Australians Choose Digital Payments

Australians are embracing digital payments according to the latest  Milestones Report released by the payments industry self-regulatory body Australian Payments Network (previously Australian Payments Clearing Association). As a result, cash and cheques are in decline. Australia’s digital economy underpins what can increasingly be characterised as a less-cash society.

Cheque use plunged 20% to 111.6 million – the largest drop ever-recorded. The value of cheques dropped by 6% over the same period, after remaining flat in 2015 and dropping by less than 1% in 2014. Over the last five years, cheque use has dropped 56%.

The number of ATM withdrawals dropped 7.5% to 648.5 million in 2016 following a 5.5% drop in 2015 and a 4.7% drop in 2014. Since 2011, ATM withdrawals have dropped by 22%.

CEO of the Australian Payments Network, Dr Leila Fourie said “Looking at the payment choices that Australians make, it’s clear that the vast majority of us are moving away from cash and cheques faster than ever before. This is happening because of widespread use of new technology combined with a strong preference for faster and more convenient payment options.”

Consumers’ preference for digital payments is reflected in the strong year-on-year growth in card and direct entry transactions:

  • Australians used their cards 12.3% more in 2016, making 7.4 billion transactions.
  • Direct entry transactions (direct debit and direct credit) increased by 8.6% to 3.5 billion.

Over the last five years, card transactions grew by 72% and direct entry by 36%.

Increased smartphone penetration, which reached 84% in 2016, up from 76% in 2014, is an important contributing factor.

Australia’s online retail spend was estimated at $21.6 billion in 2016 and encouragingly from a digital inclusion perspective, this spend is not restricted to digital natives. Older Australians are using online shopping platforms more, with domestic online spending growing by 8.7% for those in the 55-64 age group, and 7.5% for 65+.

The Report also tracks progress on initiatives supporting Australia’s transition to the digital economy including the industry’s New Payments Platform and Australian Payments Plan.

Hackers release files indicating NSA monitored global bank transfers

From Reuters.

Hackers released documents and files on Friday that cybersecurity experts said indicated the U.S. National Security Agency had accessed the SWIFT interbank messaging system, allowing it to monitor money flows among some Middle Eastern and Latin American banks.

The release included computer code that could be adapted by criminals to break into SWIFT servers and monitor messaging activity, said Shane Shook, a cyber security consultant who has helped banks investigate breaches of their SWIFT systems.

The documents and files were released by a group calling themselves The Shadow Brokers. Some of the records bear NSA seals, but Reuters could not confirm their authenticity.

The NSA could not immediately be reached for comment.

Also published were many programs for attacking various versions of the Windows operating system, at least some of which still work, researchers said.

In a statement to Reuters, Microsoft (MSFT.O), maker of Windows, said it had not been warned by any part of the U.S. government that such files existed or had been stolen.

“Other than reporters, no individual or organization has contacted us in relation to the materials released by Shadow Brokers,” the company said.

The absence of warning is significant because the NSA knew for months about the Shadow Brokers breach, officials previously told Reuters. Under a White House process established by former President Barack Obama’s staff, companies were usually warned about dangerous flaws.

Shook said criminal hackers could use the information released on Friday to hack into banks and steal money in operations mimicking a heist last year of $81 million from the Bangladesh central bank.

“The release of these capabilities could enable fraud like we saw at Bangladesh Bank,” Shook said.

The SWIFT messaging system is used by banks to transfer trillions of dollars each day. Belgium-based SWIFT downplayed the risk of attacks employing the code released by hackers on Friday.

SWIFT said it regularly releases security updates and instructs client banks on how to handle known threats.

“We mandate that all customers apply the security updates within specified times,” SWIFT said in a statement.

SWIFT said it had no evidence that the main SWIFT network had ever been accessed without authorization.

It was possible that the local messaging systems of some SWIFT client banks had been breached, SWIFT said in a statement, which did not specifically mention the NSA.

