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.
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.”
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.
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 has refused a Samsung pay app for iOS a place in its App Store, according to a report in the South Korean publication, The Economic Times.
Samsung had planned to introduce the app, Samsung Mini Pay, from January and getting it into the app store was the first step in the process.
Samsung had completed testing of the app with some South Korean credit card companies but when it applied for registering the app it received a notice of rejection, the newspaper reported.
No reason was given for the rejection, but the newspaper speculated that it was possible that the app had not met Apple’s policies on security and regulations.
It said Samsung had now decided not to go ahead with the app, and instead concentrate on the Android market with its Samsung Pay app instead.The paper quoted a Samsung Electronics representative as saying, “After Apple rejected registration of Samsung Pay Mini onto its app store, we have decided to focus on Smartphones with Android OS.”
Apple is apparently thinking of launching its own Apple Pay app in South Korea in the first half of 2017, the paper said, adding that the company’s representatives had not provided any indication if this was so when asked.
Samsung Pay, which was launched in August, has so far been used in nine countries. Samsung Pay Mini has been in development for more than a year.
The Commonwealth Bank has attempted, on its own, to break the impasse with Apple over Apple Pay, by offering to pay the tech firm for use of its payment infrastructure.
However, the CBA is still insisting that Apple should give it access to the near field communications controller so that it can set up payments, a demand that Apple is unlikely to grant.
A report in the Australian Financial Review quoted Matt Comyn, the head of retail banking at CBA, as saying the fee that Apple was asking for use of Apple Pay was not the main hurdle to cutting a deal.
He said: “If we could get access to the NFC antenna and our wallet had the same experience [as Apple Pay] on parity, there is no way the interchange fee, as currently contemplated, would be the stumbling block.”
The CBA is currently using a workaround for its iPhone customers to access its payment app, with a sticker that can be placed on the back of the phone to serve as an antenna.The sticker costs $2.99 and Comyn said 400,000 customers had ordered them but the latest numbers showed 600,000 transactions had been made per month.
The CBA, along with Westpac, the National Australia Bank and Bendigo and Adelaide Bank, have been denied permission by the Australian Competition and Consumer Commission to negotiate as a cartel with Apple over Apple Pay.
Apple has repeatedly said it will not allow direct access to the NFC controller.
The Reserve Bank has today published a consultation paper on dual-network debit cards and mobile wallet technology following discussion of these issues by the Payments System Board at its November meeting.
Dual-network debit cards are debit/ATM cards that allow transactions to be routed through two different networks. They offer convenience for cardholders and enhance the ability of merchants to encourage the use of lower-cost payment methods. Around two-thirds of the debit cards issued in Australia have dual-network functionality.
New technology has enabled mobile devices, such as mobile phones, to be used to make payments via an electronic representation of a payment card, as opposed to a traditional plastic card. The electronic representation of a card is typically contained in a ‘mobile wallet’, which is a software application on a mobile device that enables payments to be made through the card networks. This technology may offer greater convenience for cardholders as it avoids some of the physical limitations of carrying and using multiple plastic cards.
Some stakeholders have recently raised concerns about possible restrictions on competition in the mobile wallet sphere, specifically about conduct that may prevent or make it more difficult for both networks on a dual-network debit card to be enabled on a mobile device. This conduct could have the effect of reducing choice and convenience for cardholders in making mobile payments and reduce the ability of merchants to encourage the use of lower-cost payment methods. This consultation paper discusses these issues and raises a number of specific questions for consultation.
Interested parties are invited to make submissions on the consultation paper by 7 February 2017.
Questions for consultation:
1. What are the views of end-users (cardholders and merchants) regarding dual-network cards, including their use in mobile payments? Are there particular benefits that arise for end-users from having multiple payment networks available on a mobile device? What risks and costs might arise?
2. Are there any impediments or restrictions imposed (or planned or foreshadowed) by card schemes on the mobile wallet provisioning of competing networks on dual-network cards? If so, how significant are these and can they be justified on commercial or other grounds?
3. What are the likely effects – on competition and efficiency in the payments system, as well as more broadly – of the action of any scheme to prevent or discourage the mobile wallet provisioning of a competing network on a dual-network card? Are there benefits for end-users that arise from rules or policies that constrain the provisioning of an additional network on a device?
