Parliamentary Joint Committee on Corporations and Financial Services : 27/07/2021 : Mobile payment and digital wallet financial services (2024)

COMYN, Mr Matt, Chief Executive Officer, Commonwealth Bank of Australia [by video link]

NAFFAH, Mr Albert, General Manager, Payments and the Data Economy, Commonwealth Bank of Australia [by video link]

Committee met at 09:30

CHAIR ( Mr Wallace ): I declare open today's hearing of the Parliamentary Joint Committee on Corporations and Financial Services. Today marks the second day of the inquiry's public hearings into mobile payment and digital wallet financial services. I remind all witnesses that, in giving evidence to the committee, they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee.

The committee prefers all evidence to be given in public but, under the senate's resolutions, witnesses have the right to request to be heard in private session. If a witness objects to answering a question, the witness should state the grounds of the objection and the committee will decide on whether it will insist on an answer, having regard to the ground which is claimed. I would remind any and all media that may be watching or listening to these proceedings that they are obliged to ensure that their reporting of today's proceedings are a true and accurate record of the proceedings.

On behalf of the committee, I would like to thank witnesses here today for their time and cooperation. I now welcome representatives of the Commonwealth Bank of Australia by video conference. Thank you for appearing before the committee today. Information on procedural rules governing public hearings and claims of public interest immunity has been provided to witnesses and is available from the secretariat.

Mr Comyn : Albert and I are pleased to address you today on the topic of digital wallets. We welcome the committee's interest in this important area of policy. Policy-makers here and in peer economies around the world are contending with the impact of rapidly changing technology. Digital wallets are an excellent example of how technology is challenging the traditional way we think of financial systems. It is vital that the Australian parliament continues to inform itself of these complex issues. Digital platforms deliver substantial benefits to consumers, businesses and the broader community. Not only have they revolutionised how we receive information but they also allow buyers and sellers to engage with convenience in a recognisable framework which becomes more usable as each new user is added. Commerce enabled by mobile device is not only popular; it has grown and will continue to grow substantially. We forecast that the majority of in-store payments in Australia will be made via a digital wallet by the end of 2021.

Accordingly, as these business models continue to evolve, strong competition will be crucial to ensure the benefits that flow from these technologies result in better customer outcomes. The ACCC has been investigating the impact of digital platforms on competition at the request of the government, finding in April that it had concerns regarding the market power of digital platforms within their app marketplaces. This is consistent with our experience. Australians increasingly make purchases through mobile devices. Manufacturers of mobile handsets and associated software set the terms in which third parties can offer these app based services, particularly with respect to payments for and via services. They can also restrict apps that provide services that compete directly with those supplied by the manufacturer of the mobile device.

Given the rapidly expanding market power of the largest app store providers, companies wishing to reach consumers must, by and large, comply with the terms set by the platform providers themselves. If they do not, they are electing to be absent from the ecosystem, forgoing a primary channel preferred by their customers. The ability for mobile phone providers to restrict competing services' access through the apps store will inevitably lead to shortages of services provided by markets on mobile apps. These distortions will only intensify if left unaddressed. As one example, on Apple mobile devices, customers wanting to make a payment with a credit card in-store must use the Apple wallet app. The features of that app are set by Apple, and the ability to compete is restricted because Apple restricts access to the NFC chip. If another party, be that the Commonwealth Bank or a new entrant fintech, develops an additional wallet service and wants to offer it for in-store payments in competition with Apple's wallet, it cannot do so on an Apple device.

On android systems, by contrast, multiple wallet apps coexist. At last count, around eight were available in Australia alone. These include ours as well as a number from our competitors, both new and established players. This provides Australians who own android devices with choice and forces Google and others to compete for those consumers' business. Australians who use Apple devices should be able to make their own decisions about which features they prefer in a wallet app, as android users can, yet currently they cannot.

While the digital wallet is an obvious example, the greater distortions over time will be harder to see. These will include innovations that are never brought to market on either of the major operating ecosystems. We acknowledge the discussion of the appropriate remedies is a complex one, and there are a number of streams of work within government and parliament to consider options. However, as technology evolves, it will be important that actions are prevented that have the effect of significantly lessening competition, particularly from platforms of paramount significance for competition across markets. In line with the findings of the ACCC, it appears likely to us that additional legislative powers may need to be conferred, possibly with a view to designating the largest platforms, or creating obligations or countervailing factors that reintroduce competitive tension. There may also be lessons that can be drawn from the experience of the media bargaining code in this context.

In closing, I want to thank the committee for its interest in this area. Technology is rapidly changing the way Australians live their lives and it is important the business community continues to work closely with the parliament so that this change ultimately drives better customer outcomes and strengthens the Australian economy.

CHAIR: Thanks very much, Mr Comyn. I will kick off with a few questions before I throw to my colleagues. It appears from your submissions and your opening statement that your concerns about the current digital framework is pretty much well levelled at Apple. Would that be fair to say?

Mr Comyn : We have a set of specific concerns regarding Apple, and certainly their major competitor, Google, have much more of an open architecture approach.

CHAIR: You say on page 7 of your submission:

Digital wallet services are currently subject to inconsistent regulatory treatment, with some providers operating outside of the existing formal and self-regulatory frameworks that govern the payment systems in Australia.

Do you want to expand on that at all?

