Why the ACCC siding with the banks against Apple will not be in consumers' interests

The Australian Competition & Consumer Commission (ACCC) has denied four of Australia’s banks an interim authorisation to act collectively against Apple and other third party wallet providers (Samsung and Google) in Australia.

In essence, the banks asked the ACCC to allow them to collectively negotiate with Apple over the terms of its electronic payment system Apple Pay. They have argued that Apple is stifling competition by not allowing banks direct access to the NFC wireless functionality in the iPhone so that they can create their own “digital wallets”.

The ACCC has decided not to grant their request, instead it has stated that it needs more time and more consultation before it makes a decision.

Only 6 parties had responded to the request despite over 80 different parties being requested to do so. This was principally because the banks were pushing for a response within 28 days which didn’t give anyone time to respond properly.

Ultimately, for the ACCC to grant the banks their request to act collectively, they will need to decide whether this is going to be in the best interests of consumers.

The fact that it is not immediately obvious that this is clearly not in the interest of consumers reflects a fundamental lack of understanding of the nature of the technology that is being discussed.

Apple Pay provides secure access to your credit card not using the details of the card itself, but as an encrypted representation of the card provided by the issuing banks along with a token that is supplied by the card networks Visa, MasterCard and American Express. The encrypted data and tokens are stored in a piece of hardware called the Secure Element, an industry standard, certified chip. This communicates directly with the NFC wireless that in turn communicates with the payment terminals.

The main points about this is that the banks are always in control over the transactions that happen and over which cards are added to the phone and how they are validated. This means that from a user perspective, there is absolutely nothing that can be gained from a consumer perspective by having the cards added separately in another digital wallet provided by the banks.

For the benefit of the ACCC, it is worth emphasising this point. The functionality of the physical transaction between a card and terminal should absolutely not vary between card providers. What can vary is the functionality that is provided by banks via their own apps for consumers to track payments, pay off card balances, transfer money, etc. Apple Pay does not interfere with this aspect of functionality and so banks can, and do already, provide apps to do this.

In fact, there are a large number of disadvantages that consumers would face by having the banks use their own digital wallets to actually load cards and carry out the payments:

[1] Each bank would use a different process for loading cards and different security mechanisms for access them to pay with. This would contrast with the ability to pay from the lock screen using the fingerprint scanner using Apple Pay.

[2] Customers would have multiple apps to store cards from different providers adding to the burden of updating them in order to make sure they had the latest security updates.

[3] There would be no guarantee that banks would have apps updated for new versions of the iPhone operating system with each release - especially for beta versions of the operating system. This would mean that customers could be left without a payment mechanism until some time after new versions of the operating system are released. This was indeed the case with the Commonwealth Bank’s payment system on Samsung phones.

[4] Apple Pay will be available through integration with Safari in the next version of iOS. Not having cards in Apple Pay would mean that this functionality would also not be available to customers using digital wallets provided by banks.

[5] The banks have basically prohibited the Australian consumer from using their phones for payment in the way that millions of other users are able to. Indeed, the banks are wanting to actually charge customers for that privilege.

As I have argued before, there is no chance that Apple will completely overhaul the architecture of its hardware and operating system to accommodate 4 banks in Australia when 3,000 banks worldwide have decided to adopt it.

This is not an argument about stifled innovation or enhancing security, in fact, it is the opposite, what is being suggested will diminish both of these. What it is is an attempt for banks to maintain their dominant market power and continue to pass on unnecessary charges to customers.

What the ACCC will achieve however by allowing the banks the ability to collectively bargain against Apple is that it will delay other banks and organisations from signing up. Again it is worth stressing that this is not just a fight against Apple, Australian consumers will be prevented from using equivalent systems on Android and Samsung.