Australia’s central bank governor Philip Lowe has warned that the rise of digital wallets like Apple Pay and Google Pay is placing new pressures on financial competition.
Speaking at the 2020 Australian Payments Network summit, Lowe said digital wallets were emerging as a key regulatory battleground, despite offering consumers security benefits.
“The Apple Pay and Google Pay wallets illustrate some of the new and complex issues that are arising,” he said at the Australian Payments Network summit on Monday.
“These wallets are clearly valued by consumers and they will reduce industry-wide fraud costs through the use of biometrics authentication (e.g. fingerprint or facial recognition.
“The tokenisation of the customer’s card number is also a step forward. So these wallets are a good innovation.
“At the same time, though, they are raising new competition issues.”
Lowe said the near field communications (NFC) technology restrictions that Apple places on its devices is one such issue that could be argued is limiting competition.
“Many argue that this restriction limits the ability of other wallet providers to compete on these devices and that this could increase costs,” he said, pointing to regulatory action overseas.
“For example, in 2019 the German parliament passed a law requiring device manufacturers to provide third parties with access to technologies (such as NFC) that support payments services.
“And the European Commission announced in June that it would commence a formal antitrust investigation into Apple's restriction of third-party NFC access on the iOS platform and in September announced that it will also consider legislation on third-party access.
“This issue has also been raised in submissions to our review of payments system regulation, and we are watching developments in Europe and elsewhere closely.”
Lowe also took issue with Google’s collection of information on transactions made using Google Pay, instead of charging a transaction fee to issuers like Apple does.
“Google states that it may collect information on transactions made using Google Pay, which can be used as part of or marketing other Google services to users,” he said.
“In contrast, Apple states that it does not collect transaction information that can be tied back to an individual Apple Pay user.
“Apple charges a fee to issuers when a transaction is made with the Apple Wallet but a similar fee is not charged by Google when transactions are made with Google Pay.
“It is certainly possible that these different approaches to the use of data on the one hand and access and fees on the other are linked. So there are issues to consider here, too.”
Lowe noted that the increasing use of in-app payment methods on platforms like Google, Apple, Facebook and Amazon also raised competition issues.
Digital wallets and in-app payments are two technology issues that are challenging the RBA’s 20-year-old “powers in relation to payment systems and participants in those systems”.
“While the powers are quite broad, in practice the [RBA] has the ability to regulate only a fairly limited range of entities,” Lowe said.
His comments come as both the federal government and the RBA continue to review the regulatory architecture of Australia’s payments system.
The government review, which is being led by the architect of the consumer data right, Scott Farrell, was announced in October to investigate ways to ensure the system remains fit for purpose.
The Farrell review is happening alongside the RBA’s root-and-branch review of Australia’s retail payments regulation, which was restarted last month after an eight month pandemic-induced delay.
“As I said at the outset, the world of payments is becoming more complex and raising new issues for industry participants and regulators to deal with,” Lowe said.
“This means that it is timely to consider how the payments system should be regulated and the Payments System Board welcomes the government's review of the regulatory architecture.”