Apple argues Australian bank bargaining cartel is centred on fee avoidance

Apple has argued in its latest submission to the Australian Competition and Consumer Commission (ACCC) that the collective negotiating between four of Australia's largest banks is not about access to the iPhone's near-field communication (NFC) technology to stir healthy competition, rather it is an attempt to avoid paying the fees associated with using Apple Pay.

The Commonwealth Bank of Australia (CBA), Westpac Banking Corporation, the National Australia Bank (NAB), and Bendigo and Adelaide Bank have been seeking regulatory approval to collectively negotiate with third-party mobile providers such as Apple on conditions relating to competition, best practice standards, and efficiency.

The banks have claimed they want access to the NFC controller in iPhones, as Apple currently does not allow any other entity direct access. The group has been arguing that 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 -- which is what Apple wants to avoid.

Additionally, the banks want the removal of the restrictions Apple imposes on banks that prevent them from passing on fees that Apple charges the banks for use of its digital wallet.

In its latest submission, Apple said that it "will not, and cannot, agree to the terms sought by the banks".

Core to the banks' argument is that the public will benefit if Apple is forced to hand over its NFC hardware, highlighting it would increase competition and consumer choice in digital wallets in Australia, increase innovation and investment in digital wallets and other mobile applications using NFC technology, provide greater consumer confidence leading to increased adoption of mobile payment technology in Australia, and provide cost-based benefits for consumers.

"There are no public benefits to providing the applicant banks embedded NFC radio access," Apple said in its latest submission.

"The only benefit that would accrue to the banks in that case is a purely private benefit where they would be allowed to continue to free-ride on the significant investments made by Apple in its devices, iOS platform, and Apple Store infrastructure, and specifically in this case on the underlying technology installed on Apple devices to facilitate NFC payments without paying any fees for transactions processed via Apple Pay."

The latest submission from Apple comes in response to a draft determination handed down by the ACCC in November that moved to deny the banks collective bargaining rights against the iPhone maker.

"This is currently a finely balanced decision. The ACCC is not currently satisfied that the likely benefits from the proposed conduct outweigh the likely detriments," ACCC chairman Rod Sims said at the time.

"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 are currently uncertain and may be limited."

Concerning the fee structure it imposes on the banks, Apple said that the banks should not be entitled to pass on those costs to consumers in the form of additional per transaction fees or otherwise, given the bank has no fees to recoup in regards to making the technology.

Another argument put forward by Apple is that the banks have previously claimed that embedded NFC radio access on iPhones will accelerate innovation in mobile payment services in Australia; however, the banks currently have embedded NFC radio access on Android devices that Apple said they have not utilised, calling out CBA and NAB in particular.

"Embedded NFC radio access would not lead to an overall improved user experience," the tech giant said. "As such, the proposed collective bargaining conduct will not achieve any of the public benefits claimed by the applicant banks."

Apple said it is concerned that the banks are using the long drawn out authorisation process as a device to delay the further expansion of Apple Pay in Australia, a practice the Californian giant believes is not only directly impacting the 70 percent of cardholders in Australia that are controlled by the banks but also the smaller card issuers who already, or could in the future, rely upon Apple Pay as a means of securing a digital presence in competition with the big banks.

"The applicants' refusal to engage with Apple during the authorisation process provides evidence of the chilling effect of the proposed collective conduct on the benefits of competition through innovation in digital payments offered by over 3,500 banks," the submission said.

The four banks initially requested interim authorisation within 28 days of their initial request on July 27 for the ACCC to allow them to commence collective negotiations while the regulator considered the application for final authorisation.

The ACCC refused to grant the banks interim authorisation to collectively negotiate on the basis it needed more time to come to a decision.

In its first submission, Apple accused the banks of wanting to control the market, saying collective negotiation with the banks "would harm consumers, lead to less competition and less innovation, and create a troubling precedent".

"The present application is only the latest tactic employed by these competing banks to blunt Apple's entry into the Australian market," it said.

Apple also accused the banks of having a "limited understanding" of Apple Pay, a theme continued in its latest submission.

In August, Apple claimed that collectively negotiating with Australian banks would "undermine the availability, security, and privacy" its customers expect when using Apple devices to make payments.

"Apple Pay fosters competition between payment card issuers ... this is not possible within the banks' own proprietary issuer digital wallets, which limit the choice for the customers to only payment cards issued by the bank," Apple added in its latest submission. "Any rational economic player would be expected to take advantage of [the Apple Pay] opportunity."

The banks have argued in its joint submission to the ACCC that Apple's arguments against collective negotiation are "unconvincing" and "superficial".

"Apple has been puzzled by the applicant banks' logically inconsistent argument that they wish to have the ability to charge consumers per transaction fees for using Apple Pay, but are unlikely to be able to do so owing to competition from other issuers like ANZ who do not," Apple said.

"Perhaps the explanation might be that this is perceived by the applicant banks as a way of introducing and then proliferating a new revenue stream in the digital payments age."

Apple also argued that given it allows competing digital wallets on its App Store, that there is no evidence to suggest that reasonable access to the Apple App Store would be denied to the banks.

In highlighting its argument that the banks want open slather to charge whatever they want to customers, Apple said the banks prefer consumers to use credit cards for transactions as the banks earn higher interchange fees.

"Apple can perceive no benefit to the public of enabling the applicant banks to charge consumers for using Apple Pay where the myriad other fees and transaction costs incurred by the banks are not made transparent or passed through to consumers," Apple said.

"The only benefit is the private benefit to the applicant banks to enable them to impose such fees as a means of discouraging use."

Apple suggested that the banks' submissions have shifted materially over the course of the past six months under the guise of "refinements" to their application.

"The potential damage resulting from any collusion between the applicant banks, tacit or otherwise, is great when a group of competitors in a concentrated market meet to discuss commercial terms such that the potential public detriments resulting from such joint conduct should not be dismissed lightly," Apple added.

"Apple welcomes the conclusion reached in the ACCC's draft determination but submits, based on previous submissions and the further information provided in this submission, that the consequences of the conduct are far from finely balanced and the commission should conclude that the detriments already being observed over the course of the authorisation significantly and unambiguously outweigh any claimed benefits, such that authorisation must not be denied."

Apple Pay was launched in Australia in November 2015, with American Express the only financial institution partner joining the iPhone maker's wallet at the time.

Australia and New Zealand Banking Group (ANZ) was then the first bank in Australia to launch Apple Pay, and is currently the only bank in New Zealand to offer the service.