Banks wanted to negotiate with Apple to gain access to the Near-Field Communication (NFC) controller on iPhones. This would allow them to offer iPhone users their own digital wallets. It would have competed with Apple’s digital Wallet, but without Apple Pay.
A digital wallet can be a simple app that runs on your mobile phone. It has many of the same features as a wallet or purse. It can be used to make payments in stores and store information, such as points from loyalty programs.
Apple Pay is an example of a digital wallet that allows customers to “tap and go” with their phone like a bank card. Wearable devices such as Apple Watches and fitness trackers can be used to make mobile payments.
The ACCC cited as part of its reasoning in the case of Apple/Banks that “digital wallets are still in their infancy, and they will undergo rapid changes”. The ACCC is unsure of how the competition will develop.
Digital wallets in Australia
A recent study by the Reserve Bank of Australia has confirmed that mobile payments only accounted for around 1% of all point-of sale transactions during the week of the RBA survey in November 2016. The same research showed that 52% of all payments were made with credit or debit cards, mainly because these cards are used for smaller transactions.
The rapid adoption of contactless payment by consumers and merchants has made this possible. According to RBA research, around a third of all transactions at the point of sale in 2016 were carried out using contactless cards.
The Australian Payments Clearing Association states that 77% of Australians own smartphones. However, mobile payments are still relatively rare at point-of-sale.
Mobile payments are not seen as an advantage by consumers in Australia because of the success of contactless cards. Even low-value transactions can be done at the point of sale using tap-and-go. The financial institutions are quick to issue these cards to their clients and merchants have also adopted the terminals for this payment method.
In order for mobile payments to be more appealing than contactless cards, wallets would need to offer additional features to attract consumers. This includes the ability to pay with mobile devices while on mass transit, hold loyalty points, verify identity, and enable personal-to-person payments.
The next step in digital wallet functionality could be in a different direction than the existing mobile payment options, such as Apple Pay, Android Pay, and Samsung Pay. China is a good example of how digital wallets could be developed. This will make the ACCC decision about Apple Pay look rather dated.
Digital wallets must offer more than just contactless payment in Australia. David Crosling
China is a growing market for digital wallets.
Chinese Government Statistics state that by 2016, 750,000,000 Chinese were online, with 95% accessing the Internet via their smartphones. China’s digital payment market was then 50 times larger than the United States.
This can be explained in part by the absence of viable alternatives for non-cash payment methods in China. The credit card penetration rate is lower than other developed markets. Debit cards are not contactless, and therefore require authentication at the point of sale.
China has moved directly from cash payments to mobile payment, and missed the opportunity to move into payment cards.
These companies have a vast and protected domestic market at their disposal, as well as an almost complete absence of data regulations. These companies enjoy a safeguarded and enormous domestic market and an almost complete lack of data regulation.
They have moved from just offering instant messaging platforms to becoming payment providers through Alipay and WeChatPay. The apps allow consumers to scan QR codes from the point-of-sale terminals or smartphones of merchants to complete a purchase.
These apps can be used to send money from one person to another. WeChat, the social media app from Chinese company Tencent, has expanded its functions to include music streaming, taxi bookings, photo sharing, and news services.
Its more than 800 million active users have less and less reason to leave the integrated platform. WeChatPay has also been accepted more and more by brick-and-mortar merchants in China.
WeChat plans to expand into the UK, Europe, and the United States. It is also interested in entering markets in Southeast Asia and the United States. The company’s expansion plans are partly driven by the increasing number of Chinese tourists visiting other countries.