Why The ACCC Siding With The Banks Against Apple Is Bad For Consumers

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The Australian Competition & Consumer Commission (ACCC) has denied four of Australia's banks an interim authorisation to act collectively against Apple and other third party wallet providers (Samsung and Google) in Australia.

In essence, the banks asked the ACCC to allow them to collectively negotiate with Apple over the terms of its electronic payment system Apple Pay. They have argued that Apple is stifling competition by not allowing banks direct access to the NFC wireless functionality in the iPhone so that they can create their own “digital wallets”.

The ACCC has decided not to grant their request, instead it has stated that it needs more time and more consultation before it makes a decision.

Only six parties had responded to the request despite over 80 different parties being requested to do so. This was principally because the banks were pushing for a response within 28 days which didn’t give anyone time to respond properly.

Ultimately, for the ACCC to grant the banks their request to act collectively, they will need to decide whether this is going to be in the best interests of consumers.

The fact that it is not immediately obvious that this is clearly not in the interest of consumers reflects a fundamental lack of understanding of the nature of the technology that is being discussed.

Apple Pay provides secure access to your credit card not using the details of the card itself, but as an encrypted representation of the card provided by the issuing banks along with a token that is supplied by the card networks Visa, MasterCard and American Express. The encrypted data and tokens are stored in a piece of hardware called the Secure Element, an industry standard, certified chip. This communicates directly with the NFC wireless that in turn communicates with the payment terminals.

The main points about this is that the banks are always in control over the transactions that happen and over which cards are added to the phone and how they are validated. This means that from a user perspective, there is absolutely nothing that can be gained from a consumer perspective by having the cards added separately in another digital wallet provided by the banks.

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For the benefit of the ACCC, it is worth emphasising this point. The functionality of the physical transaction between a card and terminal should absolutely not vary between card providers. What can vary is the functionality that is provided by banks via their own apps for consumers to track payments, pay off card balances, transfer money, etc. Apple Pay does not interfere with this aspect of functionality and so banks can, and do already, provide apps to do this.

In fact, there are a large number of disadvantages that consumers would face by having the banks use their own digital wallets to actually load cards and carry out the payments:

  1. Each bank would use a different process for loading cards and different security mechanisms to access them to pay with. This would contrast with the ability to pay from the lock screen using the fingerprint scanner using Apple Pay.

  2. Customers would have multiple apps to store cards from different providers adding to the burden of updating them in order to make sure they had the latest security updates.

  3. There would be no guarantee that banks would have apps updated for new versions of the iPhone operating system with each release, especially for beta versions of the operating system. This would mean that customers could be left without a payment mechanism until some time after new versions of the operating system are released. This was indeed the case with the Commonwealth Bank’s payment system on Samsung phones.

  4. Apple Pay will be available through integration with Safari in the next version of iOS. Not having cards in Apple Pay would mean that this functionality would also not be available to customers using digital wallets provided by banks.

  5. The banks have basically prohibited the Australian consumer from using their phones for payment in the way that millions of other users are able to. Indeed, the banks are wanting to actually charge customers for that privilege.

As I have argued before, there is no chance that Apple will completely overhaul the architecture of its hardware and operating system to accommodate four banks in Australia when 3,000 banks worldwide have decided to adopt it.

This is not an argument about stifled innovation or enhancing security, in fact, it is the opposite. What is being suggested will diminish both of these. What it is is an attempt for banks to maintain their dominant market power and continue to pass on unnecessary charges to customers.

However, what the ACCC will achieve by allowing the banks the ability to collectively bargain against Apple is that it will delay other banks and organisations from signing up. Again it is worth stressing that this is not just a fight against Apple, Australian consumers will be prevented from using equivalent systems on Android and Samsung.

David Glance, Director of UWA Centre for Software Practice, University of Western Australia

This article was originally published on The Conversation.


Comments

    It's worth noting that part of the reason the banks are against Apple/Samsung/Android Pay is the approximately 0.15% transaction fee (at least in Apple's case) that goes to Apple/Samsung/Android.