Mr Comyn : Yes. Mr Naffah is an expert in the payments area, but I suspect we're referring to the ePayments Code and the fact that some of the digital platform providers are not signatories to that. I think we're also recognising the broader point that, when we look at the payments landscape, certainly it has evolved quite considerably in recent times, and there is clearly a lot of work that's underway both through the Farrell inquiry and just looking at whether the overall approach to regulation and legislation is appropriate, at whether the settings are appropriate with the Reserve Bank's mandate, at whether the Treasury and the parliament should play a broader role, and at the coordination, which is inevitably across a number of parties. Of course, the ACCC has done some important work in this area as it relates to competition. Albert, do you want to add anything to that?

Mr Naffah : I think that's a good summary. There's also the Australian Payments Network, which is a self-regulatory body that sets technical standards as well as some other rules to ensure some consistency as well as safety of the broader Australian payment system. It's not just banks; many of the participants in the payment system are members of that association, addressing current and prospective issues. However, it is obviously a voluntary body. It is a self-regulatory body, and some of these big technology platforms have chosen not to participate in those arrangements, which creates, I guess, some inconsistency in the way they participate as significant players in the broader payment system.

CHAIR: Is that because they consider themselves to be a facilitator rather than a provider? Do they consider that they basically provide an app which enables digital commerce to be conducted rather than being a provider of finance, for example?

Mr Comyn : Yes, I suspect they rely on a number of carve-outs, including the ones that you mention. They see themselves absolutely as facilitators. Traditional definitions of payments and the payments landscape were framed many years ago, when there simply wasn't the emergence of big tech and alternative payment providers. They have also, I think it's fair to say, shown a lack of interest in signing up to some of those regulatory codes such as the ePayments Code, for their own specific reasons.

CHAIR: Mr Comyn, do you think that the large players in this space such as Google and Apple have got unfair regulatory carve-outs?

Mr Comyn : As you mentioned in the opening question, Chair, I think there are a broad range of issues that could and should be examined by the parliament over time. I do think that payments are one of the most critical areas within financial services, and I think Australia having a clear view over the sovereignty of the financial system and payments is an important element of that. We have, in particular as it relates to payments, focused some of our efforts on gaining access to the NFC antenna, particularly on iOS devices. Apple restricts access to that. Google, as I said, has a much more open architecture and allows multiple competing wallets, and it does not charge on the Android operating system. A lot of our focus has been in that particular area. Apple itself has a very dominant position in the Australian marketplace. It's approximately 54 per cent of device handsets. As I mentioned in the opening, we believe that tap and pay at point of sale through a digital wallet will be the majority of payments by the end of this calendar year. About 80 per cent of those are through Apple.

CHAIR: I should declare that I'm a customer of NAB, like millions of other Australians. I just wanted to put that out there. From my own personal experience as a customer of NAB—and I have a number of accounts with CommBank, and they're all listed through my internet banking account—I'm able to use Apple Pay using my CommBank cards, so what's the problem?

Mr Comyn : Let's contrast the solutions that are available on the Apple device and the Google device. You mentioned your relationship. It would be remiss of me not to say that I'm sure we could help you switch over to the Commonwealth Bank.

CHAIR: Too late.

Mr Comyn : It's never too late. Regardless of your card issuer, you're able to provision inside the Apple Pay wallet that you can only make a payment through the Apple Pay wallet. Apple say that they make APIs available, but all they simply do is direct everything through the Apple Pay wallet, so that's the single place on the Apple iOS device where you're able to make contactless payments.

CHAIR: So what? What's the consequence of that?

Mr Comyn : It means that there can be no competing wallets on the iOS operating system. As I said, in Google there are at least eight that we know of. We have one and I think NAB has one as well, so if you had an android operating system you'd be able pay natively within the actual banking application. I think it hinders the ability of new entrants to come into the market and develop competing wallets.

Mr Naffah can expand on this. As a business we've recently invested in Whitecoat, which aims to simplify the whole payments process during health care. If you were to make a payment at a healthcare provider—let's say a physio—we could automatically lodge both the Medicare and the healthcare refund with a single tap. You can't do that on an Apple device because you cannot get access to the NFC—purportedly because of security reasons. One thing we should also note is that we have not in our experience seen any difference in the fraud experience between the Google or android operating system, which uses host card emulation as a way to access the mobile wallets, and Apple Pay.

Mr Naffah : I might just expand on some of those examples to give you a practical understanding of the 'so what'. Matt talked about the recent investment we've made in Whitecoat, which is a health tech business. You're probably aware that one of the more complex parts of the economy is the way that medical providers are paid. We're working on creating a digital experience to both providers and their patients, irrespective of whether that is by Medicare, private health insurance, workers compensation or the NDIS, or out-of-pocket payments that occur from time to time—or a combination of two or more of those. Our digital solution will improve payment times for providers and remove a bunch of manual processes that are currently involved in this ecosystem. The best way to deliver that solution is via a patient mobile app, which allows them to view and authorise all their claims and select their preferred payment option. In many cases that will require the patient to tap their phone against the provider's terminal sitting on the counter in the reception to finalise the payment. As Matt articulated, we can't enable that today. It's still very much a fairly manual process.

I'll give an example of what we can do today. We offer a bunch of things. Customers visit the CommBank app to do a bunch of things that they can't in the Apple wallet. For example, both before and after they pay, they can check their account balances. Many customers operate several accounts to help them manage their budgets. They name them 'rent', 'food' and 'holiday', for example. These aliases they give their accounts don't appear in the Apple wallet. Rather, they appear as three identical card images, increasing the risk of them making the payment from the wrong account, potentially resulting in their missing out on bonus interest, for example, or having subsequent payments declined for lack of funds.

