Digital wallets such as Apple Pay lack transparency: RBA

The Reserve Bank has underlined the lack of transparency in the fees and rules imposed by digital wallets such as Apple Pay, amid concerns about technology giants’ growing power in the payments market.

Digital wallets — apps that allow people to use their phones or wearable devices for tap-and-go payments or online purchases — have surged in popularity during the COVID-19 pandemic.

Transactions on digital payment systems such as Apple Pay have soared during the pandemic. Credit: Josh Robenstone

The Commonwealth Bank says that in the year to March, digital wallet transactions soared by 90 per cent, and based on current trends it is likely to become the most popular form of contactless payment by the end of this year.

But while consumers benefit from the convenience and better security of digital wallets, the trend is also raising concerns over Apple and Google’s market power.

In a recent submission to a parliamentary inquiry, the Reserve Bank highlighted concerns that extra costs could creep into the payment system as a result, and pointed to the opaque fees that were charged in some cases.

The submission said “there is a lack of transparency in relation to the fees and other arrangements associated with digital wallets,” and this could be an issue that warranted further consideration.

CBA’s submission also said there was “very little transparency” on digital wallet fees, and these costs should get the same level of scrutiny as other parts of the payment system.

Apple’s cut from Apple Pay has been a particular sore point with banks.

Banks pay the tech giant a fee for all payments made through Apple Pay, but commercial agreements prevent banks from disclosing the size of these fees, or from adding a surcharge onto the purchase price. Trade publication Banking Day has reported banks pay Apple between 4 and 6 basis points on debit card transactions, but Apple has not said how much it charges.

In a recent submission to a parliamentary inquiry, the Reserve Bank highlighted concerns that extra costs could creep into the payment system as a result, and pointed to the opaque fees that were charged in some cases. Credit: Louie Douvis

Google does not charge a fee for its wallet, but the company can collect transaction data to be used in marketing other services to users. The Australian Banking Association said data collection such as this could raise questions about data privacy, and the possibility of customer profiling.

Apple says it does not collect transaction data.

Given Apple’s market clout, one fear in the industry is that it would be in a strong negotiating position if it sought to raise prices in the future. The RBA did not say this explicitly, but did highlight the tech giants’ strong negotiating position and said new costs could be introduced.

“While technology platforms have the potential to improve the efficiency and security of the payments system by providing innovative new services, they can also introduce new direct and indirect costs,” the RBA said.

Alongside the concerns about fees, banks and retailers have also protested against Apple’s policy of restricting third parties’ access to the chip on the iPhone that allows tap-and-go payments.

CBA, Westpac and National Australia Bank tried to launch a collective boycott of Apple over this issue in 2016, but the consumer watchdog rejected their request. Even so, the RBA noted it was a growing concern internationally, including an antitrust investigation in Europe.

Apple’s submission said Apple Pay had lower fraud rates, and was offered to all card issuers on the same terms, and banks could make their apps “fully integrated” with the payment experience using APIs. “FinTechs such as Afterpay and Klarna have been quicker than traditional incumbent banks to adopt these APIs to offer a superior experience to their customers,” Apple said.

Google’s submission argued competition could be boosted by allowing third party access to the near field communication chips on phones.

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