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Introduction
I am delighted to be addressing everyone here today at the AFR Banking Summit as Chair of the Australian Competition and Consumer Commission.
Promoting effective competition, investigating allegations of anti-competitive conduct, and protecting the interests of consumers in the financial services sector are enduring priorities for the ACCC.
Our role in this sector requires a multi-faceted approach, combining strong enforcement action with a proactive approach to identifying issues and working to raise compliance and best practice across the sector. The ACCC works with sector-specific regulators and industry to promote competition, which is a foundation for dynamic markets and good consumer outcomes.
Today I will address the ACCC’s priorities and approach to regulating the financial services sector, and will touch on a number of issues relevant to this afternoon’s topics of the app economy and payments in our increasingly digital era.
Payments, innovation and competition
One of the ACCC’s key compliance and enforcement priorities for 2022-23 is promoting competition and investigating allegations of anti-competitive conduct in the financial services sector, with a focus on payment services.
Payment systems, services and competitors are rapidly evolving.
COVID-19 has accelerated the transition to digital payments and precipitated a major shift in the way people live, do business, and engage with the economy as a whole. Industry data and our own observations show that the long run shift to card payments is now being transformed to cards digitally stored in mobile wallets on smartphones or other wearable mobile devices which are used to make contactless payments at point of sale and increasingly in online payments. [1]
These developments have seen the emergence of new services and competitors in the payments ecosystem, such as payment gateways, payment aggregators, mobile wallet providers and payments using crypto-currencies. In response, payments regulation is undergoing a comprehensive redesign for the first time in 25 years, following the Farrell Review and the Reserve Bank of Australia’s Review of Retail Payments Regulation.
At the ACCC we are committed to promoting and protecting competition in this important sector, particularly in the face of these rapid developments in supply and demand, and working with the Government to ensure that the regulatory framework for payments is designed to facilitate dynamic and innovative markets and good consumer outcomes.
Least Cost Routing for Debit Cards
Not only are debit cards the most frequently used payment method but around 90% of debit cards issued in Australia are dual-network debit cards (DNDCs), which allow domestic payments to be processed via either eftpos or one of the international debit schemes (Debit Mastercard or Visa Debit).
With the growing deployment of contactless “tap-and-go” technology, the Reserve Bank of Australia began encouraging financial institutions to provide least cost routing functionality to merchants for contactless debit card payments. This initiative aimed to increase competition in the supply of debit card acceptance services and reduce payment costs for businesses by allowing them to choose the lowest cost network to process their transactions. This enabled businesses to choose whether their debit transactions were processed by Visa, Mastercard, or eftpos, with eftpos often being the cheapest option. [2]
Reducing costs for businesses, including smaller merchants, enables them to offer their customers better prices. Making sure the major card schemes, Mastercard, Visa and eftpos, compete vigorously is important for both those businesses and their customers.
Yesterday the ACCC instituted proceedings in the Federal Court against Mastercard Asia/Pacific Pte Ltd and Mastercard Asia/Pacific (Australia) Pty Ltd (together, Mastercard), for allegedly engaging in anti-competitive conduct commencing in late 2017, around the time the Reserve Bank of Australia expressed its support for the least cost routing initiative.
The ACCC alleges that, in response to the least cost routing initiative, Mastercard entered into agreements with more than 20 major retail businesses, including supermarkets, fast food chains and clothing retailers.
We allege the agreements gave these businesses discounted rates for Mastercard credit card transactions, provided they committed to processing all or most of their Mastercard-eftpos debit card transactions through Mastercard rather than the eftpos network. This meant that these businesses would not process significant debit card volumes through the eftpos network even though eftpos was often the lowest cost provider.
The ACCC is alleging in these proceedings that Mastercard had substantial power in the market for the supply of credit card acceptance services. The ACCC considers that a substantial purpose of Mastercard’s conduct was to hinder the competitive process by deterring businesses from taking advantage of least cost routing to use eftpos for processing debit transactions.
The ACCC is seeking declarations, penalties, costs, and other orders.
This enforcement action is but one aspect of the broader work we will be undertaking in accordance with our focus on compliance in the financial services sector.