We also allow them to store their store loyalty cards so they can present their Flybuys card when they're shopping at Coles, for example, or from the CommBank app. Again, at the moment, for them to facilitate payment, they have to exit the CommBank app and go into the Apple Pay wallet. That creates additional friction and doesn't give them the sort of transparency that we think we're able to deliver.

Mr Comyn : Perhaps just another couple of quick so-whats, if I may, Chair. The thought that a single provider could have 80 per cent market share in an individual market is usually cause for concern. I'd be the first to say they make fantastic products, but this is a company whose market cap is double Australia's gross domestic product and that I'd say—certainly in the context of tax receipts—makes very little contribution to Australian government receipts. I think both the rise of market power and how that market power is exerted—not just in Australia; clearly, this is an issue that is being studied, particularly in parts of Europe, but I'd also note the work of the ACCC, which, under Mr Sims, has been prepared to take a courageous stance around digital platforms in some areas—is and should be of growing interest to Australia's parliament.

CHAIR: Thanks, Mr Comyn. I need to correct myself. When I gave my disclosure, I meant to say that I'm a customer of the CBA, not the NAB. I just want to correct that.

Mr Comyn : Even better! Thank you.

CHAIR: A moment ago you said that you thought that Apple had a market share of 80 per cent. Are you talking about that being in the digital wallet space?

Mr Comyn : In digital wallet payments, yes, it's 80 per cent.

CHAIR: That's at odds with the advice or the submissions that we've received to date, which put the market share of Apple at around about 54 per cent.

Mr Comyn : The 54 per cent is of the handset devices. It is 80 per cent in terms of the digital wallets. When we see tap and pay at a point-of-sale terminal, 80 per cent is going through Apple Pay with multiple issuers but a single Apple Pay digital wallet, versus 20 per cent for, let's say, Android and all of the competing wallets. So Apple have a very significant market position.

CHAIR: If you have any data that you'd like to share with the committee that supports your contention of 80 per cent market share, I'm sure the committee would be very happy to receive that. If you could, take that on notice.

Mr Comyn : Yes. I'm happy to do so. We can show you, as you'd expect, that there's been enormous growth, particularly over the past 12 months. We've seen in the order of 90 per cent volume growth and more than 100 per cent value growth over the last 12 months. We'd be happy to share that data with the committee.

CHAIR: I'm going to assume that your concerns about significant market share—you say it's 80 per cent in this space for Apple—are that this has broader risks to the economy through things like fees and charges that are made on the bank. Would it be fair to say that?

Mr Comyn : Yes, that's right. I think that, given the way that Apple participates, it's well known that they charge issuers around the world a percentage fee. We're not able to disclose that, but I think that under a reasonable regulatory information request we can. Google does not charge for such a service. At the same time, Apple makes no contribution to the infrastructure investments that are made at an overall payments level, which at an industry level—and you'd be able to correct me—would probably be in the order of $2 billion over the past five or six years. Apple have no liability in and around fraud. They have an extremely good business.

Mr Naffah : I think one of the other risks is that, given they're providing such vital infrastructure, supporting 80 per cent of digital payments, which will become the majority of the way people pay in store, there's a risk that's being created there. It's the single point of entry for payments into the Australian economy, and, again, they're not subject to the same regulatory standards by APRA, who impose standards on us around technology investment, resilience and availability, for example. So there's a significant systemic risk there that's created as that ecosystem becomes the way that device bolts onto the way that retail payments are conducted in Australia.

CHAIR: If I understand you correctly, the CBA's concerns are not just based on the fees that you're paying today—and when I say 'you' I mean the card issuers or banks in general. The fees that Apple are charging today seem to me to be relatively reasonable but, with the market share that you're talking about, over time those fees and charges could be cranked up, and our entire digital payment system in this country would effectively be held hostage to the whims of the likes of Apple—is that correct?

Mr Comyn : That's correct. Our principal area of focus in this particular domain of digital wallets has been access to the NFC antenna, which would enable multiple competing wallets on an Apple or iOS device. Apple have refused to provide that. In some international markets they've been directed to give access to the NFC on a fair and reasonable basis. From a competition perspective—and I think the RBA has reflected this over many years—something may become essential, in the same way that offering Visa and Mastercard did many years ago, and hence they started to regulate interchange. I think Apple Pay has probably become largely essential for financial institutions. It's highly unlikely that anyone could successfully compete with Apple's market position with an 80 per cent share at the moment, but without access to the NFC it's simply not even possible to have a competing service.

CHAIR: Thanks very much.

Mr HILL: My question is probably one to take on notice. In terms of transactions declined from personal accounts, the bank would presumably be able to collate data on when someone seeks to make a withdrawal and it's declined. Would you be able to take on notice what percentage come from BNPL providers in personal accounts?

Mr Comyn : I would be happy to.

Mr HILL: Thank you. Could you provide any kind of breakdown in colour and movement about that? You get the point about our curiosity and what we're trying to collect. I have a specific question on that previous point: what percentage of the interchange fees that you would ordinarily receive when someone processes a payment is taken by Apple?

Mr Comyn : One of the features of dealing with Apple is very, very strict documentation and nondisclosure agreements. I think we're restricted from answering your question. My understanding is that with a regulatory information request we would be able to provide that. We'd certainly be happy to, provided we're not breaching any laws.

