Apple fights payment technology case against banks
Apple has told Australia’s competition regulator that attempts by big banks to access the iPhone’s payments hardware without using the Apple Pay app are futile because security and user experience for customers around the world will be compromised. Apple says that Commonwealth Bank of Australia, National Australia Bank, Westpac, and Bendigo and Adelaide Bank are acting like a cartel, and trying to direct more customers to their own proprietary digital wallets. Around 3,500 banks around the world have agreed to pay some fee to Apple for facilitating payments through Apple Pay.
"Why? Because Apple Pay, Android Pay, and Samsung Pay have the capacity to permit rapid and simple switching between cards of different issuers from a single mobile wallet. These wallets promote competition between cards at point of sale – competition which is not in the interests of issuers but is in the interest of consumers."

The ACCC is due to decide this month whether CBA, NAB, Westpac and Bendigo should be able to collectively negotiate with Apple over access to the iPhone's NFC radio. The banks also want to talk about being able to pass on to their customers any fee which Apple demands be paid for the use of its proprietary security infrastructure.

ANZ Banking Group broke ranks with its big bank competitors in April, agreeing to give up to Apple some of the interchange fees it earns for issuing payments cards. At the bank's full-year results last week, CEO Shayne Elliott said the move had helped drive customer acquisition to an all-time quarterly high. The level of fees are confidential but thought to be a few cents per $100 of transactions.

Around 3,500 banks around the world have also agreed to pay some fee to Apple for facilitating payments on the iPhone but the other big Australian banks are standing firm. Speaking after delivering Westpac's full-year profit results on Monday, chief executive Brian Hartzer said Apple is "trying to use their hardware position to exploit an investment in a payment infrastructure the banks have made, and I don't think that stands up to scrutiny.

Sensitive payment data is stored in the iPhone's secure element. Bloomberg

"I would love to see Apple Pay in this market, but it has to be on reasonable terms, and I don't think preventing banks from allowing their own apps [to use the NFC chip] are reasonable terms."

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But Apple said its "tightly coherent hardware and software" is central to its corporate philosophy and any move to create a less secure, less seamless experience for its customers "is not a remotely plausible scenario".

Yet, in what appears to be an olive branch for the banks, Apple said it is open to allowing bank proprietary wallets to use the NFC antenna so long as the bank wallet is routed through Apple Pay and the phone's security infrastructure. It is understood US bank CapitalOne in currently routing its own proprietary wallet through Apple Pay. But This will still require the bank to strike a commercial deal with Apple to pay a fee.

Apple believes its hardware is much safer than "host card emulation" (HCE) technology used by the Google Android system, where payments go through a cloud-based "application processor". Apple attached to its ACCC submission a recent Europol report identifying emerging cyber threat targeting NFC access on Android devices. "Apple cannot in any circumstance permit such a compromise to allow vulnerability to arise in its own systems," it said.

For Apple boss Tim Cook, security and seamless customer experience are core qualities. DAVID PAUL MORRIS

Apple also said because NFC technology only allows one-on-one pairing with a particular application, if a bank app got access to the NFC controller, iPhone users would have to manually change the settings in the device each time they shifted between the bank wallet and Apple Pay, which would compromise its consumer experience.

Apple's submission also shows it is worried that banks will use fees on Apple Pay to push their customers towards their own wallets. "Apple would expect that charges would be imposed if the banks were in a position to do so," it said.

"Apple does not wish to risk Apple being discriminated against, as it emerged in Australia, by banks who wish to promote their own mobile wallets for their own cards exclusively in preference to Apple Pay."