Those in the sector should therefore be on notice that we will not hesitate to take action in response to concerns raised about anti-competitive conduct in this important sector of Australia’s economy.
Digital Platforms Payments
The ACCC’s digital platform services inquiry reports have identified competition and consumer concerns in digital sectors such as search, social media, app marketplaces including in app payments, display advertising, search advertising and the ad tech supply chain.
The ACCC’s reports have highlighted economies of scale, network effects and vertical integration as common characteristics of digital platform services that can contribute to market power. Along with the expansion of digital ecosystems, the competitive advantages arising from superior access to user data and a lack of transparency all create an environment where digital platforms may exercise power across multiple services. As competition agencies across the globe are well aware, this can involve a range of anti-competitive practices, such as self-preferencing, tying, bundling and refusals to deal.
One area where Apple engages in self-preferencing and restriction of competitor access to functionality is in its reservation of tap-and-go, contactless payments using the NFC chip on Apple mobile devices to its own Apple Pay app and Apple wallet. [3] The ACCC’s inquiry has also reported that Apple and Google’s respective control over the App Store and Play Store enables each of them to impose terms that prevent app developers from using alternative payment systems for in app payments. [4]
The ACCC’s fifth report in its Digital Platform Services Inquiry, which is to be delivered to the Government in September this year, is looking at whether there is a need for a new regulatory framework to address the range of competition and consumer concerns identified in digital platform services markets to date, including in relation to payments in digital ecosystems.
Changing industry behaviour through market inquiries
Market inquiries are an important tool for the ACCC.
They enable us to engage deeply on competition issues arising in particular sectors, work with industry and other regulators to identify solutions to emerging competition problems and focus on areas of potential market failure.
The ACCC’s 2019 inquiry into foreign currency conversion services provides a good example of how this works in practice.
FX services are significant to the Australian economy and to the lives of individual Australians who send money overseas, including large numbers of vulnerable Australians. At the time we conducted the inquiry, we observed that Australian consumers purchase the equivalent of over AUD40 billion in foreign currency each year. We found that many Australian consumers were paying too much for international money transfers and could save hundreds of millions of dollars per year if they had more transparent pricing information to help them compare the options.
To address this issue, the report included best practice guidance for suppliers, which was directed at improving price transparency to make it easier for consumers to seek out the cheapest option and to promote price competition between suppliers. This guidance provided for suppliers to clearly display the full price of services to consumers to make comparison between suppliers simple.
When the report was released, we committed to monitoring take up of this guidance and assessing whether a further response would be needed, either by the ACCC or government.
Monitoring has shown that take-up of our best practice guidance to date has been a success and has demonstrably improved industry practice for the benefit of consumers.
We are now considering ways to monitor prices and margins in the foreign currency industry to determine the impact of the best practice guidance.
Regulator and Industry efforts to disrupt scams
Scams is an area where the banking and finance community comes together with the ACCC and other regulators to raise awareness, share intelligence and work to disrupt the scams that are impacting Australians at an alarming rate.
Each year we see scams become more sophisticated and reported losses increase. Last year Australians reported more than $300 million lost to scams, and as we approach the middle of 2022, we have already surpassed $200 million reported lost.
We know typically only 13% of people report losses to Scamwatch so the actual figures are likely to be much higher.
During the recent floods and early days of the pandemic, we saw scammers take advantage of people’s generosity and compassion, and, now as Australians are facing rising cost of living pressures, we are seeing investment scams continue to rise.
Investment scams have had the highest financial impact for Australians so far this year, accounting for almost $170 million of the $228 million lost.
Many scammers are impersonating banks and other legitimate financial businesses represented here with us today.
Banks are in a unique position to identify fraud risks for vulnerable consumers and to invest in capability to mitigate these risks.
We have been sharing Scamwatch reports with the larger four banks through the Australian Financial Crimes Exchange for a number of years to support banks’ ability to identify scam activity, warn consumers who may be at risk, and provide support to those who have been targeted by scammers.
A challenge for both the ACCC and the banking community is ensuring we’re providing appropriate support to culturally and linguistically diverse communities who we know suffer higher losses on average than the overall community.
Consumer organisations have told us that members of the CALD communities are struggling to obtain timely assistance from their bank when they encounter a scam, due largely to language barriers and difficulty navigating fraud reporting processes.
