Google and Apple are facing yet another probe of their anti-competitive practices in Australia, this time over the saturation of the market both players have in the mobile payments space.
The Parliamentary Joint Committee on Corporations and Financial Services recently opened an inquiry into mobile payment and digital wallet financial services, with particular reference to the nature of commercial relationships and business models, including any imbalance in bargaining power operating between providers of mobile payment digital wallet services and financial services, merchants and vendors, and consumers.
In a submission [PDF] to the committee, the Reserve Bank of Australia (RBA) raised concerns over the entry of “big tech” to the payments and greater financial services markets. It said this is presenting new competition challenges for policymakers and regulators.
“These platforms have very large user bases and benefit from strong network effects, which is likely to result in them being in a strong negotiation position with payments system participants and can make it difficult for smaller firms to compete,” the RBA said.
“While technology platforms have the potential to improve the efficiency and security of the payments system by providing innovative new services, they can also introduce new direct and indirect costs.
“As digital wallets become more widely used, wallet providers could obtain substantial market power and this could have implications for competition and efficiency in the payments system.”
Another issue the RBA flagged as warranting further consideration is that there is a lack of transparency in relation to the fees and other arrangements associated with digital wallets.
RBA data shows that around 40% of online payments in 2019 were initiated via mobile apps.
As highlighted by the Australian Competition and Consumer Commission (ACCC), as part of its Digital Platforms Inquiry, Apple holds a 54% share of the mobile market in Australia, with Android comprising the majority of the remaining percentage.
“Digital platforms that own and control the mobile OS dictate the terms and extent of the competition for distributing software onto mobile devices running their respectively mobile operating systems,” the Commonwealth Bank of Australia says in its submission [PDF] to the committee.
“Mobile device manufacturers therefore act as a gatekeeper over a key channel of distribution of a range of products and services, including essential financial services such as payments.”
According to CBA, there are implications for innovation and competition when a mobile device operator occupies a gatekeeper role and at the same time competes with businesses that rely on access to their mobile ecosystems.
“As is frequently the case with digital wallets,” it said. “Fair, reasonable, and open access to mobile device ecosystems will be critical for digital payment innovation.”
CBA, alongside Westpac, the National Australia Bank (NAB), and Bendigo and Adelaide Bank, had joined forces back in 2016 to go after Apple and its control over its own near-field communication (NFC) technology, annoyed that Apple did not allow any other entity direct access to its technology.
The group argued that access would enable them to offer their own integrated digital wallets to iPhone customers in competition with Apple’s digital wallet without using Apple Pay — something Apple wanted to avoid.
The banks lost that fight four years ago, with the ACCC handing down a determination denying authorisation.
Since then, the banks have caved and now offer their customers Apple Pay.
The RBA said since the decision, the market has matured significantly and Apple Pay provision is now nearly ubiquitous among issuers. The ACCC agreed [PDF] that the mobile payments sector has developed rapidly in the period since it made the decision.
“The ACCC agreed with the Applicants that public benefits would potentially arise in terms of greater competition from the banks for digital wallets, but found a number of public detriments that outweighed any public benefit,” the ACCC clarified.
CBA believes regulation should be implemented to prevent the further development of monopolies.
“It is vital to ensure that such ecosystems operate on a basis of competitive neutrality that allows for, and facilitates, fair and open competition across the entire ecosystem,” it wrote. “Regulation should prevent the development of monopolies or market dominance by a small number of players and ensure interoperability across mobile wallet ecosystems so that consumers can benefit from greater choice and innovation.”
Google, meanwhile, claimed the open architecture of the Android ecosystem has fuelled innovation in Australia and globally.
“Enabling third parties to access the NFC controller has resulted in significant payments innovation, and we have seen this in Australia with ‘host card emulation’ based digital wallet solutions created by device manufacturers, banks and payments companies,” it wrote in its submission [PDF].
The search giant offered three “opportunities” to improve innovation and competition in the ecosystem going forward: Increase competition for mobile payments and digital wallets by enabling third-party access to the NFC controller; ensure a consistent “user flow” for payment initiation to support user adoption across the entire payments ecosystem; and encourage future innovation by ensuring legal and regulatory frameworks keep pace with technological change and broader trends in the payments ecosystem.
“In particular, we encourage the adoption of an ecosystem-wide principles-based approach to allow sustainable commercial models to emerge,” Google said. “This means recognising that payment services providers need to cover at least their direct costs — by allowing room for ecosystem fees, as well as innovation in business models and service delivery.”