    Apple are basically saying that because of their increased security, it's worth the fee, but it seems the banks disagree.

      Not true. Banks in Australia have partnered with both Samsung and Google to use their wallets and the commercial agreements vary however they are typically not based on charging per transaction. As you can imagine, Google doesn't really charge directly for services, but relies on revenue through other means.

      Apple's model does charge per transaction and by locking out access to the NFC hardware/API, they are essentially holding banks over a barrel.

      This might work in other markets but in Australia, we've got one of the most ubiquitous, well integrated and subscribed card payment networks, so the value Apple brings is significantly lower than it would to say the US market, where they are struggling with mag stripe cards.

      We have also had 3 rounds of reforms and regulation, including the current which kicks in from next week, and it is all about limiting the charges each player in the payments value chain can add to something that reasonably reflects the cost of the providing the service.

      This is primarily to stop some sectors from gouging on service fees (airlines and taxis), but in previous reforms and well as the latest rounds, the 'middle men' are regulated as well.

      By the way Android is an operating system, AndroidPay a 3rd party wallet platform developed by Google.

    Thank you for the excellent, I emailed NAB saying the same thing and how naive it is of the banks to think that Apple will spend millions changing their hardware and software. Their response really obviously shows their lack of knowledge:
    Dear Mr. Lawrence
    We want to deliver you a great customer experience and that means providing greater choice, better quality and improved security in contactless payments.
    Many mobile devices now include Near Field Communication (NFC) technology, which make contactless payments possible. However, not all phone manufacturers provide access to this technology.
    So, we've joined with three other Australian banks to lodge an application with the ACCC for permission to jointly negotiate with companies who manufacture mobile devices. The joint application, which involves Bendigo and Adelaide Bank, the Commonwealth Bank of Australia, and Westpac, will also seek to achieve comprehensive and consistent security standards across all mobile wallet providers. For further information, please click here.
    Currently, Australians who own Apple mobile phones (around 40% of Australians with smartphones) don't have a choice as to what goes into their digital wallet. And we want our customers to be able to pay who they want, how they want, when they want.
    We’re doing everything we can to deliver greater choice for you so please watch this space!
    Regards
    Milla
    NAB Resolve

    Last edited 22/08/16 10:44 pm

      Good on the banks for standing up to Apple.

      Samsung allowed access to the NFC reader without 'spending millions' on it.

      As a result I can choose to support my bank by using NAB Pay on my S7 Edge rather than Samsung Pay or Google Pay.

      Less fees going to Apple/Samsung/Google = better bank profits = better deals for us in the long run.

      And we want our customers to be able to pay who they want, how they want, when they want.*

      Except by apple pay, because we want to keep all the profits to ourselves. Why let our customers use an integrated solution that is secure and lets them use whichever card they want.

      Should apple stop being so up themselves and be more open and not charge the banks so much for the service, yes of course. But the banks are just as arrogant wanting it their way and claiming its for our own benefit. I can only imagine (as i don't have ANZ or AmEx, though tempted to switch to ANZ) using apple pay would be a much nicer experience than having to unlock the phone, open the bank app and process it through there.

    As I have argued before, there is no chance that Apple will completely overhaul the architecture of its hardware and operating system to accommodate four banks in Australia when 3,000 banks worldwide have decided to adopt it.

    Samsung allow it, it really can't be that hard to do.

    I really hope the banks hold firm against this anti-competitive behavior. Apple already siphon billions of tax dollars away from the Australian schools and hospitals, now they want to raise our mortgage rates by gouging away profits from the banks.

    For people who write for a living, that headline is atrocious.

      I don't write for a living, and the title had my brain hurting from the get-go. It actually made the whole article difficult to follow, to be honest. It took me a while to figure out if this was for or against what the banks are doing.

      That aside, this problem doesn't exist on Android, I've been using NFC payments for years in Australia on Nexus devices.

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