When cyberthieves robbed the Bangladesh Bank last year, they compromised that bank’s local SWIFT network to order money transfers from its account at the New York Federal Reserve.

The documents released by the Shadow Brokers on Friday indicate that the NSA may have accessed the SWIFT network through service bureaus. SWIFT service bureaus are companies that provide an access point to the SWIFT system for the network’s smaller clients and may send or receive messages regarding money transfers on their behalf.

“If you hack the service bureau, it means that you also have access to all of their clients, all of the banks,” said Matt Suiche, founder of the United Arab Emirates-based cybersecurity firm Comae Technologies, who has studied the Shadow Broker releases and believes the group has access to NSA files.

The documents posted by the Shadow Brokers include Excel files listing computers on a service bureau network, user names, passwords and other data, Suiche said.

“That’s information you can only get if you compromise the system,” he said.

ATTEMPT TO MONITOR FLOW OF MONEY

Cris Thomas, a prominent security researcher with the cybersecurity firm Tenable, said the documents and files released by the Shadow Brokers show “the NSA has been able to compromise SWIFT banking systems, presumably as a way to monitor, if not disrupt, financial transactions to terrorists groups”.

Since the early 1990s, interrupting the flow of money from Saudi Arabia, the United Arab Emirates and elsewhere to al Qaeda, the Taliban, and other militant Islamic groups in Afghanistan, Pakistan and other countries has been a major objective of U.S. and allied intelligence agencies.

Mustafa Al-Bassam, a computer science researcher at University College London, said on Twitter that the Shadow Brokers documents show that the “NSA hacked a bunch of banks, oil and investment companies in Palestine, UAE, Kuwait, Qatar, Yemen, more.”

He added that NSA “completely hacked” EastNets, one of two SWIFT service bureaus named in the documents that were released by the Shadow Brokers.

Reuters could not independently confirm that EastNets had been hacked.

EastNets, based in Dubai, denied it had been hacked in a statement, calling the assertion “totally false and unfounded.”

EastNets ran a “complete check of its servers and found no hacker compromise or any vulnerabilities,” according to a statement from EastNets’ chief executive and founder, Hazem Mulhim.

In 2013, documents released by former NSA contractor Edward Snowden said the NSA had been able to monitor SWIFT messages.

The agency monitored the system to spot payments intended to finance crimes, according to the documents released by Snowden.

Reuters could not confirm whether the documents released Friday by the Shadow Brokers, if authentic, were related to NSA monitoring of SWIFT transfers since 2013.

Some of the documents released by the Shadow Brokers were dated 2013, but others were not dated.

The documents released by the hackers did not clearly indicate whether the NSA had actually used all the techniques cited for monitoring SWIFT messages.

Will Apple Pay Win The Contactless Payment Wars?

New research suggests that Apple will dominate the OEM-Pay market over the next 4 years, leading Samsung, Google, and Others.

Data from fintech analysts, Juniper Research, estimates that the number of OEM-Pay contactless users, including Apple Pay, Samsung Pay, and Android Pay, will exceed 100 million for the first time during H1-2017, before surpassing 150 million by the end of this year.

According to the new research – Contactless Payments: NFC Handsets, Wearables & Payment Cards 2017-2021 – the combined market share of Apple, Samsung, and Google (via Android Pay), increased from 20% in 2015 to 41% in 2016, as a proportion of total mobile contactless payment users. Juniper forecasts that this will rise to 56% by 2021, as the trio’s combined user base exceeds 500 million.

 

Apple Pay & the US Wallet Opportunity

The research found that Apple Pay, and the alternative wallets that have followed in its wake, are set to establish themselves as the primary contactless mechanisms of choice in the US. However, the challenge facing Apple and its rivals is to ensure that the infrastructure is in place for consumers to make in-store payments.

“We believe that as contactless usage gains traction and consumers/merchants recognise the speed and convenience it offers, then, as in European markets, there will be a further and significant increase in availability at the point-of-sale”, added research author Nitin Bhas. Indeed, according to Apple, the proportion of US retailers supporting Apple Pay rose from 4% in 2014 to 35% in late 2016.

