Apple Pay may have won the battle but it may not win the war

From The Conversation.

The Australian Competition and Consumer Commission’s (ACCC) decision to deny some of Australia’s major banks the ability to collectively bargain with Apple and boycott Apple Pay, might have opened a whole new door for digital wallets in Australia.

The banks wanted to bargain with Apple for access to the Near-Field Communication controller in iPhones, enabling them to offer their own integrated digital wallets to iPhone customers. This would have been in competition with Apple’s digital wallet, but without using Apple Pay.

A digital wallet is essentially an app on a mobile phone that can provide some of the same functions as a physical purse or wallet. This includes making payments in-store and storing information such as loyalty program points.

In the example of Apple Pay, it used a digital wallet to allow customers to use their phones like “tap-and-go” bank cards. Mobile payments can also be made via wearable devices, such as the Apple Watch and various fitness devices.

Part of the ACCC’s rationale in deciding on the banks/Apple case was that, “digital wallets and mobile payments are in their infancy and subject to rapid change”. So the ACCC is uncertain as to how competition will develop in this space.

The Australian market for digital wallets

Recent research from the Reserve Bank of Australia (RBA) confirmed the use of mobile payments accounted for only around 1% of the number of point-of-sale transactions over the week of the survey, which was conducted in November 2016. By contrast, the same research revealed that the share of the number of payments made using credit and debit cards had increased to 52%, driven by the use of these payments cards for lower value transactions.

This has been facilitated by the rapid adoption of contactless payments by both consumers and merchants and according to the RBA’s research, in 2016 around one-third of all point-of-sale transactions were conducted using contactless cards.

According to the Australian Payments Clearing Association by 2016, 77% of Australians owned a smartphone and yet mobile payments at the point-of-sale remain relatively rare.

The very success of contactless payment cards in Australia means that consumers do not see what extra advantage there is in mobile payments. Tap-and-go is increasingly available for even relatively low value transactions at the point-of-sale. Financial institutions have been speedy to issue such cards to their customers and this is matched by merchant’s adoption of the terminals to facilitate these payments.

For mobile payments to become significantly more attractive than contactless card payments, it would require the wallets to have additional functionality to appeal to consumers. Examples of this include: the ability to use mobile payment devices on mass transit journeys, to hold loyalty program points, to verify identity and enabling person-to-person transactions.

This breakthrough in functionality for digital wallets could come from another direction, other than the current mobile payments options of Apple Pay, Android Pay and Samsung Pay. Indeed, China provides an alternative example of how digital wallets can be developed, that will in retrospect make the ACCC’s decision on Apple Pay, rather passe.

Tap-and-go payments are popular in Australia so digital wallets will have to offer more than contactless payments. David Crosling

Digital wallet companies expanding from China

According to Chinese government statistics, about 750 million Chinese had moved online by 2016, with 95% of them accessing the internet via their smartphones. China’s digital payments market was by then nearly 50 times greater than that in the United States.

This is partly explained by the lack of other viable alternatives in China for non-cash payments. Credit card penetration is low compared to other developed markets, debit cards are not contactless and hence require authentication at the point-of-sale.

China appears to have jumped directly from cash to mobile payments and hence missed the step into payment cards, particularly credit cards, to which the Chinese consumers appear to have a cultural aversion.

The use of digital wallets in China is being driven by the success of the so-called financial technology firms in China, particularly Alibaba and Tencent. These companies have a vast and protected domestic market at their disposal and an almost complete absence of data regulations.

These companies have been able to move on from offering just instant messaging platforms, to being payment providers via Alipay and WeChatPay, respectively. These apps on a smartphone allows consumers to scan a QR code from a merchants point-of-sale terminal or smartphone, to complete a transaction.

Person-to-person transfers can also be done through these apps. Chinese company Tencent’s WeChat was originally a social media platform, but it has now expanded to include payments services, music streaming, taxi booking, photo sharing and a news service, to name only a few functions.

Its over 800 million worldwide active users now have fewer and fewer reasons to leave its integrated full platform of services. WeChatPay is also increasingly accepted by bricks and mortar merchants in China.

And now WeChat is planning to expand its services into the UK and Europe and is also looking to enter markets in the United States and Southeast Asia. Part of the company’s planned expansion is driven by the ever-increasing flow of Chinese overseas tourists.