4. Do cardholders, issuers or others have views as to the feasibility of different possible ways of provisioning dual-network cards?
5. Under the existing voluntary undertakings to the Bank in place since August 2013 (see page 4), schemes have committed to some voluntary principles regarding dual-network cards. Have these principles been an effective response to the competitive issues that arose earlier? Have there been any issues in practice with the operation of these principles? Would an extension of these principles be an appropriate response to the current issues?
6. Are there any foreign precedents that are relevant for the consideration of these issues in Australia?
7. Are the issues raised relevant only to dual-network debit cards or are they also relevant to so-called ‘combo cards’ with credit functionality from one scheme and debit functionality from another?
8. Are there any prospective developments in payment card technology that may be relevant for the Bank as it considers these issues?
9. If the Bank were to contemplate a standard addressing conduct in this area, are there particular compliance costs that would arise for industry?
Dual-network (or ‘co-badged’) cards have attracted the attention of policymakers in a number of other jurisdictions – most notably the United States, Canada and the European Union, with different policy responses. In each case, however, the response has tended to focus on reducing costs to payments system end-users.
In the United States, Section 1075 of the 2010 Dodd-Frank Act, known as the Durbin Amendment, provided for a number of reforms to the debit card market with the intention of providing more competition in the market. One aspect, which came into effect in April 2012, has the effect of requiring that all debit cards be enabled on at least two unaffiliated networks. Networks must also not restrict or limit an issuer’s ability to contract with other networks.
In the European Union, the 2015 regulation on interchange fees makes specific reference to co-badged cards and their role in reducing the cost of payments. The regulation prevents card schemes from having rules that prevent issuers from including payments functionality of two or more networks on one card. It also requires that any scheme rules, routing principles or technical or security standards involving co-badged cards should be objectively justified and non-discriminatory. It specifies that the choice of payment application for transactions using co-badged cards should be made by users, not imposed by card schemes, issuers, acquirers or processing entities.
Individual countries within Europe have different structures with respect to card networks and mobile payments. For example: In Denmark, the domestic debit card system is Dankort; there are also co-badged ‘Visa Dankort’ debit cards. On co-badged cards, domestic transactions are routed via Dankort, while transactions made abroad are routed through the Visa network. In France, Carte Bancaire is the domestic (credit and debit) scheme, often co-badged with MasterCard or Visa, with the latter networks used typically for cross-border transactions and Carte Bancaire used for domestic purchases. In Canada, the Code of Conduct for the Credit and Debit Card Industry in Canada (‘the Code’) explicitly provides for dual-network cards but takes a different approach. It allows for non-competing, complementary domestic applications from different networks to exist on the same debit card but specifies that competing domestic applications from different networks cannot be offered on the same card. In practice, this means that domestic point-of-sale transactions made on co-branded debit cards are processed through one network, in particular the domestic Interac network, while other applications such as on-line payments and payments at foreign point-of-sale terminals may be processed through the other network on the card. Contactless payments are also processed via Interac (‘Interac Flash’ transactions). The Code also states that payment card networks must ensure that co-badged debit cards are equally branded. All representations of payment applets in a mobile wallet or mobile device, and the payment card network brands associated with them, must be clearly identifiable and equally prominent.
Cardholders in Canada are now able to provision non-competing domestic networks on dual-network cards for mobile use. Although there is no unifying precedent so far regarding how public policy will evolve regarding mobile payments and dual-network cards, many authorities recognise the benefits of competition among different schemes and have sought to avoid artificial restrictions on competition. A press release from the European Commission in June this year indicates its expectation that dual-network card functionality will be available in both physical and mobile forms.7 In particular, the Commission noted that under its new interchange fee regulation, consumers will be able to require their bank to co-badge a single card (or in the future their mobile phone) with any card brands that they issue to the consumer.
ANZ today officially launched its secure payments system for business customers, ANZ BladePay, alongside six point-of-sale vendors who are developing customised applications for the platform.
Developed in partnership with tech innovation firm ThumbzUp, ANZ BladePay is a handheld android-based payment device which is capable of integrating third party applications designed to help businesses run more efficiently and enhance customers’ experience.