HCE Adoption to Rise 5-Fold Over the Next 4 Years

The research found that 2015/16 were watershed years for HCE (Host Card Emulation) in terms of commercial service rollouts. Juniper estimates that at least 194 banks had introduced such services by the end of 2016. Juniper expect PayPal, already near ubiquitous in the online space, to rapidly deploy a portfolio of contactless payment and loyalty solutions that will allow it to compete effectively for market share.

Westpac Now Offers Samsung Pay

From Gizmodo.

In the eternal war between Apple Pay, Android Pay and Samsung Pay, the world’s largest smartphone maker just scored another — minor — victory. Millions of customers from Australia’s second largest bank can now use Samsung’s phones and smartwatches instead of their credit and debit cards to pay at almost any NFC payment terminal around the country.

Although for the average user there’s not a great deal of difference, Samsung Pay is technically superior to Apple Pay or Android Pay in that — because it only works on a certain number of Samsung phones and Samsung’s Gear S2 and Gear S3 smartwatches — it can also emulate the MST magnetic strip on physical cards, which can be useful for payment terminals that don’t have NFC support already.

It’s also a convenient time for Samsung to switch on its newest feature — a NFC provisioning feature, which lets customers add cards into Samsung Pay by tapping them on the back of the phone, rather than taking a photo of the card itself with the phone or by — ugh — entering details manually.

Samsung already has Citibank’s Mastercard and Visa credit card holders on board, as well as American Express, so Westpac’s various debit and credit cards will massively bolster the roster of Samsung Pay payment methods available. Westpac customers will be able to add their cards to Samsung Pay from 8AM on Tuesday morning.

Westpac says:

You’re even more unstoppable with Westpac when you tap and pay using your Samsung Galaxy S7, S7 Edge, S6, S6 Edge, S6 Edge+, S5, S5 Mini, S4, Note 5, Note 4 Edge, Note 4, Note 3 or Alpha.

To start paying for everyday purchases with your smartphone, simply download the Westpac Mobile Banking app and choose which Westpac eligible credit and debit cards you’d like to use for mobile payments.

Citibank refunds $5 million in credit card international transaction fees

ASIC says Citigroup Pty Limited (Citibank) has refunded approximately $5 million to around 230,000 customers, for failing to properly disclose that credit card international transaction fees apply to Australian dollar transactions where the merchant uses an entity based overseas to process its transactions.

In early 2016, Citibank began charging international transaction fees for Australian dollar transactions made with merchants located overseas or where the merchant uses a foreign bank or entity to process transactions. This applied to Citibank-branded and white-labelled credit cards, including Virgin Money, Bank of Queensland and Suncorp Bank cards. While Citibank amended its disclosure about the changes to the fees, it failed to properly disclose that Australian dollar transactions processed by an entity outside Australia attracted the fees.

This may have led customers to believe that international transaction fees would be charged only when a transaction was made in a foreign currency or with an overseas merchant. For Citibank-issued credit cards, Australian dollar transactions with an Australian website where the merchant uses a foreign bank or entity to process transactions – attract international transaction fees.

Citibank has identified impacted customers of Citibank-branded and Citibank partner-branded credit cards, and has refunded customers with the amount of the fee charged plus interest. Citibank has also updated its disclosure to clearly state that Australian dollar transactions – where the merchant uses a foreign bank or entity to process transactions – will also attract international transaction fees.

Citibank will also refund over $48,000 to 30,174 Virgin Money credit card customers for charging an incorrect percentage amount of the international transaction fee. This error resulted in customers being overcharged by 0.1% of the transaction value.

This follows similar concerns with Westpac’s credit cards, which resulted in 820,000 customers being refunded approximately $20 million in September 2016.

ASIC Deputy Chairman Peter Kell said, ‘Financial product issuers must take care to provide clear disclosure to help consumers understand all circumstances where fees will be charged.’