Mr HILL: I think the RBA said yesterday that they may have the power to get some of that information via the banks.

Mr Comyn : That's our understanding: if the RBA requested it from us, we could look it up.

Mr HILL: Could you say 'most of it', or are you just not able to comment at all?

Mr Comyn : I'd be worried about dimensioning it.

Mr HILL: I understand. That is interesting in itself, given some of the evidence we've heard. How large is Apple in terms of world banks? You said that it's got a capitalisation larger than Australia's GDP. How does it compare to world banks?

Mr Comyn : It's huge. Its market cap of US$2½ trillion, or A$3.4 trillion, would be 35 per cent more than the market capitalisation of every Australian ASX company combined.

Mr HILL: How much negotiating power did you have when you were negotiating with Apple? In your submission, at the end, you talk about the right policy and regulatory settings being needed to create a level playing field. Is it not a level playing field? What was the experience of trying to negotiate with this behemoth? Do you negotiate or are you told what the answer is?

Mr Comyn : It is very challenging and at the extreme. I don't think that's a feature that's reflected only among financial institutions. I suspect telcos globally may have had a similar experience with distribution of their phones. They make great products, they're an enormous company, they have tremendous market power and they use it.

Mr HILL: I'm not hearing any evidence that it was a real commercial negotiation in terms of being equal to equal or a level playing field.

Mr Comyn : No, even as you would see in Apple's submission, they go to pains to say that in each market everyone pays the same. To be fair to them, there isn't a negotiation on commercial terms. Effectively, you sign up to very onerous obligations to even have a conversation and a negotiation.

Mr HILL: Final question; I'm mindful we're all racing through. At the end of your submission you talk about the regulation and you highlight three areas—consumer protection, operational resilience and payment system efficiency—and propose that Apple should face the same scrutiny that's applied to other payment services so the RBA can fulfil its responsibilities. Could you just elaborate a little more on those areas of regulatory reform that you're pointing us towards, and particularly the payment transparency issue given you can can't answer the question we just asked you?

Mr Comyn : Yes. Albert, you should feel free to comment. I think this is one of the important areas that has been examined by Scott Farrell's review, which hasn't been published. Looking at the overall regulatory architecture, it may be necessary to increase the powers for the Reserve Bank to expand beyond their traditional remit. I would support the Treasury having a broad role in setting the overall landscape and regulatory architecture on behalf of the country. I also think that the ACCC has an important role to play in this area as well. They clearly have pursued their competition mandate. They have been prepared to take on some big topics in digital platforms and media bargaining. It may well be appropriate for them to do some specific work.

Ultimately, as I think you have already identified, there is a bit of overlap between individual regulators. It is a very complex space and we are really only examining a small element of it today as part of the digital wallets. But I do think it's an incredibly important area, obviously for the Commonwealth Bank but also more broadly and over the long term. I think it's a credit to the parliament that you're focusing on it through this inquiry.

Mr HILL: What benefits would transparency in pricing in particular have? For example, if you were able to answer that question or the RBA were able to automatically collect that data?

Mr Comyn : Transparency is a good thing as it relates to pricing. Price discovery is one of the fundamental tenets of that. Part of our initial application to the ACCC many years ago—the market has changed substantially since we made that initial application—was around being able to embark on collective bargaining, which we are unable to do, and some of that was just direct access to the NFC. I think there are multiple aspects that could be examined individually and in aggregate that would at least try and provide some competitive neutrality to allow companies to compete, knowing that they will be competing against an incredibly well-resourced company on a global basis.

Mr HILL: Is that monopolous? Are we at risk of entering a platform tyranny?

Mr Comyn : They certainly wouldn't agree with the characterisation of being monopolous.

Mr HILL: They're not here, though; you are.

Mr Comyn : I think there are definitely examples where we have seen self-preferencing. You have seen that play out in multiple cases around the App Store, and particularly payments. You see it in terms of the payment services for app providers. You see it with access to the NFC chip. We have seen it with access to the ultra wideband, which is an improvement on bluetooth that's mentioned in the ACCC submission; Apple doesn't provide access to that capability in their phones because they want to be able to deliver their own product, the smart tag product, uniquely. They did the same thing with the previous headset jack. It's usually dressed up around security concerns, but generally I think you can confidently say there has been evidence of self-preferencing over a reasonable period of time.

Mr HILL: I will leave it there but if you could take on notice to provide any additional information. You made an interesting comment earlier regarding the fact that you don't see any difference in fraud statistics between Google Pay and Apple Pay. We could seek that information from other banks and providers because it is a really interesting insight to help evaluate their claims that somehow this is all necessary for security—as you say, 'dressed up in'.

Senator SCARR: Thank you, Mr Comyn, for attending today. If I could put to you a series of propositions from Apple's answers to questions on notice which were provided to the chair and which are actually published on this committee's website, for anyone who is watching this debate. I'm interested in your response to a series of these propositions. The first is to directly quote from Apple's submission on pages 1 and 2 in their answer to question on notice No.1. It says:

Contrary to some claims in some of the submissions, Apple provides banks with access to NFC functionality on Apple devices. … The architecture is available to all banks in Australia on fair and non-discriminatory terms. All banks pay the same fees regardless of size and each bank is presented equally in the user experience.

If I could have your response to that, please.

