Apple Pay arguments against negotiation 'superficial and unconvincing': Banks

CBA, NAB, Westpac, and Bendigo Bank have said Apple's security concerns on opening up access to its mobile wallet are 'completely baseless'.
Written by Corinne Reichert, Contributor

Australia's banks have argued in their joint response to the Australian Competition and Consumer Commission (ACCC) that Apple's arguments against collectively negotiating with banks on accessing its mobile payments app Apple Pay due to security concerns are "unconvincing" and "superficial".

The Commonwealth Bank of Australia, National Australia Bank, Westpac Bank, 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.

Specifically, they want non-exclusive access to the near-field communication (NFC) chip, standardised security for all mobile payments systems, and price transparency on transaction costs within Australia -- the last of which is a policy of the Reserve Bank of Australia.

In their joint response, Application for authorisation of limited collective negotiation in relation to mobile wallet and mobile payment systems: Response to interested party submissions [PDF], dated September 30 and published by the ACCC on Monday, the banks argued that they should be permitted to negotiate collectively with Apple.

"Apple would naturally prefer to deal with card issuers on an individual basis using the 'take it or leave it' approach that it has used successfully in other countries. However, its arguments against the collective negotiation are superficial and unconvincing," the banks said in their response.

"They ignore real differences between integrated NFC-based mobile wallets and other mobile banking or mobile payment apps and infrastructure. They appeal to security without providing any explanation of how allowing choice and competition in iPhone payments would compromise that security. They conflate a collective negotiation to redress imbalances in bargaining power with a hard-core cartel and use competition law concepts such as exclusive dealing and the national access regime that have no clear relevance to the assessment of benefits and detriments being undertaken.

"Finally, they assert that Apple will never compromise -- but this is a self-serving assertion which plays up to Apple's reputation but goes against its conduct in practice, and the ACCC should give it no more credence than it deserves."

The banks noted that they have received support from Eftpos, MasterCard, the Australian Retailers Association, Heritage Bank, the Australian Payments Clearing Association, Australian Settlements Limited, Coles, Bluechain, Indue, and Tyro Payments.

In regards to Apple's arguments that opening up access to Apple Pay would make its mobile payments system less secure, the banks countered with the fact that Google and Samsung have done so without issue.

The four banks also argued that choice, competition, and innovation will be stifled "at a critical time" in the development of the mobile payments market if Apple is allowed to refuse competitors the ability to provide integrated mobile payments on the iPhone -- despite Apple utilising the NFC infrastructure that was built and paid for by Australian banks and companies.

"Collective negotiation is necessary in a context where Apple has the ability and incentive to lock competitors out of the iPhone's NFC technology needed to make integrated mobile payments," the banks said.

Pointing towards the fact that Apple holds approximately 40 percent of the smartphone market in Australia, the banks claimed that customers would be more likely to change credit card providers than phones in order to use mobile payments -- as evidenced by the increase in ANZ Bank's credit card applications since it began offering Apple Pay after it was accused of "pulling a fast one" by exiting the joint-bank submission to the ACCC.

The fact that customers are less likely to switch from the iPhone than they are to switch banks and providers means "significant disparity in bargaining power" between card issuers and Apple, the banks said.

"These are precisely the circumstances in which collective negotiations are recognised to promote fairer and more efficient outcomes, and collective boycotts may be required to bring a more powerful party to the negotiating table," the banks' response said.

According to Lance Blockley, spokesperson for the banks, access to Apple Pay's NFC function could also be used to support public transport, airlines, and store loyalty and rewards programs, among other applications.

"Our application remains focused on providing Australian consumers with real choice and better outcomes for mobile payments, mobile wallets, and a range of other potentially NFC-powered functions," Blockley said.

"This is about the future of mobile payments in Australia. Will it be 'Apple's way or no way'? Or a genuine level playing field so all consumers can have the best digital services, no matter what device they own?"

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.

"If granted, the authorisation would harm consumers, lessen competition, and reduce innovation in the banking sector, of which the payments system is a core part. It would also create a troubling precedent. Apple expects that banks and third-party mobile wallet providers will continue innovating and developing new and better solutions," Apple wrote in its submission.

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

However, the ACCC then refused to grant the banks interim authorisation to collectively negotiate, saying it needed more time to come to a decision.

In its first submission, Apple accused the banks of wanting to control the market, saying that 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.

"The applicants rely on innuendo and misstatements to support their application. Most have little direct insight into Apple Pay or Apple's terms (case in point, one applicant bank has refused to even enter into a confidentiality agreement with Apple to allow for preliminary discussions about the terms under which it would participate in Apple Pay)," Apple said at the time.

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