ASIC’s warning to consumers

ASIC continues to warn consumers to be mindful when making credit card transactions, because transactions in Australian dollars with overseas merchants, or processed by an entity outside Australia (that is, the merchant’s financial institution or payment provider) can attract foreign transaction fees.

This is particularly important in an on-line shopping environment because foreign transaction fees may apply where a merchant’s website has an Australian address (domain name) or where a foreign merchant advertises and invoices prices in Australian dollars.

Consumers should check with the merchant whether the transaction they make is with an overseas-based merchant or processed overseas. Consumers with queries or concerns about the charging of credit card foreign transaction fees should contact their credit card issuer.

ASIC has published guidance for consumers about the charging of international transaction fees by credit card issuers on its MoneySmart website.

 Background

A foreign transaction fee is a fee charged by many credit card providers for transactions – including purchases and cash advances:

  • that are converted from a foreign currency to the Australian dollar; or
  • that are made in Australian dollars with merchants and financial institutions located overseas; or
  • that are made in Australian dollars (or other currencies) that are processed outside Australia.

A foreign transaction fee is generally calculated as a percentage of the Australian dollar value of the transaction (typically up to 3.5%). Credit card schemes (such as Visa, MasterCard and American Express) have different rules about foreign transaction fees and the percentage fees will vary depending on the card scheme.

In September 2016, Westpac refunded approximately $20 million to around 820,000 customers for not clearly disclosing the types of credit card transactions that attract foreign transaction fees (see 16-298MR).

Not all cards impose foreign transaction fees. For consumers who make frequent overseas purchases, it is worth shopping around for a card that offers no foreign transaction fees.

Asia Pacific leads digital wallet adoption

Asia Pacific leads the world when it comes to digital wallet usage via mobile and smart devices as revealed in the 2017 Mastercard Digital Payments study. Payments via ewallet tops 83% of APAC conversations compared to 75% of global conversations tracked in the 2017 study.

Consumers are also showing an increased interest in the application of new technologies to make shopping faster, easier and more secure. The topic of virtual reality generated the most positive sentiment globally and in Asia Pacific (100% positive) among emerging technology topics, as shoppers imagine completing a purchase with the simple nod of their head.

“Technology is making the promise and the potential of a less-cash life a reality for more people every day,” said Marcy Cohen, vice president of digital communications at Mastercard. “This year’s study notes a change in the level of interest for new ways to shop and pay that only a few years ago would have seemed farfetched.”

Embracing emerging technologies

The increased acceptance of digital wallets in-store, online and in-app generated more than 2 million mentions, with 84% of them taking place on Twitter. Beyond the payment, consumers looked forward to additional functionality like storing loyalty cards and supporting closed-loop public transportation systems.

Technologies like artificial intelligence and smart home assistants were the second most discussed payment topic throughout 2016. These new ways to pay generated particularly strong consumer interest in the fourth quarter, as people discussed how they might shop with newer, smarter devices.

In Asia Pacific, 93% of surveyed consumers spoke positive of wearables as a potential payment channel.

Smart assistants, virtual reality and artificial intelligence also emerged as new payment technology interests. Consumers across North America showed an increased interest throughout the year in the simplicity of sending and receiving mobile payments with one comment to a smart assistant.

The Internet of Things was a hot topic with the majority of conversations taking place in North America (44%) and Europe (34%). Discussion centered on the Internet of Things becoming the Internet of Payments where payments could be enabled in any connected device.

In their conversations, people continually noted that the success of new technologies and new ways to pay will be dependent on the security and protections delivered beyond what’s available today.

Forty-five percent of consumers in Asia Pacific are interested in biometrics and other forms of authentication to deliver enhanced security, reduce fraud and move beyond traditional passwords. Facial recognition, fingerprint and touch authentication topped 66% of conversations. The region appeared more open to these emerging technologies compared to the global average of 43% and 51% respectively.

The study also revealed frustration over activities involving the use of conventional passwords, including entering, forgetting and resetting passwords and expressed interested in getting rid of passwords altogether with easier, improved authentication.