Mr Comyn : I agree with the last two points around equal access, the same fee. I don't agree with the proposition around the fact that they provide access to the NFC. I think that is a very selective interpretation. Effectively, they allow access insofar as it only allows a redirect into the Apple Pay wallet; they don't allow competing wallet providers. They don't allow access to the NFC antennae through what should be required is their embedded secure element, which is a different way of paying on an iOS device versus Google. So it is a very limited set of features and, effectively, everything routes back through to Apple Pay. I don't know if Albert has anything to add.

Mr HILL: The next one I'm putting to you is from page 2 of their answer to a question on notice:

Innovation is supported as third party apps can directly initiate contactless payments without having to pass sole control of the NFC architecture to a single bank app. Banks can also leverage Apple’s APIs to make their iOS apps fully integrated with the payment experience and create differentiating experiences for their customers.

Mr Comyn : I would make similar points. Albert, if you want to add, please do. I would say the ability to make differentiated experiences is very limited because the endpoint is always the same; it is the Apple Pay wallet. I think they go on to quote that some of the buy-now pay-later providers have leveraged some of those APIs. If you actually go through that experience, it enables you to provision a card and set it up in the Apple Pay wallet. I think that is what they are actually referencing as a point of differentiation.

Mr Naffah : That is correct. It is exactly the same as the first point. You are forced to exit your bank app or your fintech app, your buy-now pay-later app, into the Apple wallet. That is a completely controlled experience; there is no differentiation. In fact, there is confusion potentially caused because other card options are shown up. It might not be the actually the one that you thought that you had set up as a default in the initiating app and it creates additional steps, potentially, and some friction. So while you can bridge the apps, it certainly doesn't allow you to undertake the whole experience within the banking app.

CHAIR: Mr Naffah, in your earlier evidence, you talked about the inability using the Apple Pay system for the cards to have aliases. What is the justification for that? It seems to me to be utterly bizarre that you don't have the ability to be able to call a card 'home account' or something like that.

Mr Naffah : I don't know if there is any justification. They do want to control essentially everything in that wallet, so there is very little either the user or the financial institution can do to provide any form of tailoring for the customer. They have very tight control over the entire experience. Giving the customer the ability to name a card anything other than the four-digit identifier on the card is not an option.

CHAIR: Is that something that you have fed back to Apple, that there should be changes for?

Mr Naffah : We give them constant feedback. We have regular opportunities to do that, as a party that we rely on very heavily. It is a globally set experience. They listen to us, and they say they will take it back to head office. I don't recall any of that feedback coming back in any changes.

CHAIR: Thanks.

Senator SCARR: This one is probably a bit provocative, but I'm very interested in your response to this. I'm quoting from page 3 of Apple's submission to question on notice No. 1, which is available on the committee website:

Apple designed a solution that provides consumers with a seamless experience that minimises friction when using the service while enabling easy switching between different payment solutions.

… ……

It is exactly this ease of switching payment cards in Apple Pay that some banks would want to prevent by introducing more friction for consumers. They would prefer Apple changes its architecture to a solution that gives them control of the NFC functionality on Apple devices to make switching between different payment solutions more cumbersome. This undermines consumer choice and harms competition between banks—especially smaller banks and new entrants into the payments industry.

Could I have a response to that proposition?

Mr Comyn : It's somewhat an argument for convenience. No-one is suggesting that Apple Pay shouldn't exist as a wallet. All we've ever been seeking is to be allowed competing wallets, and, ultimately, to let the customer decide what is the best experience. We've seen across multiple markets that the ability to compete will drive a more differentiated experience, and, ultimately, the best customer experience will win. At the moment it's not possible to even compete.

Senator SCARR: Thank you. My last quote from the answer to question on notice No. 1—I'm going to page 4 of the answer:

The argument that Apple's approach stifles innovation is contradicted by the fact that there are no examples of successful bank apps on Android despite having so-called 'direct' NFC access on Android. Some banks have actually withdrawn their NFC wallets on Android.

Then there is a footnote which refers to Westpac removing its tap-and-pay system from an Android device. Can I have your response to that, please?

Mr Comyn : Sure—and Albert can maybe give some more detailed context. In our experience, we have the ability to pay natively with a competing digital wallet on the Android service; I think we probably have a few million users enrolled in that. We've had it there for some time. Nobody is disputing the sheer numbers, that Apple have a very dominant market penetration in Australia both from a handset device and in the context of digital payments.

Mr Naffah : I will add a couple of points; this is covered in Google's submission as well. We've got over two million customers who use the CommBank tap-and-pay app on the Android platform. We also offer them many of the other Android compatible wallets—Google Pay, Fitbit Pay, Samsung Pay. Collectively, all those third-party wallets are still less popular with CommBank customers than the CommBank option. Where they have the opportunity to use a CommBank value proposition versus a third-party proposition—all of which are very good propositions, by the way—they, by far and away, prefer the CommBank option, and that's not something we are able to offer them on iOS at the moment.

Senator SCARR: Thank you. Mr Comyn, one of the witnesses yesterday referred to—it was quite a nice turn of phrase, nearly as good as some of the turns of phrase from my friend Mr Hill, who is on this committee—'whack-a-mole' regulation. The point being made was that the regulators' policymakers are chasing the technology, trying to move ahead of the technology or regulate the technology that's out on the market. It almost becomes self-defeating, because the technology and innovation just move so fast. Do you have any views in relation to that proposition?