This flow was 120 million in 2015 and forecast to be 220 million by 2025. Australia is already a popular destination for Chinese tourists, many of whom will be users of WeChatPay.

Who is to say that Facebook and/or Amazon will not follow Tencent’s path into digital wallets? While Apple Pay may have won the battle against some of Australia’s banks, it may lose the war against the providers of digital wallets, such as Tencent and Alibaba.

Author: Steve Worthington, Adjunct Professor, Swinburne University of Technology

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.

ACCC denies authorisation for banks to collectively bargain with Apple and boycott Apple Pay

The Australian Competition and Consumer Commission has issued a determination denying authorisation to the Commonwealth Bank of Australia, Westpac Banking Corporation, National Australia Bank, and Bendigo and Adelaide Bank (the banks) to collectively bargain with Apple and collectively boycott Apple Pay.

“The ACCC is not satisfied, on balance, that the likely benefits from the proposed conduct outweigh the likely detriments. We are concerned that the proposed conduct is likely to reduce or distort competition in a number of markets,” ACCC Chairman Rod Sims said.

The banks sought authorisation to bargain with Apple for access to the Near-Field Communication (NFC) controller in iPhones, and reasonable access terms to the App Store. This access would enable the banks to offer their own integrated digital wallets to iPhone customers in competition with Apple’s digital wallet, without using Apple Pay.

“While the ACCC accepts that the opportunity for the banks to collectively negotiate and boycott would place them in a better bargaining position with Apple, the benefits would be outweighed by detriments,” Mr Sims said.

The banks argued that access to the NFC controller on iPhones would enable them to offer competing wallets on the iOS platform which would lead to the following public benefits:

  • increased competition and consumer choice in digital wallets and mobile payments in Australia
  • increased innovation and investment in digital wallets and other mobile applications using NFC technology
  • greater consumer confidence leading to increased adoption of mobile payment technology in Australia.

The ACCC accepted that Apple providing the banks access to the iPhone NFC controller is likely to lead to increased competition in mobile payment services and that this was a significant public benefit. However, the ACCC considered the likely distortions to and reductions in competition caused by the conduct would also be significant. Three likely detriments in particular stood out.

“First, Apple and Android compete for consumers providing distinct business models. If the Applicants are successful in obtaining NFC access, this would affect Apple’s current integrated hardware-software strategy for mobile payments and operating systems more generally, thereby impacting how Apple competes with Google,” Mr Sims said.

“Second, digital wallets and mobile payments are in their infancy and subject to rapid change. In Australia, consumers are used to making tap and go payments with payment cards, which provide a very quick and convenient way to pay. There is also a range of alternative devices being released that allow mobile payments; for example, using a smartwatch or fitness device. It is therefore uncertain how competition may develop.”

“Access to the NFC in iPhones for the banks could artificially direct the development of emerging markets to the use of the NFC controller in smartphones. This is likely to hamper the innovations that are currently occurring around different devices and technologies for mobile payments,” Mr Sims said.

The conduct is also likely to reduce the competitive tension between the banks in the supply of payment cards.

“Finally, Apple Wallet and other multi-issuer digital wallets could increase competition between the banks by making it easier for consumers to switch between card providers and limiting any ‘lock in’ effect bank digital wallets may cause,” Mr Sims said.

The ACCC consulted with consumers, financial institutions, retailers and technology companies in reaching its decision.

The Final Determination is available here: Bendigo and Adelaide Bank & Ors – Authorisation – A91546 & A91547

Background

A ‘digital wallet’ is an app on a mobile device that can provide a number of the same functions as a physical wallet, including the ability to make payments in-store and storing other information, such as loyalty or membership cards. A ‘mobile payment’ is a payment performed in-store using a digital wallet.

On 19 August 2016 the ACCC decided not to grant interim authorisation to the applicants.

On 29 November 2016, the ACCC published a draft determination proposing to deny authorisation.

Authorisation provides statutory protection from court action for conduct that might otherwise raise concerns under the competition provisions of the Competition and Consumer Act 2010. Broadly, the ACCC may grant an authorisation when it is satisfied that the public benefit resulting from the conduct outweighs any public detriment.