ANZ Group Executive, Australia Fred Ohlsson said: “We are routinely told that managing payments is one of the biggest pain points for business owners, yet when we looked at the market we found an opportunity to create a platform that could dramatically change the way our customers do business.
“ANZ BladePay is a fully integrated and innovative solution that will simplify business operations. What really sets ANZ BladePay apart is the software our vendor partners are developing, which is tailored to our customers’ needs. ANZ BladePay is much more than a secure payments solution, its potential is limitless,” Mr Ohlsson said.
Our vendor partners can build applications to include features such as ‘order and pay at table’, split bill and tipping options, ability to email and SMS receipts, and staff shift clock-on functions.
The device will be available to the hospitality industry in March 2017, with it offered to retail and B2B shortly after.
To take advantage of ANZ BladePay, business owners need to be an ANZ merchant customer and use a point-of-sale system provided by one of the banks vendor partners.
Point-of-sale vendors NCR, RedCat, H&L, SureFire, Abacus and Shout for Good have all started developing software for the device. ANZ is actively working with a number of other vendor partners.
ANZ BladePay features:
- Android 6.0 Marshmallow operating system
- Open architecture platform
- 5″ high resolution display
- Dual Cameras: 8MP rear facing/ 2MP front facing
- WiFi and 4G enabled Includes 1/2D barcode scanner
- Customised home screen with preferred applications
- Micro USB cable for charging
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.
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.
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:Adjunct Professor, Swinburne University of Technolog
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.
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.
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.
Commonwealth Bank and Alipay, the world’s largest mobile and online payment platform, operated by Ant Financial Services Group, have signed a landmark Memorandum of Understanding (MOU) to deliver payment solutions that will benefit Australian and Chinese consumers and retailers.
Under the terms of the MOU, the two companies will work together to make it easier for Australian consumers to pay for purchases made through Alibaba Group’s e-commerce websites, supported by Ant Financial’s payment infrastructure, including AliExpress, a platform for Chinese merchants to sell to global consumers.
Commonwealth Bank and Alipay will also work together on a simple payment solution that allows Chinese tourists and Chinese students to use Alipay in-store payments at Australian retailers. This agreement allows both companies to leverage the strengths of their collective e-commerce capability and Commonwealth Bank’s Albert smart payment tablet, powered by the Pi platform.
Mobile payments in China have increased exponentially in recent years. Last year, China overtook the United States as the world’s largest market in mobile payments with a transaction volume of US$235 billion, and China is expected to process $6.3 trillion in mobile payments by 2020. Approximately 19,000 Chinese tourists visit Australia every week and spend almost $8,000 per person.
“Australia is a popular destination for Chinese travellers and Chinese students studying overseas. We want Alipay users to enjoy the kind of convenience they are used to at home. We are working with regional and global partners like CBA to make this happen,” said Douglas Feagin, Senior Vice President of Ant Financial Services Group and Head of Alipay International.
Kelly Bayer Rosmarin, Group Executive, Institutional Banking and Markets, Commonwealth Bank said “We are thrilled to be the first Australian bank to collaborate with Alipay in building an innovative payments solution that leverages our leading e-commerce and point of sale platforms. We are constantly working on payment solutions that offer flexibility and choice for our customers so the prospect of bringing them closer to a globally leading mobile payments provider, and its 450 million active users, is truly exciting.”
As people increasingly reach for their phone to pay for goods in Australia, existing players in the contactless payment industry are trying to seek competitive advantage. Four of Australia’s leading banks are trying to secure collective bargaining rights for technology that grants access to Apple Pay.
This service is currently is only available to customers with American Express proprietary cards and ANZ American Express companion cards and ANZ Visa cardholders.
The Reserve Bank of Australia’s (RBA) Payments System Board noted that innovations in mobile wallets can boost consumer choice and convenience. Cardholders may be able to consolidate a range of payment cards into a single app on their mobile device.
Australia is one of the leading countries in the take-up of contactless payment transactions. If Apple is blocking banks from offering this service to their customers, it should be questioned.
Australia ahead when it comes to contactless payments
The way that Australians pay for the goods and services that they consume is rapidly changing. The use of cash as a payment mechanism has continued to decline as consumers shift to electronic payment methods, especially for smaller transactions.
