There has been plenty of media this week generated by Apple’s latest submission in response to the application by four banks to collectively bargain and boycott Apple in relation to Apple Pay.
Brief re-cap: the story so far
The saga began in August 2016 when four banks (Cth, Westpac, NAB, Bendigo and Adelaide Bank) sought authorisation to collectively bargain with and boycott Apple in relation to Apple Pay. The ACCC may grant authorsiation for conduct that would otherwise contravene the Act if there are sufficient countervailing public benefits.
The applicants’ 121 page authorisation submission stated, in part:
[para 2] The applicants seek authorisation on behalf of themselves and potentially other credit and debit card issuers to engage in limited collective negotiation with providers of third-party mobile wallet services on conditions relating to competition, best practice standards, and efficiency and transparency. The applicants also seek authorisation to enter into a limited form of collective boycott in relation to a third-party mobile wallet provider while collective negotiations with that provider are ongoing.
Interim authorisation: denied
The banks initially applied for a quick interim authorisation which was swiftly denied by the ACCC. In a decision that surprised nobody, the ACCC denied interim authorisation. In its published decision the ACCC briefly noted that, after considering factors relevant to granting interim authorisation (set out in its decision) it was not appropriate to grant interim authorisation at this time. In particular:
‘the applications raise complex issues for consideration’
which require further market consultation, with the result that at this time
‘the ACCC does not have sufficient information to form a view on the likely public benefits and public detriments of the proposed conduct or the possible harm to consumers.’
In addition, there were no ‘compelling resons to support the urgency of the application
Draft determination: authorisation denied
On 29 November 2016 the ACCC issued a draft determination proposing to deny authorisation to the banks; however, it also noted that its draft decision was ‘finely balanced’.
The banks had argued that authorisation for the proposed conduct would ‘increase the likelihood of being able to offer competing wallets on the iOS platform and pass through Apple fees’ which would lead to a number of public benefits. However, the ACCC concluded the benefits claimed are ‘uncertain and may be limited’ and the ‘proposed conduct could reduce or distort competition in a number of markets.’ (see ACCC media release)
Deadline for final determination extended
The original deadline for final determination of the authorisation application was January 2016 (six months after the original application). However, the ACCC decided to extend the period to consider the applications for authorisation by three months. An extension of up to six months is permitted by s 90(10A) of the Act, provided agreed to by the applicant; the applicants agreed to this extension on 2 December 2016.
Final determination: expected April
A final determination was originally anticipated in January, but has been extended until April 2017. As a consequence the deadline for submissions on the draft determination was extended until 31 January 2017.
Apple’s response to the banks
Apple’s latest submission, in response to the draft determination, has generated some media coverage given its blunt assessment of the banks’ motives, including claims they are merely trying to free ride of Apple’s investments. It concludes (in part):
To be clear, and despite public protestations to the contrary: Apple’s view is that this application is not primarily about NFC access. It is fundamentally about the applicant banks avoiding paying Apple fees for use of Apple Pay (despite the significant investments made by Apple in order to develop and make available this technology), or specifically charging their cardholders for that use to discourage consumer use of Apple Pay and thereby reduce competition with their own proprietary wallets. Apple has demonstrated to the ACCC that the customer experience using a bank’s proprietary issuer digital wallet utilising Apple Pay’s secure element infrastructure without leaving the bank app is equivalent to using a bank’s proprietary issuer digital wallet with embedded NFC radio access (such as currently made available on Andrnid devices) thereby meeting all of the requirements of the applicant banks for customer choice, functionality and ease of use. And the costs to providing embedded NFC radio access are significant – including negative effects on consumer security and data privacy, customer choice of payment card at point of sale, and customer experience with other cards (including future functionality of transit cards and retailers’ loyalty cards).
Thus, there are no public benefits to providing the applicant banks embedded NFC radio access. The only benefit that would accrue to the banks in that case is a purely private benefit where they would be allowed to continue to free-ride on the significant investments made by Apple in its devices, iOS platform and App Store infrastructure, and specifically in this case on the underlying technology installed on Apple devices to facilitate NFC payments without paying any fees for transactions processed via Apple Pay’s secure element infrastructure (as all other banks around the world participating in Apple Pay are willing to do). [footnotes omitted]
Apple’s submission is accompanied by a short video demonstrating Apple Pay – which provides some neat free advertising for ANZ. ANZ is not a party to the authorisation application, being the only one of the major four banks to have already negotiated access to Apple Pay.
Application, submissions and decisions
Previous blog posts
- Banks denied interim authorisation for cartel conduct (19 August 2016)
- Apple versus the banks (10 August 2016)
See, for example:
- James Eyers, ‘Apple claims banks want digital wallets as a new revenue source’ (AFR, 5 February 2017)
- Ariel Bogle, ‘Apple’s fight with big banks is getting even nastier, and it was already nasty’ (MashableUK, 6 February 2017)
- Asha McLean, ‘Apple argues Australian bank bargaining cartel is centred on fee avoidance’ (ZDNet, 6 February 2017).