Opinion
Why the RBA needs powers over Apple and Google’s payments forays
Clancy Yeates
Banking reporterSeven years ago, ANZ Bank boss Shayne Elliott predicted digital wallets could displace plastic debit and credit cards within a decade, and to prove it wasn’t just young people using these devices, he revealed he’d even paid for some knee surgery on his smartphone.
Fast-forward to today, and it looks like his forecast wasn’t far off the mark. The Commonwealth Bank has said just under half the of all card payments made in-store happen through apps on phones (known as digital wallets), and these types of payments are growing rapidly.
The government plans to give the RBA the ability to regulate digital wallets such as Apple Pay.Credit: Josh Robenstone
Ditching an old-fashion wallets for a digital one can be convenient, more secure, and quicker for making online purchases. But while more and more of us are tapping our phones on the payment terminal, the relationship between banks and the biggest player in mobile wallets, Apple, has always been a bit testy.
Now these tensions are coming back to the surface, thanks to some legislative changes you’ve probably missed.
Tech giants, including Apple, aren’t too happy about these reforms to payment regulation aimed at reducing their influence, but the government should push ahead with its plan regardless. Not to protect the banks, but rather to support competitive pressure on the cost of digital payments – which we’re using more and more.
The feud between Apple and the banks first erupted publicly in 2016, when CBA, NAB and Westpac tried to launch a collective boycott of Apple Pay, its digital wallet, over access to a chip on the iPhone handset that facilitates payments.
The RBA has long said it wants to push down the cost of payments, and giving it the power to regulate Apple Pay could help because it should finally lead to some public information on how much Apple is charging, and who’s ultimately paying it.
The banks lost this fight, but it wasn’t the end of the matter. CBA’s boss Matt Comyn in 2021 took a public swipe at the tech giant over its market power, and there’s also been a long-running complaint from the banks over the secrecy of Apple’s fees. (The tech giant takes a small cut every time you tap to pay using your phone, but its contracts prevent banks from revealing the size of these fees, or passing it on to customers.)
In June, Treasurer Jim Chalmers announced plans to give the Reserve Bank powers to regulate digital wallets such as Apple Pay, with plans to introduce legislation to parliament later this year.
The key concern is that digital wallets fall outside the decades-old regulatory regime, yet they are playing a fast-growing role in how we pay for things. So, the government plans to update the Payment Systems (Regulation) Act to give the RBA powers to regulate the likes of Apple Pay.
Banks are really keen on this plan. Tech giants, not so much.
CBA’s submission to Treasury argued the change should be put into place urgently, saying “time is of the essence” for the laws to be passed and for the RBA to use its new powers.
Apple’s lengthy submission to Treasury argues it doesn’t actually provide payment services or finance, so it doesn’t pose financial risk like a bank. Rather, Apple says it’s a “payment presentment method”; it wants any regulation to be “proportionate” to the risks; and warns against stifling innovation.
Google, which operates Google Pay, made similar arguments in a submission earlier this year, which said: “Google is not a payment provider.”
Both sides have clear agendas here. Apple and Google are no fans of regulation, and CBA has a lucrative hold on retail banking it wants to protect.
Smartphones have turned banking apps into a critical battleground between banks, and customers have benefited from this because it’s become faster and simpler to do your banking.
Even so, the banks’ arguments appear to have won over Chalmers and the RBA, and the most compelling case they make relates to the cost of payments and competition.
Apple’s practice of charging a small but secret fee every time someone uses Apple Pay clearly inflates the total cost of processing those payments. Google, in contrast, does not charge fees for payments.
The RBA has long said it wants to push down the cost of payments, and giving it the power to regulate Apple Pay could help because it should finally lead to some public information on how much Apple is charging, and who’s ultimately paying it.
In the longer term, the changes could also allow the RBA to regulate and impose some sort of “access regime” on payment infrastructure used by digital wallets. Banks hope it could one day pave the way for the RBA to bring in an open access regime for iPhones – something Apple has previously fought against tooth and nail.
The tech giant still fiercely opposes any such access regime, but the economic argument for doing so would be that Apple’s dominance gives it enormous market power. When so many people have iPhones, banks insist they don’t really have a choice but to sign up for Apple Pay, even if they do so through gritted teeth. Google takes a different approach to Apple on this issue, allowing banks more access to hardware on Android phones.
All up, the banks look like they’ll get a small win from the upcoming changes to payment regulation, but none of this changes the fact that their relationship with consumers is being challenged by tech-based rivals.
Smartphones have turned banking apps into a critical battleground between banks, and customers have benefited from this because it’s become faster and simpler to do your banking.
Tech giants such as Apple deserve credit for facilitating some of that innovation, including the ability to turn your phone into a wallet. All the same, that doesn’t mean they should get a free pass from regulation aimed at making the system work for consumers.
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