Mr Comyn : I don't think at a principle level it is unreasonable proposition insofar as innovation is forever increasing. Clearly that is a good thing. It is hard to appropriately regulate in some of these areas. That is why it actually needs quite a lot of attention to do so effectively, to have it appropriately scaled based on the risks. We probably see in some aspects of the payment system just a lack of regulation. Some areas that are, let's say, more traditional are very heavily regulated. Certainly there are examples globally. There is a lot of work going on in the UK in a coordinated basis across the regulators. It is an area that does need a lot of attention and is important. Because of the market position and effectively the winner-take-all situation that can occur in some of the large digital technology players, it is also the case that, if there is an appropriate regulation or if it is absent for too long, it is very hard to then remedy any market failures.

Senator SCARR: Okay. I am interested in your reference to the media bargaining code and how that's a relevant analogy to this situation.

CHAIR: Are you able to take that question on notice, Mr Comyn?

Mr Comyn : Sure. I'm happy to.

CHAIR: Thank you. Deputy Chair.

Mr GEORGANAS: Thank you to the witnesses who have appeared before us today. I want to raise something that appeared today in the Australian Financial Review regarding this issue and some comments that were made to this committee. I don't know if you have seen the article today in the Australian Financial Review, but it made comments regarding banks assess the buy now, pay later accounts in a negative light. Do you want to elaborate on that? Do you assess them as a negative?

Mr Comyn : No, we don't. I did see the comments that were reported in the media. No, it's not right. The simple explanation would be that banks have to undertake on regulated lending, like home lending as an example, responsible lending obligations, which means we need to establish any outstanding debts and understand and verify expenses. Zip itself has two products. One is called Zip Pay, the other is called Zip Money; the first is more like a traditional buy now, pay later payments provider, and the second is more like a loan. As part of the borrowing capacity assessment, all of the expenditure would be included and the loans. I would say it is a very small number of customers across the industry, maybe in the order of two per cent—where they might close a credit card or try to consolidate some of their debt because it goes into their overall borrowing capacity. I think that would be consistent across the industry.

I don't think there would be any evidence of targeting of any buy now, pay later provider. I think it is simply a function of, being a financial institution, you have to factor in all of the outstanding debts and expenditure in the serviceability of a loan, and that means, for a very small proportion of customers, they would consolidate or close debts. If you take a credit card, generally you have to include both the entire credit limit and you have to assume that credit limit can be repaid over a three-year time frame. So, if you are trying to borrow to the maximum—for example, if you are a first home buyer—then closing an outstanding credit card that you are not using can be the difference to get you to the borrowing capacity that you might use. But, as I said, I think it is a small proportion of borrowers, and there would be no difference across buy now, pay later or any other credit products.

Mr GEORGANAS: The article said that, basically, you close a particular credit card to be able to consolidate your debts to take out a mortgage et cetera, but the article suggested that some banks were using their market power to cross-sell a mortgage customer a more expensive credit product. They were instructing their customers to close the buy now, pay later accounts in order to have a mortgage settled, for example. Are you aware of anything like that taking place in the industry, including the Commonwealth Bank or any other bank that you've heard about?

Mr Comyn : I have not heard or seen anything like that in the industry.

Mr GEORGANAS: What about his comment that some of the Zip holders have higher credit rating score than those seeking bank finance?

Mr Comyn : This is an area of ongoing debate.

Mr GEORGANAS: If it's higher than the normal process that they go through, why would you get them to close their Zip account?

Mr Comyn : To my first point, it's not about closing their Zip account. It would only be factored into their overall borrowing capacity, depending on what loan facility they might be taking out. I think this area about whether they're better or have a higher sort of credit worthiness in buy now, pay later is an area of ongoing contention between banks. We can and would be happy to share the data with this committee. We see higher incidence of customers going into arrears, higher incidence of customers going into overdraft, higher incidence of customers as a proportion of buy now, pay later that are receiving financial assistance. I've heard the counterargument from buy now, pay later. I think it might be a case that we have different views, but I'm very happy to support our argument with data.

Mr GEORGANAS: So the issue on your side, and I suppose the thinking behind the CBA, would be that it would be no different from another credit card, where you consolidate the credit that you can access, or perhaps what you owe to that service, to take out a mortgage. So, for example, you'd sit down with them, go through everything and say, 'Look, you need to close this account and this account, and we can consolidate it all in the one.' Is that the process that you would normally take when someone does comes to you seeking a mortgage, and has access to a buy now, pay later account through different services?

Mr Comyn : Yes. Typically, the examples I have seen is where a customer perhaps has multiple relationships with banks. Some people have multiple credit cards or multiple credit facilities. They could have overdraft facilities. They might have buy now, pay later lines of credit that are available. From a bank's perspective, when a customer wants to take out a new loan we have to understand the totality of their financial position. Let's say a customer has a credit card with another bank that they haven't used in years but just have there. That's impacting their borrowing capacity. I should also say that the vast majority of borrowers are not borrowing anywhere near their maximum borrowing capacity. You might typically see it for someone who is, say, entering the property market, and whether you're borrowing $390,000 or $420,000 can be the difference between getting the property or not. It's generally in those sorts of circ*mstances, but I've not seen any evidence of any targeting of particular products across the industry.

Mr GEORGANAS: You touched a bit on tap-and-go payments. They are routed through international card schemes, which happens automatically by default, and they're not currently subject to the least-cost routing. What implications does this have for competition, I suppose, and for fees in the payment space in Australian finance?

