For many of us, shopping using tap-and-go technology has become second nature. Even more so since the pandemic struck. But few may be aware that the latest evolution of the contactless payment system – “digital wallets” on mobile phones – has turned into an almighty stoush in Australia between two leviathans: Big Tech and Big Banks.
A rapidly growing number of bank customers are using digital wallets such as Apple Pay and Google Pay, which allow users to enter a card’s details into their phone and pay using technology that seamlessly operates with the existing vast network of contactless point-of-sale devices.
The rise of digital wallets such as Apple Pay has been turbo-charged by the pandemic.Credit:Josh Robenstone
Whenever a payment goes through Apple Pay, which is the only digital wallet app allowed on an iPhone, the tech company pockets an undisclosed fee from the banks. Google Pay, which runs on Android phones, doesn’t charge a fee, instead using the consumer data for its advertising business.
The banks have a long list of grievances, including Apple’s unwillingness to allow digital wallet competitors on its iPhone (Android phones do allow third parties to use its payment technology), the paucity of regulatory oversight and their exasperation that having invested heavily to establish the contactless payment system, Apple is now happily charging banks for using that infrastructure.
As a consequence, in October last year, the Morrison government established a review of the regulatory architecture of the payment industry, led by lawyer and financial technology expert Scott Farrell. Recently released, the review recommended, among other things, new powers for Treasurer Josh Frydenberg to clear up overlapping oversight responsibilities and potentially force Apple to open up its digital wallets technology to rivals.
The lack of proper oversight was on full display when officials from the Reserve Bank, the Australian Competition and Consumer Commission, the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission fronted a Parliamentary committee that is also putting the payments industry under the microscope.
Even though all of them have a role in regulating the sector, they all took a backward step when asked what they were doing to investigate the rapidly expanding digital wallet sector. Committee member and Labor MP Deborah O’Neill warned she was “becoming more and more concerned that Apple and Google are driving the bus and the government is missing in action and the gaps … are so open it’s like the Wild West for those companies to come in here”.
Mr Frydenberg has acknowledged the regulatory shortfall. Writing in the Financial Review, he says the system is being transformed by the emergence of digital wallets, buy now pay later, cryptocurrencies and the like. “Individually, their impact is profound, collectively it’s a revolution. Yet despite this disruption, the regulatory framework governing the payments system has not evolved.”
Banks are keen to avoid the experience of the media industry, where millions of dollars in advertising revenue was sucked out of Australian companies by Google and Facebook. It led to years of industry turmoil before the news media bargaining code was finally put into place forcing tech companies to compensate media companies for the use of their content.
While Australia’s banks are hardly on their financial knees, and the banking royal commission found they had more often adopted the role of bully than bullied, the Treasurer must be true to his word in his commitment to playing a far more active role in overseeing the payments industry. Consumers, lured by new digital forms of payment, cannot be left shortchanged in the long term by putting too much power over a critical piece of Australia’s economic infrastructure into the hands of monopolistic big tech firms.
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