Below is an article from the Financial Review which discusses some recent developments with Apple
The competition regulator has launched a formal investigation into the way Apple controls bank access to the antennas on its iPhones that communicate with payment terminals, responding to concerns raised by Commonwealth Bank.
The probe comes two weeks after The Australian Financial Review revealed Treasurer Josh Frydenberg would get new powers that would allow him to order regulators to target tech giants on payments issues. Mr Frydenberg is worried that a lack of reform in the payments space could leave its future to be determined by Silicon Valley.
Those powers don’t yet exist and the Australian Competition and Consumer Commission will conduct its investigation under existing competition laws.
Of concern to the ACCC is the design of iPhones which restricts payment cards from making “tap and go” payments unless they are stored in Apple’s digital wallet. Cards held in a third-party iPhone wallet, such as a bank app, can pay in a store only if they are routed through Apple Pay.
A CBA digital Mastercard, loaded into the Apple Pay wallet, pays for a coffee on a CBA Albert terminal. CBA wants “fair access” for its bank app to pay directly.
Apple charges banks a few cents for every $100 of transactions, meaning the banks are giving up some of their heavily regulated interchange fee revenue from issuing cards to Apple, which operates outside payment regulation.
The fees are not disclosed but could be approaching $100 million a year and will grow higher as smartphone payments become more popular.
The ACCC’s investigation into whether Apple’s iPhone architecture breaches competition laws comes after CBA CEO Matt Comyn launched a broadside against the world’s largest company on July 27, telling a parliamentary joint committee that regulatory intervention was needed to “reintroduce competitive tension” in the digital wallet market.
The rise of smartphones presents new dilemmas for banks, which are trying to keep control of a hotly contested payments sector that is quickly going global.
In the days of plastic cards, banks could choose from various manufacturers and never had issues accessing devices the cards communicate with. But as payments are routed through smartphones, hardware and software platforms are growing more powerful.
In response to CBA’s attack, Apple accused the bank of being misleading and self-serving to defend its banking app.
The tech giant argued in a supplementary submission to the parliamentary committee filed a month after Mr Comyn’s appearance that the Apple Pay wallet was pro-competitive because it allowed users to toggle between different digital cards, just like choosing a piece of plastic from a physical wallet, while bank apps would lock users into using only that bank’s products.
Now the ACCC will decide who is right. “We are investigating that issue that the Commonwealth Bank has raised,” chairman Rod Sims told The Australian Financial Review.
“It is a classic, complicated competition issue in the sense that you get a party like Apple that builds up its own internal business system, but then they get so big that you say, hang on, is what you did when you were small still appropriate when you are big? It is an issue we are looking at.”
The outcome of the ACCC investigation, which does not have a timetable and is separate to the digital platforms inquiry, will, like any competition law investigation, depend on how the relevant market is defined.
The ACCC will have to consider if there are separate markets for payments with digital and physical wallets and different mechanisms to pay, such as QR codes which eftpos is developing as banks route digital wallet transactions to Visa and Mastercard debit networks.
Apple and CBA are already at each other’s throats when it comes to defining market share. Mr Comyn told the parliamentary joint committee on digital wallets in July that Apple Pay had an 80 per cent market share in digital wallet payments, a level he said was “usually cause for concern”.
Apple retorted, arguing Mr Comyn had “mischaracterised” Apple Pay and said overall it had less than a 10 per cent share of all credit and debit card spending across Australia.
The head of payments at the Reserve Bank of Australia, Tony Richards, told the committee on July 26 “there certainly are potential competition issues in respect of access to the NFC [near-field communication] chip. We’ve been watching these over a number of years. We’ve seen what’s happening in Europe.”
The ACCC’s Apple Pay NFC inquiry comes 15 months after the European Commission began an investigation into the same issue.
The EU is examining Apple Pay’s terms and conditions when it is integrated into merchant apps and websites on iPhones and iPads, and its “limitation of access to the near-field communication (NFC) functionality (“tap and go”) on iPhones for payments in stores, and alleged refusals of access to Apple Pay”, according to the commission.
Separately, Germany passed legislation in 2020 to ensure Apple grants access to its “technical infrastructures” to payment service providers.
The ACCC action comes after Mr Sims last week called for legislative reform to ban Apple and Google from self-preferencing their apps, services and payments platforms ahead of competitors.
“Digital platforms are now getting involved in financial services, too, and you’ve got Apple not letting anyone else use their NFC chip for contactless payments. There is a whole range of issues which I think it’s generally accepted now need to be dealt with,” Mr Sims said last week.
Apple told the parliamentary committee last month that CBA had misconstrued the access issue, and that banks could access the iPhone NFC to allow their proprietary apps to make payments directly. They just needed to pay the fee to Apple, which wants to retain control of security of the phone and the broader functionality of the antenna, which can also be used to open homes and cars.
As a person interested in antitrust policy, if you are not interested in this issue, then leave the game.
— Rod Sims, ACCC chairman
Mr Sims told The Australian Financial Review on Friday that the regulator would carefully assess all of Apple’s arguments, including that its digital wallet encourages competition.
“We are going into this with an open mind,” he said. “This is a complex issue. As a person interested in antitrust policy, if you are not interested in this issue, then leave the game. This is complex and intellectually fascinating, and we are now investigating this matter.”
The ACCC intervention comes two weeks after a report on the regulation of the payment system by King & Wood Mallesons partner Scott Farrell recommended Mr Frydenberg to get new powers over payments.
If legislated, this could allow him to order the Reserve Bank to regulate Apple and Google on particular issues including NFC access, based on a national interest trigger.
CBA wants “fair access” to the iPhone NFC chip. The RBA has already indicated it may be appropriate that Apple is paid something for taking a payment across its infrastructure.
Dr Richards said in July that if the RBA was to hypothetically mandate access to the NFC, “you then have to say something about what fees might be permissible”.
“So, it’s probably not the case that entities would suddenly get access to the NFC chip and necessarily get that for free,” he said.
Tensions between Apple and CBA go back to 2016, when CBA was one of four banks that asked the ACCC for authorisation for collective bargaining with Apple, but this was knocked back.
The ACCC told the digital wallet parliamentary joint committee in July that payments had been carved out of its digital platforms inquiry terms of reference, so it had not conducted any “deep dive” on the NFC issue as part of that inquiry.
Mr Sims confirmed the current investigation was under the ACCC’s broader competition law powers.
Reserve Bank governor Philip Lowe said in July that Apple’s closed payments infrastructure was “an issue” but not something the RBA could regulate, given Apple was not captured in the legal definition of a payment system.
“We are going to have a more competitive system if there can be competition among the providers of digital wallets,” Dr Lowe said. “Ultimately, there will be lower fees and better services if we have competition and open access. That is an issue. But it’s not something the Reserve Bank can do anything about. We don’t have the power to do it.”
When the EU announced in June last year that it was looking into potentially anti-competitive conduct by Apple Pay, its executive vice-president in charge of competition policy, Margrethe Vestager, said mobile payments “are rapidly gaining acceptance among users of mobile devices” and growth had been accelerated by the coronavirus pandemic.
“It is important that Apple’s measures do not deny consumers the benefits of new payment technologies, including better choice, quality, innovation and competitive prices,” she said.
“I have therefore decided to take a close look at Apple’s practices regarding Apple Pay and their impact on competition.”