Australian banking cartel loses fight against Apple

The Australian Competition and Consumer Commission has denied the group of four banks the ability to collectively bargain with and boycott Apple Pay.

An Australian banking consortium has lost its fight to collectively bargain with Apple and boycott Apple Pay, with the Australian Competition and Consumer Commission (ACCC) issuing a determination denying authorisation on Friday.

The ruling by the ACCC means the Commonwealth Bank of Australia (CBA), Westpac Banking Corporation, the National Australia Bank (NAB), and Bendigo and Adelaide Bank have lost the ability to collectively bargain for access to the iPhone's near-field communication (NFC) technology.

"The ACCC is 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," ACCC chairman Rod Sims said in a statement.

"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 detriments."

The banking cartel has been seeking regulatory approval since mid-last year to collectively negotiate with third-party mobile providers such as Apple on conditions relating to competition, best practice standards, and efficiency.

Throughout the process, the banks have claimed that they want access to the NFC controller in iPhones and reduced their argument last month to solely focus on such, as Apple currently does not allow any other entity direct access to its technology.

The group has been arguing that access would enable them 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.

"To make this point abundantly clear, the applicants are willing to limit collective negotiation to NFC access alone -- ie, the ability to collectively negotiate for the removal of the pass-through restriction will be taken off the table," the cartel said earlier this year.

In addition to increasing competition and consumer choice in digital wallets and mobile payments, the banks believe access to the NFC controller on the iPhone would also result in increased "innovation" and investment in digital wallets and other mobile applications using NFC technology, as well as greater consumer confidence leading to increased adoption of mobile payment technology in Australia.

However, in handing down its ruling [PDF] on Friday, the ACCC said it accepts that Apple providing the banks access to the iPhone NFC controller is likely to lead to increased competition, but it considered the likely distortions to and reductions in competition caused by the conduct would also be significant.

"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 used 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 is also of the opinion that access to the NFC in iPhones artificially direct the development of emerging markets to the use of the NFC controller in smartphones, noting this practice was likely to hamper the innovations that are currently occurring around different devices and technologies for mobile payments.

In a statement, the banking cartel said it is disappointed by the ACCC's decision and that the four banks behind the application will individually review and determine their respective future strategies for mobile wallets and mobile payments in order to "best serve their customers".

"This case has always been about consumer choice. 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 wallets in Australia dictated by a single overseas corporation," applicants spokesperson Lance Blockley said.

"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."

In November, the ACCC handed down a draft determination that moved to deny the banks collective bargaining rights against the iPhone maker.

At the time, Sims said the ACCC was not satisfied that the likely benefits from the proposed conduct outweigh the likely detriments.

In response to the draft determination, Apple argued in its submission to the ACCC that the collective application is not about access to the iPhone's NFC technology; rather, it is an attempt to avoid paying the fees associated with using Apple Pay. Apple noted that it "will not, and cannot, agree to the terms sought by the banks".

In their latest submission, the banks held firm that NFC access would create opportunities to invest in NFC capabilities that do not exist without access. Particularly in a relatively small market like Australia, the banks said that larger addressable market provided by NFC access on the iPhone platform increases the incentives to invest, and would reduce the cost and risk of failure and enhance the likely chances of success.

"Apple already provides access to many third-party apps that send and receive information through iPhone hardware features such as the camera, microphone, speaker, and Bluetooth interfaces. These apps can access the iPhone's hardware without having to launch an Apple app," the banks said.

"As a result, there has been a proliferation of innovative apps that use the iPhone camera for purposes Apple could not have imagined. There is no reason why the NFC function should be treated differently, and the Android platform shows that multiple applications can use the NFC function as seamlessly as they can use any other hardware feature."

In its determination, the ACCC states that Apple is not a monopoly supplier of mobile payment devices on which mobile payments can be made, and as a result said Apple faces competition from a range of other handset manufacturers and faces competitive pressure to offer mobile devices with functionalities offered by its rivals -- such as Android Pay and Samsung Pay.

"Overall, the ACCC considers that NFC access is likely to result in a small public benefit from increased competition in digital wallets," the regulator said in its report.

"Therefore the ACCC has decided not to grant authorisation."

Updated at 12.10pm AEDT, March 31, 2017: Added comment from applicants.

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