Further information about the applications for authorisation is available on the ACCC Authorisations register: Bendigo and Adelaide Bank & Ors – Authorisation – A91546 & A91547

ACCC takes action against Aveling homes over online review websites

The Australian Competition and Consumer Commission says it has instituted proceedings in the Federal Court against Aveling Homes Pty Ltd (Aveling), a Perth-based home building company, for alleged misleading conduct and false or misleading representations.

The alleged conduct is in relation to review websites Aveling created for its businesses, Aveling Homes and the First Home Owner’s Centre.

The ACCC alleges that Aveling created review websites that represented they were independent of Aveling, and that the appearance, layout and features gave consumers the overall impression that they were affiliated with an independent third party consumer review website, Product Review, when this was not the case.

The ACCC also alleges that the review websites were deliberately managed by Aveling to ensure a favourable overall impression, by obscuring or removing unfavourable reviews.

“We believe the potential for harm from the conduct alleged in this case is significant, as buying or building a home is one of the biggest purchasing decisions for Australians,” ACCC Deputy Chair Dr Michael Schaper said.

“Online reviews are increasingly being relied on by consumers and they should be able to trust that those reviews are independent, unbiased and accurately reflect the range of consumer feedback received.”

The ACCC also alleges that Aveling’s marketing manager, Sean Quartermaine, was knowingly concerned in Aveling’s conduct.

The ACCC is seeking declarations, pecuniary penalties, injunctions, corrective notices, a compliance program, findings of fact and costs.

Background

Until 1 February 2017, Aveling also operated the brand ‘First Home Owners Centre’.

The ACCC’s allegations concern conduct and representations made on four Aveling websites:

www.aveling-homes.com.au (link is external) (the Aveling Homes website);

www.avelinghomesproductreviews.com.au (link is external) (the Aveling Homes review website);

www.firsthomeownerscentre.com.au (link is external) (the First Home Owners Centre website); and

www.firsthomeownerscentreproductreviews.com.au (link is external) (the First Home Owners Centre review website).

This is the second action taken by the ACCC in relation to online reviews. In November 2016, the ACCC instituted proceedings against Meriton Property Services Pty Ltd https://www.accc.gov.au/media-release/accc-takes-action-against-meriton-over-online-reviews

Figure 1: AvelingHomesProductReviews.com.au (as at 11 June 2016)

ACCC will block insurance companies from capping sales commissions

The Australian Competition and Consumer Commission has issued a draft determination proposing to deny authorisation to 16 insurance companies to agree to a cap of 20 per cent on commissions paid to car dealers who sell their add-on insurance products.

The Australian Securities and Investments Commission (ASIC) report, A market that is failing consumers: The sale of add-on insurance through car dealers (link is external), found that consumers are being sold expensive products that often provide little to no benefit. At the point of sale the consumer is focused on the purchase of a vehicle, not insurance, and the sales environment involves high-pressure selling tactics, a lack of adequate information, very high commissions, and conflicts of interest.

“The factors identified in ASIC’s report mean that consumers are often unable to make optimal, well-informed choices when buying add-on insurance products when buying a car from a dealer. A cap on commissions does not address these issues and will not remove the opportunity and incentive for insurers and dealerships to sell consumers expensive, poor value products,” ACCC Chairman Rod Sims said.

“This proposal doesn’t help to create an environment where consumers are in control and can benefit from effective competition. It is unlikely to address these market failures or improve the industry for consumers.”

“The ACCC considers that the proposed cap is unlikely to result in a public benefit.”

“While insurers would benefit from a cap at the expense of car dealers, this conduct is likely to lessen competition between insurers, including by creating greater opportunities for explicit or tacit collusion and greater shared knowledge between insurers of competitors’ costs.”

“The ACCC is also concerned that these arrangements, if implemented, could significantly delay the development of more effective solutions to the problems that ASIC has identified,” Mr Sims said.

Background

Add-on insurance products are products that may be sold at the time of purchasing a motor vehicle. The add-on insurance may be connected to finance associated with the motor vehicle such as consumer credit insurance, gap insurance, walk away insurance, and trauma insurance. Alternatively, it may relate to the vehicle itself, such as comprehensive insurance, extended warranty insurance, or tyre and rim insurance.

The ASIC report, A market that is failing consumers: The sale of add-on insurance through car dealers (link is external), identifies issues such as a lack of price competition, poorly designed products, poor value for money relative to premiums, and a complex sales process that often did not disclose the total cost of the cover.

