant bargaining power” in Android Pay negotiations. Similarly, Samsung’s “control of key mobile hardware” and position as the leading manufacturer of Android handsets offers it a leg-up in negotiations over Samsung Pay.
“However, Apple has particularly significant bargaining power in negotiations relating to Apple Pay due to its control of both a key operating system and key mobile hardware,” the application states.
“[I]n the applicants’ view mobile payments will only succeed if they offer customers, merchants and financial institutions the right combination of convenience, security and cost,” the application states.
“In the applicants’ view, these attributes will only be developed in an environment in which vigorous competition drives innovation, efficiency and continuing investment. Conversely, the introduction of mobile payment or mobile wallet services on a basis that limits or prevents competition is likely to result in fragmentation, under-investment and a reduction in innovation and customer choice.”
Banks seek access to iPhone NFC support
One of the issues that the banks want to engage in collective negotiations on is access to handset hardware for mobile wallets. The application says the applicants want to negotiate over wallet providers “refusing, restricting or failing to provide software access to any payment functionality built into devices manufactured by or for, or operating systems developed or distributed by, the Third Party Wallet Provider, for example NFC functionality”.
“Some issuers in other countries have expressed concern that Apple has not allowed other mobile payment apps to use the iPhone’s NFC payment functionality... Apple reportedly confirmed that it would not open up NFC functionality for third-party payment services, for reasons of security and convenience,” the application lodged with the ACCC states.
A successful application, depending on subsequent negotiations with Apple, could potentially open the gates to banks' own mobile wallet apps employing the iPhone's NFC hardware.
A notable absence from the list of applicants is ANZ: The first Australian bank to offer support for Apple Pay; when Apple Pay initially launched in Australia it was available only to customers of American Express. ANZ was also the first major Australian bank to announce support for Android Pay (some 45 other financial institutions are listed as either currently supporting will be launching support shortly for the Google-backed wallet).
Samsung Pay is the most recent entrant to the Australian market, launching last month with support for American Express and Citibank card holders.
The arrangements outlined in the application lodged with the ACCC could later be extended to other financial institutions that wish to participate.
The application lodged with the ACCC would not bar the applicants from engaging in individual negotiations with a digital wallet issuer unless they decide to participate in collective negotiations.
The application covers three areas for collective negotiation — and does not cover the level of fees or charges that may be imposed by a wallet operator.
Competition: The applicants want to collectively negotiate “in response to any technological or other exclusivity” that a wallet provider may impose such as “refusing, restricting or failing to provide software access to any payment functionality built into devices manufactured by or for, or operating systems developed or distributed by, the Third Party Wallet Provider, for example NFC functionality”; and/or “otherwise preventing or impeding card issuers from developing, deploying or participating in any other mobile payment or mobile wallet services or Third Party Wallets on any mobile devices or platforms”.
Best practice standards: “[T]he applicants wish to collectively negotiate with Third Party Wallet Providers in order to maintain consistent and best practice standards relating to fraud management, security, and identification and verification (ID&V) in mobile payments in Australia,” including support for any agreed industry standards.
Efficiency and transparency: “[T]he applicants wish to collectively negotiate with Third Party Wallet Providers with a view to promoting efficiency and transparency by ensuring that Third Party Wallet Providers do not restrict the ability of issuers to pass through any fees or charges imposed on issuers by Third Party Wallet Providers.
The applicants are seeking interim authorisation from the ACCC while the competition watchdog assesses the issue, arguing that it is “a critical time for mobile wallets and mobile payments in Australia”, citing the launch of all three major digital wallets in Australia as well as developments such as Transport for NSW trialling support for smartphone payments on its transit network.
“This is about providing Australians with real choice and better outcomes,” Novantas senior advisor Lance Blockley said in a statement on behalf of the applicants.
“If successful, the application would have tremendous benefits for the entire Australian mobile payments landscape including for public transport fares, airlines, ticketing, store loyalty and rewards programs and many more applications yet to be developed.”
The period of authorisation sought is three years.
If the application is granted, participants will be able to boycott wallet providers while joint negotiations are under way.