Mr Comyn : Specifically as it relates to interchange of both debit and credit transactions, this is an example where it has been very heavily regulated over many years. The RBA has repeatedly published reviews and reports about what's going on in the market and has reduced interchange on both credit and debit substantially over the years. One of the primary motivations for least-cost routing was to put price pressure on the international schemes, which has occurred. We support a competitive domestic alternative to the international schemes. We think it's essential that Australia has an efficient and effective and scaled alternative domestically. There's a broader discussion to be had perhaps on the rollout of least-cost routing and how best to pass that on. Unfortunately, merchant pricing is reasonably complex.

Mr GEORGANAS: Are there any obstacles to rolling that out?

CHAIR: Mr Georganas, I'm sorry to interrupt but I need to go to Senator O'Neill because we are overtime already.

Mr GEORGANAS: Okay. No worries.

Senator O'NEILL: Thanks to my colleagues for asking many of the questions that I wanted to ask. Mr Comyn and Mr Naffah, if you could just take on notice—I'm sure that you received the media that Mr Georganas was just speaking about. I remind those listening and everyone participating that it is contempt to give false or misleading evidence to the committee. We do take very seriously—we have to take very seriously—Mr Grey's comments from yesterday. It might not be the case in your bank, as you have indicated this morning, but I'm sure you would have made some inquiries. If you could directly address the concerns that he raised and provide us with some information and the other data that you've offered that would be helpful. I know that similar charges have been levelled by Afterpay, the other significant competitor. If you could provide that on notice that would be helpful.

Mr Comyn : I'm happy to.

Senator O'NEILL: One of the concerns that I have as a senator representing the Australian people in the parliament is that there is an ongoing misunderstanding about the nature of confidentiality agreements and where they sit in the hierarchy with regard to the rights of the Australian people to have access to the truth.

Mr Comyn, it's been a fascinating morning, but your particular evidence about the silencing—the level of power that is operating over you as one of the biggest banks in the country—that has prevented you from answering our questions in a very open and forthright way is of great concern to me. If you can't answer questions then you should make a public interest immunity claim and so should any witness who feels that they cannot answer questions because it is against the public interest. I would argue, though, that it is very much in the public interest to know exactly what's going on with a company that has, as you said, 80 per cent of the market share that is growing at a rapid rate. You said that by the end of this year it would be part of a program of payment, or a scale of payment, that is going to be 50 per cent of the way that people use their money in the economy.

So I'm concerned on two levels. One is public interest—as parliamentarians, that is what we are here to do, to act in the public interest. We need answers to our questions. Secondly, I'm very concerned about Apple's market share. Can I take you to their submission, where they use evidence from the ACCC to back up their claims that completely refute the claims that you've made here about the security of information. Point 29 of their submission says:

Changing this open approach to give control of NFC capabilities to individual banks would compromise the customer experience on Apple devices, reduce security and privacy, undermine choice and harm competition.

This is very similar to the question asked by Mr Scarr but I'm particularly interested in the 'reduced security and privacy' angle—if you could speak to that—and, in light of my previous comments, about the serenity risk that we have with Apple at this scale in the economy.

Mr Comyn : I'm happy to. I note and share your concerns. There are certainly no questions that I have been asked today that we wouldn't be happy to answer as quickly as we can and provide that information, as I said, provided we are not breaching. If there is a way to do that through the public immunity, we will happily pursue that. Albert, you come in; I'm not an expert in what Apple's arguments would be, but generally as I have seen it over time—and it was one of the areas that was examined many years ago around the security particularly of the way the NFC antenna works in an embedded secure element. We would say it wouldn't diminish security. They are also the device manufacturer, so I expect that to be a contested claim on both sides. Ultimately, we probably need some independent security expert to form that view and/or closely examine some of the evidence that was provided in the context of some of the European examinations, where they're largely being forced to provide fair access to the NFC on reasonable terms. On privacy, Albert, do you know specifically what they'd be referring to there?

Mr Naffah : Obviously, if they were to open up access absolutely, with no minimum standards for us or others who want to access the technology, there is a risk. But what Google has been able to do with the android platform is open that access, subject to a whole bunch of very strict technology conditions, which we have to adhere to and our service providers also have to adhere to, that provide that openness without compromising security. All the data that we would either access or put onto the device to enable transactions would be subject to encryption and all sorts of technological protections. It really is a matter of degree here. No-one is asking for complete access, where compromise becomes a high risk. It's about reasonable access with reasonable standards imposed on those who take advantage of access to ensure that customer privacy and data integrity is maintained.

Mr Comyn : Given their enormous resources and technical capability, I find it difficult to believe that they couldn't provide reasonable access in a secure way.

Senator O'NEILL: This is what Apple say:

The ACCC is therefore concerned that NFC access is likely to result in a significant public detriment from distorting competition between mobile operating systems because, if Applicants were successful in securing NFC access, this is likely not only to lessen the degree of Apple's differentiation from the Android platform but also to alter the consumer experience offered by Apple's competitively differentiated iOS platform.

That's the ACCC's statement that they've attached to their footnote on page six of their submission, starting at point 29. I invite you to provide me with a response to that, because the argument is differentiation not access and competition. In your view, which one should trump which for the Australian consumer's protection?

Mr Comyn : That decision was related to the application we made several years ago. I think the ACCC also provide a brief summary of that in their submission. Obviously we made that submission to the ACCC at that time on the basis that we thought it would be successful. I would suggest that the market has evolved considerably since the ACCC's determination several years ago and that the market power of digital technology providers and Apple specifically in this context has increased.