The ACCC expects to release its final decision in March 2017.

Micro firms make highest business complaints to ACCC

The Australian Competition and Consumer Commission’s latest ACCC Small Business in Focus Report reveals that micro and small businesses made 7,000 complaints and enquiries from July 1 to December 31 2016.

 

“Over 60 per cent of business contacts were from micro enterprises of four or under employees, which isn’t surprising given that micro firms are the biggest group of businesses in Australia,” ACCC Acting Chair Dr Michael Schaper said.

“In the past six months, the SME sector has been particularly concerned about misleading conduct and false representations with 735 complaints, consumer guarantees issues with 329 complaints, followed by misuse of market power concerns with 95 complaints.”

“Fewer franchisees have been reporting issues to the ACCC since the introduction of the new Franchising Code in January 2015. After an initial spike averaging 52 franchising complaints in the first six months of 2015, complaints have fallen to 32 a month by the end of 2016,” Dr Schaper said.

“The ACCC received 185 complaints from small businesses in the agriculture sector, a substantial increase from the previous six months. In the July to December period, the cattle and beef market study interim report was released, our dairy inquiry began, we conducted the first round of audits of signatories to the Food and Grocery Code, and our report into the horticulture and viticulture sectors was also published.”

Other key developments in the past six months:

  • Unfair contract terms provisions were extended to small business standard form contracts on 12 November 2016. We received 81 contacts about B2B UCT issues.
  • $1.395 million was reported lost by the small businesses to scams, down from $1.606 million in the previous six months
  • The ACCC took action against ABG Pages for alleged breaches of the Australian Consumer Law in its dealings with small businesses
  • The ACCC took action against Morild Pty Ltd for alleged breaches of the Franchising Code

“This year, we expect that the ban on excessive payment surcharging for all businesses on September 1 will generate significant interest from the business community. We have prepared advice for small business on the new credit card surcharging laws, which I hope all businesses will consult,” Dr Schaper said.

“We will also be releasing draft findings of our market study into the new car retailing industry mid-year, a matter of interest to many small businesses who operate in the industry or rely on new cars for their work. Businesses will have an opportunity to make a submission on the draft findings when it becomes available.”

 

 

Federal Court imposes multi-million dollar penalties on ANZ and Macquarie Bank

The ACCC says the Federal Court has imposed multi-million dollar penalties on Australia and New Zealand Banking Group Limited (ANZ) and Macquarie Bank Ltd (Macquarie) for attempted cartel conduct after action by the Australian Competition and Consumer Commission.

Following the filing of joint statements of facts and submissions by the parties, Justice Wigney imposed penalties of:

  • $9 million against ANZ in respect of its admission that it engaged in ten instances of attempted cartel conduct in contravention of the Competition and Consumer Act 2010 (CCA); and
  • $6 million against Macquarie in respect of its admission that it engaged in eight instances of attempted cartel conduct in contravention of the CCA.

The banks were also ordered to contribute to the ACCC’s costs.

“These penalties underline the seriousness of the conduct involved in these proceedings. Two significant Australian banks have admitted that on several occasions their traders communicated with other banks in an attempt to influence the ABS MYR Fixing Rate. This conduct had the potential to undermine the integrity of foreign exchange markets and undermine healthy economic growth,” ACCC Chairman Rod Sims said.

“Australia’s strong cartel laws apply equally across the economy, including in the banking sector.” Mr Sims said.

In his judgment, Justice Wigney stated:

“There could be little doubt that the attempted contraventions … were very serious… The conduct of the traders in question was deliberate and systematic.”

“Attempts by banks and other market participants to fix prices or financial benchmarks in the financial system should be regarded as particularly serious contravening conduct. It is essential that market participants and the public generally have confidence in the integrity and efficacy of the financial system.”

Justice Wigney also noted:  “The Australian public is entitled to expect that Australia’s major corporations act as exemplary corporate citizens wherever in the world they may operate.”

Background

Traders employed by a number of banks in Singapore communicated via online chatrooms about daily submissions to be made to the Association of Banks in Singapore (ABS) in relation to the benchmark rate for the Malaysian ringgit (ABS MYR Fixing Rate).

