Australian Banks ask for permission to collude against Apple

This news caused me to make a spit-take on my morning coffee.

Several of the country’s big banks are seeking to join forces and negotiate as a bloc with technology giant Apple, which could lead to a collective boycott of Apple Pay, in a bid to offer “digital wallets” on the iPhone.

Commonwealth Bank, National Australia Bank, Westpac and Bendigo Bank have this week applied to the Australian Competition and Consumer Commission, asking permission to negotiate as one with Apple.

Their application also seeks permission to undertake a “limited form of collective boycott,” in which the banks will agree not to negotiate with Apple individually while the collective talks are occurring.

Let’s unpack this. Apple has an NFC solution on its iPhone (just as Google does) but in order for Australian consumers to use it, they need permission of their banks. The banks claim that because Apple controls the phones of some of its customers, they need to negotiate as a block on access to the NFC component on the iPhone.  Of course, not all banks. ANZ has already signed up to Apple Pay.

But here is what I don’t get. First, what does negotiating for access to the NFC component mean? Do the banks think that Apple will open it up to them when they haven’t opened it up to anyone else in the world? The reason Apple keep that close knit is because of security. It is unlikely there is anything else going on.

Second, the idea apparently is for the banks to agree not to sign up to Apple Pay until this is done. Then they will negotiate terms of access individually. In other words, a collective boycott.

The Australian law has provisions to allow this sort of thing if there are public benefits. But in this case, the public benefits only arise (potentially) if it is in the public interest for Apple to open up access to NFC. However, that decision would lie elsewhere with a much more detailed process. Also, because Apple is not a dominant handset maker — it has much less than 50% market share in Australia and elsewhere — opening up access through the usual route won’t happen. Put simply, Google have already developed this and so access to NFC is possible.

Instead, the idea here is to allow for something blantantly anti-competitive. One of the forces the drives banks to adopt new technologies that are provided by others is competitive pressure between them — that is, their customers want it. That is why AmEx and ANZ are already on board with Apple Pay. What the remaining banks want to do is ensure any one of them doesn’t break ranks and adopt Apple Pay and activate a competitive response.

In summary, the banks are using the wrong part of the law to deal with a public interest question precisely because Apple is not dominant in the Australian market. And they are doing it to protect what is likely a poor set of investments on their part and because they are unwilling to throw their weight behind Google alone. In other words, it is classic undermining of competition to benefit the interests of competitors and not the interests of consumers. Hopefully the ACCC will deal with it quickly because it is pretty clear that while the regulators deliberate, the same effect as a collective boycott is actually occuring.

6 thoughts on “Australian Banks ask for permission to collude against Apple”

  1. I don’t know about the merits of this case, but I am fan of this kind of economics. It seems you never truly left us, Joshua!


  2. Even more outrageously, Coles and Woolworths are floating the idea of co-operating to integrate much of their supply chains ‘to yield efficiencies”. They really have no shame, do they – wishing to add monopsony to their monopoly.


  3. Josh, you say that Apple want to keep the NFC hardware locked away for ‘security reasons’ but then note that Google has made their NFC capabilities available to third parties. What’s the deal: is Google being reckless or is Apple’s security argument a red herring?

    Isn’t the real issue here that Apple wants all mobile payments to go through its own App so they can skim a fee off the top? Maybe allowing banks to also put their own mobile pay Apps on the phone would increase competition in that space?


  4. I am no apologist for the Australian Banks, but his stuff is small beer. Really small beer. What is worse, this type of discussion diverts professional research and inquiry away from the main game. The Banks love it – waste the regulators energy on stuff that just doesn’t matter.

    BPay and even cheque clearing are stunningly efficient when compared to the nightmare of bill payment in the USA. Transactions processing and clearing are both things that are done efficiently (i.e. at low cost) in Australia. Some European countries are better than Australia, but not many. But there will never be serious profits for the banks in things like ApplePay.

    The great problem in Australian banking is that the banks compete on everything except price, hence the obscene margins on mortgage loans and SME business lending. Go buy a forward FX contract, you’re lucky to come away with your ring finger. And why the heck are they allowed to carry insurance company risk on their balance sheets and further endanger the entire settlement system in the event of a liquidity crisis. And why are they allowed to own a massive chunk of the financial planning chains providing retirement advice – a natural cottage industry – and turn their clients into stuffee buyers? Let’s get a few economists working on the main game.


  5. Sounds like the AAP solution of News Ltd and Fairfax, or the joint content purchasing agreement that underpinned Foxtel and Optus’ pay TV businesses for many years.

    But still, terribly monopolistic. And less justified.


  6. While Apple may be a minority payer in the phone market, it does have an unusually strong share of people who spend a lot of money.


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