Senator O'NEILL: Mr Hill took you through some parts of your submission with regard to regulatory reform, and you've been advised of Mr Gray's very colourful whack-a-mole analogy: let's not react too quickly when there's so much change in the market. But I am particularly interested in the comments that you made around the need to, because you're APRA regulated—in comparison to Apple, although they're very significant players in the movement of money in Australia—and APRA requiring you to invest in infrastructure to make sure that Australians can use this sort of technology, yet Apple are carved out. What sort of change would need to occur to capture Apple in a way, in addition to paying tax in our jurisdiction, which would be good, that would actually create the hard work to interact with us as human beings who operate in a physical realm that makes them use some of their profits for the benefit of Australians?

Mr Comyn : I believe that, specifically as it relates to competition, the ACCC has the powers and may continue to perhaps revisit some of the assumptions they made several years ago. I'm sure it was a finely balanced decision, even at that point in time. As you said, yes, we're subject to multiple regulators and multiple regulations. As a very significant financial institution in Australia, Apple falls outside of the traditional definition. They're certainly not an authorised deposit-taking institution, and I am not suggesting they are. But perhaps some sort of scalable and appropriate regulatory framework, which I suspect is one of the conclusions in Mr Farrell's review, would be worth looking at closely so that they, as you said, could make some contribution to some of the investments in infrastructure and the Australian payments landscape. I'll leave the issue alone, but I share your sentiment about their broader contribution to Australian tax receipts, which I think is very minimal.

Senator O'NEILL: I'm happy for this this one to be on notice, because I'm pretty sure we're out of time—

CHAIR: Senator O'Neill, last question, please.

Senator O'NEILL: I have been musing that, while things seem impossible, things happen in the future that we don't always anticipate. If Google or Apple were to be acquired by a company that resided in a non-democratic country, what risk would that provide to the Australian financial market and financial activities?

Mr Comyn : It could be significant, but I would note that, given their valuation—

CHAIR: Mr Comyn, I'm happy for you to take that on notice, unless you've got a very quick response.

Mr Comyn : Sure. I'm happy to take that on notice.

Senator O'NEILL: And compare it to the restrictions that you would be under if you were to sell, in terms of the national interest. If you could help with that, that would be good.

Mr Comyn : Sure.

CHAIR: Thanks, Senator O'Neill. I want to pick up on some housekeeping issues, raised in the first instance by Senator O'Neill. If it is the case, Mr Comyn, that you feel that, in relation to some answers to questions that have been raised by various committee members with you today, you are more able to answer those questions in a more fulsome matter, if I can put it that way, there are avenues available to you. For instance, whilst we don't have time today, you could request that the committee go into a private session. Whilst we don't have time to do that now, because I've just wound you up, I want to invite you to, if it is the case that you feel that you would be able to assist the committee in a more fulsome manner, to provide further written submissions to us in a confidential manner. I think that that is probably the more appropriate way of dealing with the issue, if it is the case that you feel that you could assist the committee.

To Senator O'Neill's point about public interest immunity claims, whilst I'm not ruling on the matter, standing order 10 of the Senate refers to public interest immunity claims. My reading of those rules, Senator O'Neill, is that the public interest immunity claims really deal with officers of government departments or ministers rather than members of the general public. I'm with you on the issue of what you're trying to achieve; I'm just not sure that the standing orders—under standing order 10, public interest immunity—gets you to where you are. I'm happy to hear from you on that point.

Senator PRATT: With respect, Chair, under the Senate's standing orders, the claim for public interest immunity can only be made by a minister, which is why officials refer up the chain, but other witnesses need to consider making public interest immunity claims in their own right as the only defence for not answering a question.

CHAIR: I don't think it's relevant to what Senator O'Neill's trying to achieve, and that is trying to assist the—

Senator O'NEILL: We might have a more private conversation, but I actually do very much endorse the comments made by Senator Pratt. I think that there is concern, and justified concern, about the use of non-disclosure agreements by people with power, whether it's outside Australia or big institutions, even of the kind we're talking about here, that stop people and intimidate people from actually accessing their public rights, which are often represented by us as senators, asking questions fearlessly and without favour, of the biggest entities in the land and internationally, in the national interest. Let's have a more fulsome conversation offline. The reality is that this is the parliament of Australia, we're acting in people's interests and non-disclosure agreements just don't cut it as a protection.

Mr Comyn : As I said earlier, we have no reluctance to provide any of the information that has been provided. We're happy to take it upon ourselves to investigate the most appropriate method to be able to provide that information to you.

CHAIR: Thanks, Mr Comyn. I'll just wrap up a couple of other things. In your evidence earlier you said that Apple enjoys 80 per cent market share of digital wallet payments in Australia. Can the CBA give information on market share in other countries? Could you take that on notice please?

Mr Comyn : Yes.

CHAIR: Mr Hill also has a question to ask very quickly, and you can take it on notice as well.

Mr HILL: I asked you a specific question on BNPL data, and I think [inaudible] of the question. Also in your responses to Mr Georganas and Senator O'Neill you offered to provide some more colour and movement and insights, if you like, into the impact of BNPL on your customers. I won't try to paraphrase the remarks you made. I want to confirm that we would like you to provide that data and whatever insights you can. We're interested in receiving that. Just to be clear, that's also a question on notice. Thank you for the offer. I look forward to it. Thank you.

CHAIR: Thank you for your appearance today. Answers to questions taken on notice should be provided by 13 August 2021. Again I thank you, Mr Comyn and Mr Naffah, for your appearance.