ABS benchmark rates are used as reference rates for settling NDFs. Non-deliverable currencies are not freely tradeable outside the domestic economy, so a benchmark rate must be set by banks submitting their views on the appropriate rate. That benchmark is used to enable trade in forward contracts.

During the relevant period, the ABS MYR Fixing Rate was derived from submissions made each day by a panel of banks.

Every trading day, each bank on the panel was required to submit a buy and sell rate for USD against the MYR. The ABS rules required that the submissions were made independently and based on the banks’ objective assessment of the market.

During 2011, ANZ and Macquarie traders attempted to make arrangements with other banks to make high or low submissions to the ABS MYR Fixing Rate. The rate would ultimately affect settlement payments for MYR denominated non-deliverable forward contracts (NDFs).

ANZ was a submitting bank for the MYR. Macquarie was not a submitting bank however often initiated discussions between traders and acted as a hub or coordinator between submitting banks. ANZ and Macquarie’s customers included Australian companies.

The ACCC estimates that the annual MYR NDF turnover in Australia was approximately $9 to 10 billion.

Similar conduct has been investigated and sanctioned in other markets.  The Australian Securities and Investments Commission is also engaged in litigation against several Australian banks regarding the setting of interest rate benchmarks.

ACCC rejects the banks colluding to bargain on Apple Pay

From The Conversation.

The Australian Competition and Consumer Commission (ACCC) is planning to deny the Commonwealth Bank of Australia (CBA), Westpac, National Australia Bank (NAB) and Bendigo and Adelaide Bank (the banks), petition to collectively bargain with and boycott Apple on Apple Pay.

mobile-pic

Justifying the decision, ACCC chairman Rod Sims said that the likely benefits of allowing the banks to collectively bargain does not outweigh the potential negative affects.

The banks are desperate to get access to Apple phones, not least as ANZ recently claimed a surge in applications for their credit and debit cards after striking a deal with Apple. This shift in consumer behaviour could potentially reduce the customer base of the other banks, simultaneously increasing both ANZ’s customer base and the use of its payments services.

But Apple imposes fees and restrictions that the banks currently find prohibitive.

The banks wanted to bargain with Apple over two key issues. The first is access to the Near-Field Communication (NFC) controller in iPhones, which would enable them to offer their own digital wallets to iPhone customers (in direct competition with Apple’s digital wallet), bypassing Apple Pay. The second is to remove the the restriction Apple imposes on banks, preventing them from passing on fees that Apple charges for the use of its digital wallet.

Chairman of the ACCC, Rod Sims, believes it’s best to deny the big four banks the right to collude and bargain with Apple. Dean Lewins/AAP

It’s all about negotiating power

At the moment only consumers with certain cards issued by ANZ, American Express and card issuers using Cuscal Ltd as their collective negotiator, are able to use Apple Pay. It’s been reported that ANZ agreed to share with Apple some of the fee it charges to process payments in exchange for access to Apple Pay

If the ACCC had decided in favour of the banks they could have, in theory, used their combined negotiating power to strike an even better deal with Apple. Not only would they have been bargaining from a stronger position, they could also have threatened to boycott Apple Pay for up to three years.

The ACCC argued this have would reduced the competitive tension between the banks in their individual negotiations with Apple, which could also reduce the competition to supply mobile payment services for iPhones. The threat of a boycott could also mean a significant period of uncertainty and would result in decreased choice for the consumers whose banks are involved. The other digital wallet options for the banks are Android Pay and Samsung Pay, both of which are available in Australia, but the iPhone popularity with consumers makes Apple Pay very attractive to both consumers and banks.

The ACCC may have decided against allowing the banks to bargain collectively, as this would also have set a precedent for any future disputes between the banks and their service providers. The banks may have over played their hand by also threatening a boycott against Apple.

Reduced competition could have knock-on effects

Another deciding factor in the ACCC’s decision was that digital wallets/mobile payments are still in their infancy in Australia and consumers are already using their contactless cards to do “tap and go” payments. A rash decision now to allow collective bargaining with Apple could distort the mobile payment market and further delay the adoption of this technology.

The use of tap and go payments has risen greatly in recent years, accounting for up to 75% of all Visa transactions. This has caused many consumers to question, exactly what the advantages are of digital wallets over contactless cards. The absence of an obvious advantage over other payment methods like contactless cards has slowed the adoption of mobile payments in Australia. Any reduction in competition could stall this even longer.

