RBA’s Countdown to Apple Pay Regulation
The Reserve Bank of Australia (RBA) is moving towards the regulation of Apple Pay, a development that is anticipated to receive a favourable response from banks. This follows the recent enactment of the Payment Systems (Regulation) Act reforms by Parliament. The industry is urging the RBA to utilise its expanded powers, particularly regarding mobile wallets.
Australia’s Rising Mobile Wallet Spend
According to a recent report from the Australian Banking Association (ABA), domestic mobile wallet spend has surged from 2.4 billion transactions in 2022 to over 4 billion transactions in 2024. Mobile payments now account for at least 40 per cent of all card-based payments, highlighting the growing influence of this payment method.
Call for Consideration of Tech Giants Influence
The ABA has expressed concerns about the increasing power of multinational technology and payments giants and their impact on domestic companies that fund and maintain Australia’s payment systems. The ABA, in its submission to the RBA during the ongoing consultation around Merchant Card Payment Costs and Surcharging, has argued that the most consequential interchange reset in 20 years should not proceed without considering this factor.
Apple Pay and the RBA
Apple Pay has been outside the RBA’s purview thus far. However, this is set to change. Michele Bullock, the RBA governor, has indicated that the bank will be conducting a review of Apple Pay and will soon begin consultations.
The banking industry is keen for the RBA, as the payments system regulator, to bring mobile wallets under regulation and possibly reduce industry costs, particularly in relation to Apple Pay.
Fee Concerns and the ABA’s Proposal
The ABA has raised concerns about the fee burden on card issuers, stating it’s significantly higher than the RBA’s averaged cost estimates used to justify the proposed caps on interchange. The ABA’s submission to the RBA emphasised that the increasing share of spend attracts additional, non-negotiable wallet charges that issuers cannot influence but must fund.
The ABA has specifically pointed out that Apple Pay, which is the only wallet in the Australian market that currently charges issuers directly, tends to divert a substantial portion of the interchange earned on wallet transactions offshore. This creates a situation where issuers face payment economics below cost, particularly where consumer adoption is increasing, and bargaining constraints limit any ability to re-price or negotiate those inputs.
Implication for National Interest and the Call for Reform
The ABA has argued that the implications for national interest are neither abstract nor trivial. Banks fund and maintain critical payments infrastructure under prudential and operational obligations that non-bank platforms do not bear. It believes that for the system to be resilient and efficient, reform must be competitively neutral and responsive to market asymmetry. Therefore, changes to interchange should not be made in isolation from the fees and business models that are now driving the system’s economics.
The ABA is of the view that these marginal costs need to be put in context. Citing the Frontier Economics report, the ABA notes that public estimates place Apple Pay fees at 15bps on credit transactions. Under the RBA’s proposed 30bp interchange cap, this suggests card issuers would earn no more than 15bps every time Apple Pay is used, while at least half the interchange paid by merchants flows offshore. The ABA finds it difficult to reconcile the rationale of such an approach.
Regulatory Action on Mobile Wallets: A Lengthy Process
If the RBA decides to take regulatory action on mobile wallets in general, and Apple Pay in particular, it would be a lengthy process involving multiple rounds of consultation. However, this would be a significant step forward in the regulation of digital wallets and could have widespread implications for the payments industry in Australia.
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