Following the intervention of the Australian Competition and Consumer Commission (ACCC) to resolve the spat between Australian banks and Apple in March, one might have expected that a period of plain sailing was on the horizon.
However, Apple has reignited tension between itself and Australian FIs by banning Westpac’s messaging payments app after just three months of the service being available. The Westpac keyboard function, which allowed customers to access payment features directly while using third party social messaging apps including Facebook Messenger, WhatsApp, Twitter, Snapchat, WeChat and SMS, will be removed from the Apple store in July.
After the March ACCC ruling preventing major banks in Australia from boycotting Apple Pay, the company may have considered it had the upper hand regionally. However, Apple may need to play well with others, or risk incursion from competitors.
The Westpac Banking Corp. logo sits atop the company's Melbourne Head Office Branch in Melbourne, Australia, on Monday, May 2, 2016. Westpac, which increased provisions for soured loans to the highest in six years, said it expects consumer defaults to rise in the six months to Sept. 30 as the mining slowdown leads to job losses in some parts of Australia. Photographer: Carla Gottgens/Bloomberg
Carla Gottgens/Bloomberg
Aussie idiosyncrasies
On the consumer side, the Australian technology landscape is pretty similar to the U.S. The iPhone is the most popular handset in Australia, but due to the numerous offerings from Samsung, LG and others, the most common OS is Android. According to Statista, the Australian smartphone market was made up 56% Android phones and 42% iPhones in January 2017.
On the merchant side, Australia has been an early and voracious adopter of contactless cards. One specific catalyst to adoption occurred in 2014 when all major issuers agreed to phase out signature for PIN at the POS on 1st August 2014. The change required PIN authentication for all POS transactions under AUS $35. However, there was an exemption for contactless card transactions, which had a threshold of AUS $100 before a PIN was required. The speed and convenience of contactless without PIN, coupled with issuer and governmental backing to drive awareness has resulted in skyrocketing levels of contactless adoption, with over 82% of consumers making a contactless transaction weekly in 2017.
The wild success of contactless cards in Australia presents a barrier to POS adoption for third parties such as Apple and Google. Issuers argue, why pay 15 basis points per transaction for a technology that effectively replicates bank issued cards that are already seeing high degrees of traction? However, not all payments occur at the checkout...
iOS 11 revelations
At the June 2017 WWDC conference held by Apple, the wraps came off the widely rumored P-to-P service layered into iMessage. It was also revealed that the P-to-P function can draw funds from Apple Pay, but it doesn't require that the recipient be enrolled in Apple's mobile wallet. The funds can instead go onto a virtual Apple Pay Cash card (a prepaid account from Green Dot).
With Apple’s inroads at the POS in Australia falling short, it is entirely possible that Apple is retrenching to its own app store, an ecosystem it can control. The removal of the Westpac payment capability for third party messaging apps directly shuts down any potential competition that iMessage P-to-P payments might face and sends a clear message to Westpac’s peers: Social payments do not belong to them.
Repercussions
Westpac is Australia’s second largest bank and makes up one of the big four (ANZ, Commonwealth and NAB) Australian banks, with combined assets of approximately $960 billion, about equivalent to the entire Australian GDP. It may not be advisable to further alienate this or other Australian FIs given that Apple Pay remains highly reliant on issuer relationships for sustained growth. Neither is Apple the only third party offering mobile payments in the region. Although late to the game, Android Pay launched in Australia last year with 28 banks participating from the outset - far exceeding initial FI involvement for both Apple and Samsung Pay. Last week, Google announced a high profile consumer incentive campaign to drive adoption, offering AUS $1.6 million in prizes to encourage enrollment and adoption of Android Pay both at the POS and online.
For Apple to gain a foothold in Australia, it may make sense to enter more of a ‘co-opetiton’ type relationship with the locals rather than simply scorching the earth.
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