What next for Apple pay

The ACCC’s decision is just a draft at this stage and there’ll be further public consultations. It plans to release its final decision on March 2017, but in the meantime there will be further uncertainty about the adoption and use of digital wallets in Australia.

The banks now have two distinct choices. They can either continue to act collectively and seek to persuade the ACCC that the draft decision is not the correct one, or they can independently approach Apple to see if they can negotiate a better or at least an equivalent deal to that already struck by ANZ.

Author:Steve Worthington, Adjunct Professor, Swinburne University of Technolog

Banks Blocked From Collective Bargain With and Boycott Of Apple on Apple Pay

The Australian Competition and Consumer Commission has issued a draft determination proposing, on balance, to deny authorisation to the Commonwealth Bank of Australia, Westpac Banking Corporation, National Australia Bank, and Bendigo and Adelaide Bank (the banks) to collectively bargain with and boycott Apple on Apple Pay.

mobile-pic

The banks sought authorisation to bargain with Apple on two key issues:

  • access to the Near-Field Communication (NFC) controller in iPhones. Such access would enable the banks to offer their own integrated digital wallets to iPhone customers in competition with Apple’s digital wallet without using Apple Pay
  • removing restrictions Apple imposes on banks preventing them from passing on fees that Apple charges the banks  for the use of its digital wallet.

“This is currently a finely balanced decision. The ACCC is not currently satisfied that the likely benefits from the proposed conduct outweigh the likely detriments,” ACCC Chairman Rod Sims said.

The banks argue that being able to engage in the proposed conduct will increase the likelihood of being able to offer competing wallets on the iOS platform and pass through Apple fees, which would lead to the following public benefits:

  • increased competition and consumer choice in digital wallets in Australia
  • increased innovation and investment in digital wallets and other mobile applications using NFC technology
  • greater consumer confidence leading to increased adoption of mobile payment technology in Australia
  • increased pricing efficiency in digital wallets.

“While the ACCC accepts that the opportunity for the banks to collectively negotiate and boycott would place them in a better bargaining position with Apple, the benefits are currently uncertain and may be limited,” Mr Sims said.

The applicant banks have yet to reach agreement with Apple over deals to enable their cardholders to use Apple Pay. Apple does not allow the banks, or any entity, direct access to the NFC to allow them to offer their own integrated digital wallet to iPhone users.

“However, banks can already offer competing digital wallets on iPhones without direct access to NFC, through their own apps using Apple Pay payment technology, or using NFC tags. Banks can also offer digital wallets on the Android platform,” Mr Sims said.

“Digital wallets and mobile payments are in their infancy and subject to rapid change. In Australia, consumers are used to making tap and go payments with payment cards, which provide a very quick and convenient way to pay. It is therefore uncertain how competition may develop with the availability of mobile payments and possible future innovations.”

The ACCC is concerned that the proposed conduct could reduce or distort competition in a number of markets.

The conduct would reduce the competitive tension between the banks individually negotiating with Apple, which could reduce competition between the banks in the supply of mobile payment services for iPhones.

“Apple Wallet and other non-bank digital wallets could represent a disruptive technology that may increase competition between the banks by making it easier for consumers to switch between card providers and limiting any ‘lock in’ effect bank digital wallets may cause,” Mr Sims said.

There may also be detriments to competition in digital wallets arising from the proposed conduct. Authorisation would allow the banks to agree not to sign up to Apple Pay for three years. This is a significant period of uncertainty and would result in decreased choice for consumers whose banks engage in this conduct.

The ACCC considers that the conduct could also distort competition between mobile operating systems. Apple’s iOS platform is a differentiated offering that competes globally against other operating systems, such as Android. One of the features each system provides to consumers is mobile payment services and digital wallets. To the extent that the proposed conduct leads to an alteration of the offering that Apple is able to make available on the iOS platform, the proposed conduct distorts competition between these operating system providers.

The ACCC is seeking submissions on its draft determination before making a final decision.

Background

A ‘digital wallet’ is an app on a mobile device that can provide a number of the same functions as a physical wallet, including the ability to make payments in-store and storing other information, such as loyalty or membership cards. A ‘mobile payment’ is a payment performed in-store using a digital wallet.