NAB Ventures backs San Francisco payments fintech

National Australia Bank’s (NAB) venture capital fund, NAB Ventures, has led an investment round in San Francisco-based foreign exchange payments company Veem.

Veem (formerly known as Align Commerce) provides a platform that leverages blockchain technology for cross-border business to business payments, enabling organisations to send and receive payments in local currency.

NAB Ventures General Partner Melissa Widner led the series B funding round totalling USD 25 million, which also included investments from GV (formerly Googles Ventures), American VC firm Kleiner Perkins Caufield & Byers, Silicon Valley Bank and Japanese fund SBI Investment Co. Ltd.

“Technology in the global payments and foreign exchange space is evolving rapidly as customers identify new platforms to help them do business quickly and easily,” Ms Widner said.

“We identified Veem as a market leader in both technology and business model. This investment forges a close relationship with the company that will provide insights into user expectations of where technology is heading for cross-border payments.

“We’re excited to be working with Veem; their platform provides customers with a great user experience, low fees, fast clearance and great transparency.

“As Australia’s largest business bank, we’re continually looking at services that have the potential to make life easier for our business customers,” said Widner, who will join the Veem board following NAB Ventures’ investment.

Veem CEO and Co-Founder Marwan Forzley said: “At Veem, we understand even ‘mum and dad’ businesses must embrace globalisation to compete with incumbents, grow their businesses and innovate.

“Unfortunately, the current international payments experience is fundamentally broken, stifling SMBs’ globalization efforts. Veem’s platform creates an experience that is as simple and frictionless as the current process is cumbersome and frustrating.”

Randy Komisar Partner, Kleiner Perkins said: “We’re excited to be investing in Veem, along with a number of other high calibre funds from across the globe, including NAB, who impressed us with the way they managed and led this funding round. Business to Business foreign exchange payments is undergoing massive change and we’re looking forward to working alongside all of the other investors in Veem, including NAB, in the future.”

The deal is NAB Ventures third investment, following announcement of a stake in Sydney startup Data Republic last year, along with seed investment in health tech Medipass Solution in February.

See Veem’s media announcement here: https://veem.com

US Banks Launch Payment App

From Bloomberg.

For years, US banks have watched as their youngest customers split restaurant checks, shared utility bills, and pitched in for parties using third-party payment apps such as Venmo.

Now they’re trying to take back the person-to-person payments business by launching an app of their own.

Nineteen banks, including Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo, are teaming up to start Zelle, a website and app that will let users send and request money much as Venmo does. Bank of America says it is the first to incorporate all of Zelle’s capabilities—including the ability to split bills between users—into its own mobile app, starting today. A standalone Zelle payment app should be available to anyone with a debit card, regardless of where he or she banks, by the middle of the year.

Bank of America's upgraded payment app. Source: Bank of America

Zelle has some stiff competition from Venmo and its parent company, PayPal Holdings Inc. Venmo, which started in 2009, processed $17.6 billion in transactions last year, a 135 percent increase from the previous year. In the common vernacular, “to Venmo” means to move money to and from friends and family. That’s a huge advantage, said Michael Moeser, director of payments at Javelin Strategy & Research. When presented with another option, “An avid Venmo user is going to ask, ‘Why do I need something else?'” he said.

Zelle’s not-so-secret weapon is its connection to the big banks where millions of Americans keep their money. Request $40 from a roommate over the Zelle network using BofA’s app, and the money shows up in your account within minutes of when he agrees to send it. On Venmo, that $40 would show up in your Venmo wallet right away, but then it stays there. To get the cash into your hands, you need to log into your Venmo account, cash out your balance, and wait—sometimes days—for the money to show up in your bank account.

Venmo is trying to accelerate that process. PayPal made deals with Mastercard Inc. and Visa Inc. to move money over their debit card networks. By the middle of 2017, it should be possible to cash out a PayPal or Venmo account instantly, according to PayPal Holdings spokesman Josh Criscoe.

