​Reserve Bank weighs in on digital wallet competition discussion

The Reserve Bank of Australia has published a consultation paper in response to being urged by industry players to determine a standard for the provision of dual-network debit cards and mobile wallets.

The Reserve Bank of Australia (RBA) has published a consultation paper on dual-network debit cards and mobile wallets, seeking submissions in response to the call it received from industry players to put in place regulations and be the governing body over such technologies.

In its Dual-Network Cards and Mobile Wallet Technology Consultation Paper, the RBA states that dual-network debit cards are debit/ATM cards that allow transactions to be routed through two different networks, and notes that around two-thirds of the debit cards issued in Australia have dual-network functionality.

The paper [PDF] discusses concerns about possible restrictions on competition in the mobile wallet sphere, specifically about conduct that may prevent or make it more difficult for both networks on a dual-network debit card to be enabled on a mobile device.

"This conduct could have the effect of reducing choice and convenience for cardholders in making mobile payments and reduce the ability of merchants to encourage the use of lower-cost payment methods," the paper says.

"With the expected strong growth in mobile payments, it is not surprising that there is strong competition between issuers, schemes, and mobile wallet providers in this sphere."

The RBA said it is guided by the view that competition and efficiency in the payments system are likely to be enhanced where there are a wide range of payment options for consumers and merchants.

"Mobile wallets represent a technology that allows greater choice by end users. In particular, the physical constraints applied by the size of a traditional wallet or purse -- which made the functionality offered by having multiple networks on a single plastic card desirable -- no longer apply in the mobile world, where a single device has the potential to store as many cards as the consumer wishes to hold," the paper reads.

"The board's longstanding position is that the issuance of physical dual-network cards promotes payments system efficiency and competition between payment methods."

As dual-network cards are convenient for consumers and enhance the ability of merchants to encourage the use of lower-cost payment methods, the RBA said it would be concerning if, as a new technology is adopted, protocols or rules were put in place that have the effect of reducing competition by making it more difficult for schemes to compete, or impeding the efficient migration of existing competitive arrangements from the physical card to a mobile wallet.

The bank is asking for submissions to be returned by February 7, 2017, with respondents asked to provide feedback on nine questions, mostly centred on fair completion, alternate methods for dual-network card provisioning, and what role the RBA should play in regulating such practice.

The RBA also asks for financial parties to comment on any prospective developments in payment card technology that may be relevant for it to consider.

Despite concerns around the possible restriction of competition at the core of the consultation paper, the RBA said its paper "does not cover the current dispute between some card issuers and third-party mobile wallet providers -- this is a separate issue that is being addressed by the ACCC".

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 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 restriction Apple imposes on banks, preventing them from passing on fees that Apple charges for the use of its digital wallet.

Core to the banks' argument is that the public will benefit if Apple is forced to hand over access to 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.

However last week, the Australian Competition and Consumer Commission (ACCC) issued a draft determination proposing to deny authorisation for the banking consortium to collectively bargain with Apple.

The RBA is due to send its new payments platform live next year, offering near real-time funds transfer between bank accounts, regardless of who people bank with.

According to the RBA, all a user will require to perform an "instantaneous payment" with the forthcoming system will be the recipient's email address or mobile phone number, instead of the monolithic BSB and account number practice.

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