Credit and debit cards are the most frequently used non-cash payments methods. In the financial year 2015-16, Australian cardholders made around 6.9 billion payments, worth $538 billion. That is an increase in value on the previous year of around 7%.
This trend is largely due to the prevalence of contactless technology at the point-of-sale. For example, some Australian banks claim that 74% of all MasterCard in-store transactions are now contactless and that per capita, contactless payments in Australia are amongst the highest in the world. Added to that, the A$100 cap on such transactions is the highest in the world.
The contactless payments industry has made substantial investments in the technologies that underpin convenient and secure payments. In particular this has seen the deployment of Near Field Communications (NFC) technology, used to accept both contactless card payments and mobile wallet payments.
Merchant terminals that accept contactless payments via the NFC technology are now commonplace in Australia. Mobile payment applications such as Apple Pay, Samsung Pay and Android Pay have all been recently launched in Australia.
Apple Pay arrived in November 2015, originally only for proprietary American Express cards. In April 2016, it was made available also for ANZ issued American Express companion cards and Visa cards.
In June 2016, Samsung Pay launched its mobile wallet application in Australia, in partnership with American Express and Citibank. Finally, Android Pay launched in July 2016 with ANZ, American Express, Macquarie and a wide range of credit unions and mutual banks, using Cuscal as their service provider.
The Apple dispute
Four banks – the Commonwealth Bank of Australia, Westpac, National Australia Bank and Bendigo and Adelaide Bank – have applied to the Australian Competition and Consumer Commission (ACCC), to collectively negotiate with Apple Pay in Australia.
In their evidence to the ACCC, the banks accuse Apple of trying to piggyback on their investment in Australia’s contactless payment infrastructure, while remaining “intransigent, closed and controlling”, in dictating terms for access to Apple Pay.
The banks claim that Apple is seeking for itself the exclusive use of Australia’s existing NFC terminal infrastructure, “which has been built and paid for by Australian banks and merchants for the benefit of all Australians”.
This negotiation is worth a lot to the banks, the banks claim Apple has approximately 40% of the smartphone market in Australia.
The banks dismiss Apple’s claim that opening up access to the NFC function would undermine the security of mobile wallets. The banks point to the experience of Apple in China and Japan, where Apple Pay was forced to modify its demands in order to maintain parity with Samsung Pay.
Besides seeking non-exclusive access to the NFC and standardised security for all mobile payment systems, the four banks want price transparency on transaction costs for mobile payments within Australia. This is an ongoing objective for the RBA.
In its recent review of card payments regulation, the RBA set out to ensure that its reforms would promote competition and efficiency in the payments system by improving price signals and thus encouraging efficient payment choices for consumers.
Apple Pay derives most of its income from taking part of the Merchant Service Fee (MSF) that merchants pay to the card issuers. In the USA, where contactless payments have yet to take off, MSF’s are much higher than in Australia. According to media reports, Apple Pay take around 0.15% of the value of every credit card transaction via its mobile wallet in that country.
In Australia, the average fee paid by merchants to the financial institution for transactions on MasterCard and Visa cards was 0.72% of the value of the transaction in June 2016. This followed a review of the calculation of the interchange element of the MSF’s in November 2015.
These interchange fees are now 0.50% of the value of the transaction for the credit card schemes and 12 cents per transaction for the debit card schemes. So there is not as much interchange revenue to share in Australia as there is in the USA.
In a submission to the ACCC, the four banks’ pointed out if Apple Pay were to gain a dominant share of all mobile wallet transactions in Australia, then consumers would not be aware of the costs that are associated with this method of payment. This would conflict with the RBA’s objective of improving signalling to consumers the price of each payment option.
The four banks have received support for their bid to negotiate collectively with Apple from a number of card schemes, merchants, other banks and payment associations. The ACCC is expected to give its decision on their claim in November 2016.
Is Australia is serious about offering consumers as wide a variety of payment options as possible and making consumers aware of the costs of each option? If so, then everyone should be able to use whichever payment method suits them best, no matter which mobile phone or bank they use.
Author:, Adjunct Professor, Swinburne University of Technology