Four of Australia’s largest banks have asked the competition regulator for permission to join forces and collectively negotiate with Apple to get their own digital wallets onto iPhones.
The bank’s have become frustrated by the world’s biggest company’s strategy of locking third party providers of digital wallets off the iPhone platform in favour of its own Apple Pay, which is attacking millions of dollars the big banks earn in interchange fees.
This is the first time globally a group of financial institutions have sought authorisation from a competition regulator to negotiate as a block against Apple.
The lack of iPhone access is particularly frustrating for the banks as they have invested heavily in their own efforts to put payments innovation on to the phones of millions of customers. However unlike phones running on Google’s Android operating system, the banks’ own apps on iPhones are limited to internet-banking functions.
Apple has locked its devices down so that the banks’ own digital wallets cannot access the iPhone’s antenna, meaning they are unable to facilitate contactless payments.
Commonwealth Bank of Australia, National Australia Bank, Westpac Banking Corp and Bendigo and Adelaide Bank have asked The Australian Competition and Consumer Commission to give them permission to collectively negotiate with Apple.
They are hoping that together they can use their collective muscle to convince the technology giant to allow their digital wallets to be loaded onto iPhones.
The banks fear that if more people begin to pay for things by tapping phones rather than tapping cards, their customers who also use iPhones will not receive new payment and digital wallet offerings.
The banks also want common standards around fraud prevention and want Apple to be part of that process.
The ACCC said on Wednesday the banks are seeking authorisation “on behalf of themselves and potentially other credit and debit card issuers to engage in limited collective negotiation with providers of third-party mobile wallet services on conditions relating to competition, best practice standards, and efficiency and transparency”.
But under its arrangement, which is believed to give up some of the bank interchange fee to Apple, ANZ’s cards are loaded into Apple’s digital wallet in order to interact with the payment terminals.
While all the big Australian banks have applications that can be downloaded by iPhone users to conduct mobile banking, Apple only lets Apple Pay access to the handset’s NFC (near field communications) antenna.
This prevents the bank wallets from being used to make payments on contactless terminals – the key functionality of a digital wallet.
CBA has developed a work-around by asking its customers who carry iPhones that want to use its digital wallet to affix a sticker on the back of their phone to act as an antenna but it is understood this has not been widely adopted by customers.
The ACCC said the applicants also seek authorisation to enter into a limited form of collective boycott in relation to a third-party mobile wallet provider while collective negotiations with that provider are ongoing.
While banks, retailers and airlines are all looking to develop software to create digital wallets, Apple’s digital wallet points to the product being a combination of software and its proprietary hardware.
It is important to the major companies in all industries as digital wallets will increasingly be used for holding rewards cards and other loyalty offers, tickets, coupons and digital identity documentation.
The thorny issue of fee negotiations has been excluded from the ACCC application.
It remains unclear whether Apple will consider entering negotiations with the banks if interim authorisation to conduct the collective negotiations is provided by the banks.
Apple has been contacted for its response to the application.
Fear of Apple disruption
The application reflects growing unease among incumbent businesses about the power of Apple, and its ‘all-or-nothing’ approach to commercial negotiations.
While the ACCC application has been made by the four banks, it is understood the parties are happy for other companies to join any negotiations that might take place.
Retailers like Coles and Myer and airlines including Qantas and Virgin are all exploring digital wallets.
The banks have asked the ACCC to provide interim authorisation for the negotiations and consider them urgent because Transport for NSW will next year trial open loop tap and go cards on the NSW transport system.
This will allow allow anyone with a bank issued Visa or Mastercard to tap those cards on the Opal terminals. While around 8 per cent of Australians are currently tapping their mobile phones to pay, according to data from RFi Group, the banks expect this to increase rapidly once transport systems are opened up. This was the experience in London when transport cards there went open loop.
Banks also want to talk to Apple about fraud protection, after US fraud spiked in the US when Apple Pay was launched after thieves began targeting the “on-boarding” of cards onto the phones.
Banks want a set of common security standards enacted around setting up digital wallets.
Novantas senior advisor Lance Blockley, who is working on behalf of the banks, said the ACCC application was about providing Australians with real choice and better outcomes.
“If successful, the application would have tremendous benefits for the entire Australian mobile payments landscape, including for public transport fares, airlines, ticketing, store loyalty and rewards programs and many more applications yet to be developed,” Mr Blockley said.