Zelle was built by Early Warning, a bank-owned company that also runs the clearXchange payment system. It’s no easy task to build an app that syncs with 19 large banks, four payment processors, and two card networks. Each has its own legacy technology, and many already have person-to-person payment tools, such as Chase’s QuickPay, that are popular with some customers.

To launch the new app without disrupting the old systems, Zelle is being rolled out in phases. In the first, under way now, bank payment apps will incorporate Zelle’s options and basic design without any Zelle branding. Banks can add these features whenever they’re ready.  Later, bank apps will tout Zelle branding, and, sometime in the first half of the year, a standalone app will be launched.

BofA’s person-to-person payments will be free. Although members of the Zelle network will have the option to charge, it’s not clear if any banks will even try to do so when Venmo and other payment apps cost nothing.

The lack of an obvious revenue opportunity may be one reason why it has taken so long for banks to launch a serious competitor to Venmo. Moeser summarized the attitude of banks until recently: “Do I really care about two 18-year-olds sending $20 to each other? Maybe not.”

But the people designing Zelle imply their goal is much bigger than just helping college students split a pizza bill.

“This is a great time for us to move [person-to-person payments] from millennials to mainstream,” said Lou Anne Alexander, Early Warning’s group president for payments. The use of mobile banking apps is expanding exponentially, creating many more opportunities for people of all ages to send and request money. “Any place we see checks and cash, that’s our target,” she said.

Because Zelle is sponsored by and connected to their banks, Alexander said users should feel more comfortable using it for larger transactions and for a broader array of uses, from paying a contractor to collecting money for a school dance team. Zelle may also be used for business-to-consumer payments, such as insurance companies paying out claims.

Anything that promotes the use of digital payments is ultimately good for Venmo, said PayPal’s Criscoe. “The common enemy is cash.”

Zelle and Venmo have a lot in common with one major exception. Venmo is also a social app, where users can and do choose to make their transactions, along with any associated emoji-filled messages, public. Criscoe said the average user checks Venmo two to three times a week just to see what his or her friends are up to.

Zelle users won’t have the option to spy on their friends’ payment activity. The idea was tested on consumers but fell flat with Zelle’s intended audience, Alexander said. “While appealing to some ages, it’s not really appealing to all.”

Australian Banks Tell Apple – It’s About Access to NFC

The group of Australian banks applying to the Australian Competition and Consumer Commission (ACCC) for permission to jointly negotiate over access to Apple Pay and the Near Field Communication (NFC) function on iPhones, have announced they have narrowed the application to solely focus on open access to the NFC function.

In a joint statement on behalf of Bendigo and Adelaide Bank, the Commonwealth Bank of Australia, National Australia Bank, and Westpac, the banks said:

Open access to the NFC function on iPhone is required to enable real choice and real competition for consumers, and to facilitate innovation and investment in the digital wallets available to Australians.  Without open NFC access on iPhone, no genuine competition in the provision of mobile wallets is possible and Apple will have a stranglehold on this strategically important future market.

The four banks making the application – Bendigo and Adelaide Bank, Commonwealth Bank of Australia, National Australia Bank, and Westpac – have responded to concerns raised in the ACCC’s finely balanced draft determination, and proposed to remove from consideration items the ACCC considered may lead to a public detriment.

In the applicants’ response to the ACCC, the applicants have addressed these concerns by removing collective negotiation on the potential to pass-through the additional fees Apple wishes to impose on the payment system (i.e., the requested collective negotiation will be in relation to NFC access alone), and limiting the authorisation term to 18 months – half the original term sought.

Open NFC access would enable the delivery of substantial public benefits to Australian consumers, not just in payments, but across retailing, loyalty programs, building or member lounge security, and other NFC-use cases.  As a result, the applicants have again been supported by nearly all of Australia’s leading retailers, as well as competitors in the provision of payments services to merchants.

