Big Tech increases costs of banking: ABA

The banking sector is urging more co-ordination between regulators and government over Google and Apple.

The ABA, led by Anna Bligh, has cautioned on big tech’s impact on the payments system.

The banking sector has warned Treasury the emergence of technology giants in the payments industry has heightened infrastructure and processing cost pressures, as it urged more co-ordination between regulators and government.

In a submission to a sweeping Treasury review, the Australian Banking Association also called on the federal government to continue to focus on self-regulatory arrangements in the payments sector, as well as security and innovation.

The submission was signed off by ABA policy director Rhonda and comes amid a landmark year for the payments sector, given the Treasury review and a separate deep dive into the industry by the Reserve Bank. The ABA is led by Anna Bligh and Commonwealth Bank chief executive Matt Comyn is council chairman.

The ABA submission said the entry of large technology groups in the payments market added pressure on banks, given the pace of technology evolution occurring. It made reference to the Australian Competition and Consumer Commission’s scrutiny of large technology groups - including Google and Facebook - and their impact on media industry dynamics.

“The ACCC’s digital platform inquiry recognised the dominance of big tech, the imbalance in market power between these companies and the news media business, and the gaps in consumer protection,” the submission said.

“An analogy can be drawn with big tech’s role in the payments system as digital payment methods become more important. In immediate terms, the entry of big tech has added costs to payment infrastructure and payment processing which are currently having to be absorbed by business end-users and banks.”

The document also called on Treasury to consider the large technology companies’ access to, and use of, consumer and payments data.

Submissions to the Treasury payments regulatory review were due by December 31, but many stakeholders were granted extensions given an issues paper was only released in November.

King & Wood Mallesons partner Scott Farrell was appointed by Treasury to spearhead the payments report.

The ABA’s submission recommended Treasury build on existing regulatory architecture and retain a role for self-regulation, while also forming regulation around functions and services rather than the type of entity.

It urged better co-ordination between regulators and government to ensure a “whole of economy approach” to payments sector oversight.

“Where there are multiple regulators of payment functions/products, enhance co-ordination to minimise regulatory gaps that allow arbitrage,” the document said. “Identify and clarify when regulators and/or government can and should intervene.”

The Treasury payments review is due to lob its report in April.

In his submission to the review, McLean Roche Consulting’s Grant Halverson stressed the importance of fostering competition and understanding rapid changes in technology.

“This inquiry is critical as it sets up the next two decades,” he said.

But the banks’ submission argued that while they are subject to prudential regulation, consumer protection rules, and financial crime and anti-money laundering regulation, other payments participants were not.

“As new entrants including big tech and alternative players outside the current regulatory framework gain market share, any regulatory gaps or uneven application of regulatory obligations can create problems for both the payments system and end-users,” the document said.

“The gaps have the potential to introduce new risk into the payments system or undermine the effectiveness of existing regulation, including consumer protection, and the detection and prevention of money laundering and financial crime.”

Payments giant PayPal has been targeted, though, by financial crimes regulator ­Austrac, which hit the group with notices to produce information on millions of transactions.

The ABA’s submission also noted the burgeoning fintech and buy now pay later segments, saying they underscored “the limits of entity-based regulation” and the central bank’s remit.