Explained: Apple and Google facing payment-system regulation as RBA handed new powers

New laws provide the RBA with new powers to regulate Apple and Google Pay.

New laws provide the RBA with new powers to regulate Apple and Google Pay. Photo: TND

Tech giants Google and Apple are facing new regulations on their popular digital wallets, with the Albanese government moving ahead with reforms that will bring them into payment-system law.

Draft legislation released this week detailed plans to allow the Reserve Bank to regulate “emerging payment systems” like digital wallets, while a new ministerial designation will open the door for Treasurer Jim Chalmers to direct additional scrutiny towards certain providers.

Chalmers said this week that the government was “addressing the risks” posed by new digital payment services, though he did not specify any.

“The Plan sets out a vision for a modern, world class and efficient payments system that is safe, trusted and accessible, enabling greater competition, innovation and productivity,” he said.

“The exposure draft legislation and explanatory materials can be found on the Treasury website with submissions welcome until 1 November.”

The reforms are largely directed at concerns raised by major banks about the increasingly influential role that Apple and Google have in the payments ecosystem through digital wallets.

The major banks have claimed the tech giants are acting as gatekeepers to digital payments by leveraging their dominant positions in the smartphone market to creep into the payments space.

Banking Association figures have claimed as many as two-thirds of adult consumers aged under 35 are using digital wallets to make payments, underscoring the growing influence of tech giants.

Earlier this year the Commonwealth Bank’s boss sensationally claimed that Apple’s stranglehold on the smartphone market was similar to the dominance of Microsoft in the 1990s for home PCs.

But the need for digital wallets to be regulated as payment systems has been rejected by tech giants, who have argued they aren’t payment providers and merely host services that operate in the industry.

University of Western Australia senior lecturer David Glance said the reforms could lead to a range of potential changes.

“In principle, Apple and Google could be regulated, which essentially just means that their costs go up and potentially they will have to adjust functionality in their apps to accommodate Australian law,” he said.

“Worst case for Apple is being forced to open access to the near field communication (NFC) functionality in iPhones – what the Australian big banks, CBA in particular, have been pushing for in years.

“All of this is possible with the inclusion of digital wallets under the regulatory authority of the RBA.”

RMIT University associate professor Angel Zhong supports the reforms, saying they come as “no surprise” given growth in digital payments.

“Greater power comes with greater responsibility,” Zhong said.
“If these digital payment providers constitute a crucial component of the payment ecosystem, the RBA should have the power to oversee them similar to other participants in the payment ecosystem.
“This is a critical step towards a secure and safe cashless society in Australia.”

Reforms poise regulators to act

The new rules would give the RBA the power to regulate prices charged by digital wallet providers to payment operators like banks, and also request information about their operations.

But beyond that it doesn’t do much else; in other words the reforms are about setting the stage for regulators to intervene in the digital payments space as deemed necessary rather than specifying how such an overhaul would work.

For example, an explanatory memorandum for the draft Bill explains that even if Google and Apple were designated as regulated entities, that doesn’t necessarily imply any new rules.

In other words, the Albanese government is acting on recommendations from an earlier payment system review that found existing laws failed to cover the breadth of the fast changing industry.

That will now change so that regulators are better poised to intervene if they identify activity that could harm consumers, competition or the “national interest” more broadly.

Topics: Consumer
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