Australian Labor MP Ed Husic has declared that by not supporting Apple Pay in Australia, the four major banks have engaged in anti-competitive behaviour. In a letter to the Reserve Bank of Australia and the Australian Bankers’ Association, he has accused the Australian banks of “boycotting” Apple Pay. He also wrote that the move by the banks “denies consumer access to a secure, efficient payment platform” and is stopping consumers from “the ability to make payment choices that are openly available to consumers globally”.
Apple Pay launched in Australia this month but with support only for cards issued directly by American Express. Although Australia has extensive support for “tap and pay” payments, American Express cards are not accepted as universally as Visa and MasterCard, in part because of the higher merchant fees they charge businesses. At present, American Express and Diners Club only have 20% of the credit card market in Australia.
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Apple had run into problems negotiating their cut of credit card transactions with the major Australian banks. At the time, Ian Narev, the CEO of Commonwealth Bank claimed that Australia didn’t need technology such as Apple Pay because the banks themselves were producing their own mobile payment apps. But the Commonwealth Bank’s attempt at supporting a “mobile” tap and pay solution for the iPhone consisted of sticking a cut down version of a credit card to the back of the phone and hardly represented an advance on using an actual credit card directly.
Husic is correct in saying that at the end of the day, it is consumers who are the biggest losers in not having access to technology that makes using “tap and pay” payments convenient and more secure. However, all parties involved must take a share of the blame for denying them this.
First and foremost, there are the banks, who clearly, as Husic has claimed, have been using their combined monopoly to try and force Apple into accepting a smaller cut of the credit card charges. Contrary to the banks’ claims, using Apple Pay represents a significant technological improvement on anything that they could implement on Apple devices through their own apps.
Apple on the other hand, has also put its profits before its customers by not being willing to accept a compromise on the transaction fees. In part, this would be driven by its desire to avoid setting a precedent in any future negotiations in other countries.
American Express could also be held to account for its relatively high merchant fees which have resulted in its patchy adoption in Australia. At the same time, the businesses themselves have made the choice to put their profits ahead of customer choice of payment mechanism. In this, these businesses have exhibited a shortsightedness over what is a relatively trivial difference (of the order of 1%), in merchant fees between Visa and MasterCard and American Express.
Apple Pay use in the US has been slow to take off. This is in part because “tap and pay” is yet to be available in most businesses in the US, but also because using the phone instead of a card has not become an ingrained behaviour for many people. Adoption of Android-based “tap and pay” has likewise been slow to take off, even in Australia.
What the Australian banks are particularly concerned about is not the absolute amount of money they would lose to Apple but the loss of control over the transaction once Apple becomes the intermediary.
The finance industry is facing the threat of disruption on many fronts with the biggest coming from the likes of Apple, Google and Amazon. Like the music industry before it, banks will try and resist ceding territory by doing deals with companies like Apple even if it means denying customers the services they want. But like all businesses that resist change to defend their historic practices, customer demand finds a way around the roadblocks they erect, and change becomes inevitable.
It is unlikely that Labor MP Ed Husic’s letter will achieve much in the short term. It is possible that American Express will gain some ground through its exclusive support of Apple Pay and this may even convince more businesses to accept it as payment (without the usual 2.5% premium).
Australian banks will eventually settle however, if for no other reason than becoming the only banks in the world to not offer this service.