The applicants flatly reject Apple’s unsupported assertions that the application is about an objection to the fees that Apple wishes to impose, rather than NFC access.  Apple’s conspiracy theories about “Trojan horse fees” are similarly dismissed by the applicants as fantasy.

Apple recorded over $US7 billion in services revenue, which includes Apple Pay fees, from their customers in the last 3 months of 2016 alone, and hopes to double that over the next four years.  With their services business set to become the size of a standalone Fortune 100 company this year, Apple is the leading expert on deriving fee revenues from iPhone users, not the applicants.

“The applicants are ready, willing, and able to participate in Apple Pay, alongside being able to offer their customers their own mobile wallet products,” payments specialist and spokesperson on behalf of the applicants, Lance Blockley, said.

“This application has always been about consumer choice, and allowing competition between the makers of mobile wallets to offer the best products and features they can to determine which mobile wallet consumers will use.  The applicants want to put up their digital offerings head to head with Apple Pay, and let the market and individual consumers decide which best suits their needs.

“Open access to the NFC function, as occurs on the world’s most popular and widely installed mobile operating system Android, is important not just to the applicants and mobile payments, but to a range of NFC-powered functions across many sectors and uses.  This has global implications for the use of NFC on smart phones.

“The application seeks permission to jointly negotiate with Apple; this is not an attempt to delay Apple Pay from entering the Australian market.  The applicants expect that Apple Pay would be offered to their customers alongside open access to the NFC function.  Any delay or frustration will be as a result of Apple refusing to negotiate.

“Apple is not a bank or a credit card scheme, and Apple cannot on their own complete a mobile payment.  Nor are the applicants manufacturers of mobile phones – both parties need each other to bring strong mobile payment offerings to the market.”

The applicants look forward to the ACCC’s final decision, and believe their submission further demonstrates the net public benefits of the application, and substantially removes any risk of public detriment.

Apple claims banks want digital wallets as a new revenue source

From Australian Fintech.

Apple says three of the big four banks are pushing to pass the costs of Apple Pay on to their customers as a way to “condition the market” into paying extra fees when using a mobile phone to make a ‘tap and go’ payment.

One of the issues in the long-running battle between Apple and Commonwealth Bank of Australia, National Australia Bank, Westpac Banking Corp and Bendigo and Adelaide Bank is whether the banks can pass through to their customers the fee that Apple will require them to pay to use the iPhone infrastructure.

But Apple has described the argument as a “trojan horse”. In a submission published by the Australian Competition and Consumer Commission on Friday, Apple suggests this issue of fees, rather than the bank’s other demand for access to the iPhone’s communication antenna, is motivating the banks, who are all developing their own digital wallets to compete against Apple’s. Digital wallets allow mobile phones to be used to pay through contactless payment terminals.

“Put simply, the applicant banks have the means, notice and opportunity to disadvantage Apple Pay by pricing Apple Pay transactions above transactions made using their own proprietary issuer digital wallets to dissuade cardholders from using Apple Pay,” Apple said. The banks have an “incentive to charge fees to consumers for using Apple Pay to steer customers towards their proprietary payment apps”.

Once the market became accustomed to being charged for using Apple Pay instead of a card, Apple says the banks would be “setting a precedent for charging for mobile payments on other digital wallets, in the future, including the banks’ own proprietary wallets”. The banks could “tacitly extend the imposition of those fees to any digital wallet transaction as a new revenue source,” Apple added.

ANZ deal

ANZ Banking Group broke ranks with the other banks to offer Apple Pay last year; the fee ANZ is paying to Apple has not been confirmed but is understood to be a few cents per $100 of transactions. But ANZ is prevented by its contract with Apple from charging customers for using the service.

The banks’ final submission to the ACCC will be published this week, ahead of the regulator making a decision on the authorisation request, which is expected next month.

Apple said that if authorisation is granted, it will merely provide “cover” for the banks. “The incentive to compete away these fees at the retail level is reduced or removed if there is an ACCC authorised ability to impose Apple Pay transaction fees which provides shelter for their own fees,” Apple said.