On 26 July 2016, the banks sought authorisation on behalf of themselves and other credit and debit card issuers to engage in limited collective negotiation and limited collective boycott conduct. The banks have since clarified that they only wish to collectively negotiate with Apple in relation to specified issues regarding NFC access on iPhones, reasonable access to the App Store for their digital wallets, and the ability to pass through Apple Pay fees.

On 19 August 2016 the ACCC decided not to grant interim authorisation to the applicants.

Currently only consumers with eligible payment cards issued by ANZ and American Express are able to use Apple Pay. Cuscal Ltd, on behalf of 31 issuers, recently reached agreement with Apple to offer Apple Pay.

Authorisation provides statutory protection from court action for conduct that might otherwise raise concerns under the competition provisions of the Competition and Consumer Act 2010. Broadly, the ACCC may grant an authorisation when it is satisfied that the public benefit resulting from the conduct outweighs any public detriment.

The ACCC will conduct further public consultation with interested parties regarding its draft determination. The applicants or interested parties may call a ‘conference’ to make oral submissions to the ACCC about the draft decision.

The banks have undertaken to agree to an extension to the statutory six month period for assessment, because of the additional time for the banks and interested parties to make submissions and for the ACCC to consider those submissions. The ACCC has decided to extend the statutory period for an additional three months.

The ACCC expects to release its final decision in March 2017.

ACCC takes proceedings against ANZ and Macquarie bank for attempted cartel conduct

The Australian Competition and Consumer Commission says it has today taken proceedings on a consent basis against Australia and New Zealand Banking Group Limited (ANZ) and Macquarie Bank Limited (Macquarie) in relation to alleged attempts to engage in cartel conduct.

accc-pic

Following cooperation by ANZ and Macquarie, the parties have agreed on the following facts to be presented to the Federal Court for its consideration:

  • a Macquarie trader, together with traders employed by ANZ and a number of other banks, all located in Singapore, communicated via private online chatrooms about daily submissions to be made to the Association of Banks in Singapore (ABS) in relation to the benchmark rate for the Malaysian ringgit (ABS MYR Fixing Rate);
  • on various dates in 2011, traders employed by ANZ and the Macquarie trader attempted to make arrangements with other banks that particular submitting banks would make high or low submissions to the ABS in relation to the ABS MYR Fixing Rate.

The ACCC alleges that on various dates in 2011, ANZ or Macquarie sought to influence the ABS MYR Fixing Rate published on that day, and thus attempted to contravene the cartel provisions of the Competition and Consumer Act 2010.

“These proceedings are a reminder that Australian cartel laws apply to financial markets, and capture cartel conduct by firms that carry on business in Australia, regardless of where that conduct occurred,” ACCC Chairman Rod Sims said.

“The ACCC recognises the integrity of foreign exchange markets plays a fundamental role in our market economy.”

ANZ has admitted to 10 instances of attempted cartel conduct and Macquarie to eight.Submissions to the Federal Court have been made as follows:

  • ACCC and ANZ have jointly submitted that ANZ pay a pecuniary penalty in the amount of $9 million and make a contribution to the ACCC’s costs; and
  • ACCC and Macquarie have jointly submitted that Macquarie pay a pecuniary penalty in the amount of $6 million and make a contribution to the ACCC’s costs.

Ultimately it is for the Court to decide whether penalties in these amounts are appropriate and the ACCC will not make any further comment regarding penalties until the Court makes final orders.

Background

ABS benchmark rates are used as reference rates for settling non-deliverable forward contracts (NDFs). Non-deliverable currencies are not freely tradeable outside the domestic economy, so a benchmark rate must be set by banks submitting their views on the appropriate rate. That benchmark is used to enable trade in forward contracts. Banks and other institutions primarily use NDFs for hedging and risk management.The ABS MYR Fixing Rate would ultimately affect NDF settlement payments.

During the relevant period, the ABS MYR Fixing Rate was derived from submissions made each day by a panel of banks. The ABS Rules required this be done independently and without reference to other submitting banks.

ANZ was a submitting bank for the MYR. Macquarie was not a submitting bank however it often initiated discussions between traders.

The ACCC estimates that the annual MYR NDF turnover in Australia in 2011 was approximately $9 to 10 billion. ANZ and Macquarie’s customers included Australian companies.