ITP Techblog

As New Zealand introduces legislation to lower merchant fees for mobile payments, Australia is probing Google and Apple over their growing power in the payments market.

Australia's Parliamentary Joint Committee on Corporations and Financial Services, in March began an inquiry into mobile payment and digital wallet financial services operating in the country.

In 2019, around 40% of online payments were initiated via mobile apps, according to the Australian Banking Association, with use of mobile payments and digital wallets increasing by up to 90% during the Covid-19 pandemic.

While banks and credit card companies attract much of the scrutiny when it comes to fees around mobile payments, with Apple and Google splitting the mobile market roughly between themselves, attention is turning to the power they wield with their own mobile payment systems - Google Pay and Apple Pay respectively.

Submissions to the inquiry are starting to appear as industry players give their perspectives, with a number of them zeroing in once again on Apple and its tight control of the near-field communication (NFC) technology in its mobile devices - which essentially require all mobile payments to be channeled through its Apple Pay system.

"Android has supported third-party use of NFC functionality including 'tap and go', while Apple continues to cite security concerns and reserve some aspects of NFC functionality, such as 'tap-and-go' payment functionality for its own Apple Pay app (although Apple has made exceptions in specific overseas markets)," the Australian Banking Association noted.

This revives an effort from 2016 by major Australian banks to have Apple forced to open up access to its NPC technology. The Australian competition watchdog rejected that request. But in its own submission to the inquiry, the Reserve Bank of Australia noted that the mobile payments market had "matured significantly" since 2017.

"Apple Pay provision is now nearly ubiquitous among issuers (including all of the banks party to the ACCC application)."

While it didn't currently see the need for regulatory intervention to force Apple to open up access to its NFC technology, the RBA said it would monitor developments closely.

"If the recent strong growth in the use of digital wallets continues, a case for further scrutiny could emerge as digital wallets become a more prominent part of the retail payments landscape."

Scrutiny here has focused less on the technical underpinnings of mobile payment systems, which dictate where financial information is accessed and stored, and more on the fees charged to merchants offering Paywave and tap and go mobile payments.

The legislation, introduced earlier this month in response to the greater reliance on mobile payments experienced during the pandemic, is hoped to save merchants $74 million a year by capping interchange fees for credit card and online debit card transactions.

Google, for its part, has an advantage over Apple when it comes to regulatory scrutiny. By necessity, it can't lock up access to NFC technology on Android phones because it needs to accommodate numerous hardware makers, unlike Apple which makes hardware and the device operating system.

Google, meanwhile, claimed the open architecture of the Android ecosystem has fuelled innovation in Australia and globally. Instead, Google Pay mobile payments are processed in a cloud-based system rather than on the phone and as a result, Google has allowed third parties to access NFC technology for their own payment systems.

"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," Google explained in its own submission.