It is not often that a large bank needs to increase their bargaining power. However, four of Australia’s major banks have recently requested permission from the Australian Competition and Consumer Commission (ACCC) to negotiate collectively with another commercial giant, Apple. Below, we discuss whether the Banks’ request pose a threat to iPhone’s security and what consumer law issues this could raise .
What Did The Banks Request?
The act itself is unprecedented and has not occurred to date anywhere else in the world. The Commonwealth Bank of Australia, National Australia Bank, Westpac Banking Corporation and the Bendigo and Adelaide Bank have asked the ACCC for permission to negotiate collectively with Apple. There are two reasons the banks must seek permission from the ACCC before coming together to negotiate with Apple. The first is that even though the banks are among Australia’s five biggest companies, their individual bargaining power is marginal compared to Apple. Due to their inability to successfully negotiate as individual entities with the behemoth tech giant, the banks want to come together, but such ‘collective bargaining’ or forming a ‘cartel’ will fall foul of the Competition and Consumer Act (CCA). In response to the banks’ request, Apple made a 65-page submission to the ACCC citing anti-competitive behaviour, stating that authorising the creation of a cartel of banks that control access to two-thirds of cardholders in Australia would perpetuate an oligopolistic banking market and result in significant consumer harm. As a result, the ACCC refused the banks permission to act as a cartel.
At issue is Apple’s policy concerning the availability of third party providers of digital wallets on the iPhone platform. Apple locks its devices down so that any banks’ own digital wallet cannot access the iPhone’s antenna. As such, consumers cannot facilitate contactless payments on an iPhone unless they use Apple Pay. The only Australian bank to strike a deal with Apple to use Apple Pay is ANZ Bank.
The other banks’ apps can only perform internet banking functions on an iPhone but not access the iPhone’s near field communication (NFC) hardware that facilitates mobile tap-and-go payments. This predicament is costing them a significant amount of money in bank interchange fees and setting to zero their investment in phone payment innovations.
However, while the situation at first glance appears to concern only bank profitability, a closer inspection shows that the issues are in fact more complicated. The banks’ request is not only self-interested. Rather, the issues at stake are as much about the rights of consumers, preventing fraud and Apple’s dominant market position as it is about recovering revenue the banks may have lost from the missed opportunity.
The banks are concerned about the lack of any existing common security standards for digital wallets. When Apple unveiled Apple Pay in the United States, banking fraud increased as thieves set their sights on the onboarding of cards onto phones. Given the overwhelming popularity of iPhones and their mainstream usage, the banks would like to be an integral part of the conversation on common security standards in the interests of consumers. While fraud can, of course, damage large financial institutions, it is usually consumers who suffer the most as it is harder for individuals to track down thieves and recover their losses. Any discussions between large financial institutions and technology giants that resulted in an across-the-board set of safety features on all digital wallets would materially benefit consumers.
Consumer Choice and Market Power
It is indisputable that Apple has enormous market power. However, many businesses, as well as regulators, are becomingly increasingly concerned about how Apple’s commercial dominance affects their willingness to engage and interact with other business entities and governments. Some describe Apple’s negotiation style as all-or-nothing. When any company has such power and misuses it, consumers typically suffer.
While Apple cited security concerns as reasons for limiting access to it’s iPhone antennae, it’s clear that they gain a commercial benefit from their strategy. ANZ Bank remains the only Australian bank whose card will work with the iPhone. Based on the agreement between ANZ and Apple, the other banks are concerned about the card interchange fee, a percentage of which would go to Apple itself when using it’s Apple Pay system. Unsurprisingly, Apple is unlikely to part with its revenue generating mechanism.
It’s arguable which party is more self-interested and more genuinely concerned for consumers in this case and is likely the reason why the ACCC is taking it’s time to reach a final decision on the matter.
In our digital age, it will become more common that large, traditional institutions will be more likely to pair up with new technology companies to improve their services. The banks’ unique request to the ACCC regarding Apple’s iPhones is an example of the obstacles these companies will need to overcome to cater to the consumer population effectively.
Further, the issue may not only apply to banking and credit cards for long. Transport for NSW will roll out its trial open-loop-tap-and-go cards in 2017. These allow commuters with a bank issued MasterCard or Visa to tap their card on opal terminals. The experience of other big cities such as London with such a facility indicates that it has the effect of increasing the overall use of digital wallets.
The ACCC’s decision to refuse the banks permission to bargain with Apple collectively is not final, and they will make a decision later in the year. If you have questions about consumer law, anti-competitive behaviour or anything else in this article, get in touch via chat or contact us today on 1300 544 755. Our lawyers can advise and assist.