Google warns more regulation of digital wallets could jeopardise services

US tech giants Apple and Google have called the Albanese government’s proposed regulation of digital wallets ‘confusing’ and warned that it could jeopardise services.

Alphabet’s Google has warned that an increase in costs as a result from the Albanese government’s plan to regulate digital wallets could jeopardise its services in the country, which it provides free of charge to banks, retailers and Australians.

Speaking at a House of Representatives committee hearing into economic dynamism and competition, Google’s executives said the company welcomed the government’s proposed regulatory reform and was collaborating with the RBA and other regulators.

But they also warned that “if there is a move towards greater regulation that increases significant costs for the business, we don‘t really have a way to pass that on, and we wouldn’t want to pass that onto our users,” said Justin Mining, Google’s Asia Pacific competition policy lead.

“So we just hope that those characteristics get taken into account in ultimately any regulatory settings that get put in place,” he said.

Treasurer Jim Chalmers earlier this year introduced proposals to expand the scope of the country’s payments regulation to give extra powers to the Reserve Bank to police all payments participants, including digital wallets developed by US tech giants Apple and Google.

Mr Mining said the company hoped regulators took into account the fact that it did not charge fees to the users of its platform. “We really do this in partnership with financial institutions, mainly banks, to provide them with our technology free of charge,” he said.

“We would just ask that, obviously, the different models get assessed and the risks and benefits of that regulation be assessed against the few features of our model that really differentiates us from others.”

Google said it hoped regulators took into account the fact that it did not charge fees to the users of its platform.

Facing the same committee, Apple said the proposed increase in regulatory scrutiny for the sector was confusing as it amounted to Australia “not regulating a physical wallet but we are regulating a digital wallet,” vice president of products and regulatory law Kyle Andeer said.

“What are we trying to accomplish through that regulation? From our perspective, when we look at this question around regulation, it is hard to wrap your head around it,” he said.

“We don’t offer payment services in Australia,” he said. “We don’t offer any financial services in Australia. We really are simply a presentment method for banks.”

Apple charges banks for the use of the Near Field Communication (NFC) chip on its phones through their apps, which according to Commonwealth Bank estimates in 2021, captured more than 80 per cent of all contactless transactions done through phones and smartwatches.

Mr Andeer said the company charged “the same rate to every bank, every financial institution around the world, that wants to participate in Apple Pay.”

“We did it in part based on what we thought the cost savings were. And in fact we underestimated it because we see that the fraud rates in the use of Apple Pay lead the industry. They are incredibly good.”

He said Apple was evaluating but had no immediate plans to launch financial services products like deposit accounts and credit cards, but that there would be regulatory and competitive implications of such a move.

“We know that Apple Pay and Apple Wallet work incredibly well around the world. It’s been something we depend on the banks for its success. And so between the regulatory structures and the competitive pressures we are still evaluating these products.”

CBA has led calls for more scrutiny of the tech giants, as it considers Apple in particular acts as a “gatekeeper” of the infrastructure that powers customer payments through mobile phone wallets, which have surged in popularity.

Mr Andeer said that Apple Pay users had grown to 6 million currently since its introduction in 2015 but did not disclose transaction numbers of volumes to the committee. Instead Mr Andeer took the request for transparency on transaction volumes on notice but said that as of last year, Apple Pay’s percentage of total payments was less than 15 per cent.

Originally published as Google warns more regulation of digital wallets could jeopardise services