Another emerging area we are navigating together is cryptocurrency scams.
We are seeing a sharp rise in the number of people losing money through cryptocurrency both as a form of investment scams, as well as a payment method for scams more broadly. So far this year, more than $100 million has been reported lost to crypto investment scams.
This is a challenging regulatory landscape due to how different legislation interacts.
We are working closely with ASIC to ensure there are mechanisms in place that allow ASIC and the ACCC to take action under the Australian Consumer Law, or the ASIC Act and Corporations Act.
This includes putting in place delegations and cross-delegations to deal with potential areas of overlap.
This year we instituted proceedings against Facebook’s parent company, Meta, for publishing scam advertisements promoting cryptocurrency and other money-making schemes that we allege amount to false, misleading or deceptive conduct.
We continue to engage with ASIC on these issues and it’s great to see the private sector also working closely with government and law enforcement to prevent scams and protect Australians.
In other industries we have seen how this collaboration can help protect Australians from falling victim to scams.
In 2020 the Reducing Scams Call Code was introduced and since then telco providers have blocked more than 549 million scam calls to Australians.
This shows the real and immediate impact we can have when industry and regulators work together.
We continue to be very proud of our shared work with the banking and finance sector on our annual Targeting Scams Report, and awareness raising through Scams Awareness Week.
We recognise the important work being undertaken by the major banks to increase their capacity to support people and businesses who are at risk or have been materially impacted by scams or identity compromised.
If I can leave you with six things you can do to make a difference to Australians, it’s to:
- prevent scammers from opening accounts at your institutions
- make sure you have rigorous identity verification processes informed by knowledge of the risks of scams
- ensure your systems can flag & block suspicious transactions
- intervene to warn your customers when you identify suspicious transactions
- introduce confirmation of payees to reduce the losses to scams that we are seeing, especially through payment redirection scams (otherwise known as Business Email Compromise scams)
- stay on top of scam trends and educate your employees about scams – they are on the front line and are often the last line of protection.
Promotion of Competition and Consumer Choice through the Consumer Data Right
Finally, let me turn to our active role in the implementation and operation of the Consumer Data Right.
The CDR is a pioneering reform which gives consumers the right to use the data Australian businesses hold about them for their own benefit.
It is a reform which has consumers firmly at its centre and is founded on strong protections, including a fundamental role for consumer consent.
Many of you here will be familiar with the CDR and I want to take this opportunity to acknowledge that banks, and in particular smaller banks, are going to great lengths to ensure they comply and keep up with their CDR obligations. The ACCC is aware of the significant effort the industry has put into being able to comply with these obligations so that their customers can share their data if they choose to.
I also want to acknowledge the resources put in by accredited data recipients, which are almost all fintechs, and say thank you all for your efforts in making the CDR work.
The CDR is underpinned by complex technology systems interacting in real-time. Technology service providers, automated testing vendors, core banking system providers, and emerging suppliers of ‘CDR in a box’ solutions all play a key role in building momentum and lowering the barrier to entry, particularly for smaller institutions.
We currently have 112 of Australia’s banks and their associated brands active in CDR since July 2020 who collectively hold more than 99% of Australian household deposits.
On the data recipient side, we have activated 18 fintechs and other participants into the CDR program, with a further 11 progressing through the on-boarding process as we speak.
The CDR is critical infrastructure underpinning Australia’s future digital economy. With the introduction of multi-sector data sharing from November 2022, the Australian CDR will be the first regime encompassing multi-sector data in the world.
Of course, a lot of the focus on the CDR is rightly how it can help consumers switch more easily between suppliers.
The potential benefits of the CDR include greater competition for existing financial services and more competitive pricing driven by competition even if consumers don’t change providers. The CDR should also drive innovation to deliver better financial services in future.
We know CDR is already being used to assist banks with lending decisions. The opportunity to use rich customer data has the potential to drive improved lending decisions, reduce the need to provide duplicative data and reduce instances of loans that are unsuitable for consumer needs.
An example of a CDR use case for social good is Way Forward, a debt relief charity supported by banks, some other lenders, and financial counsellors.
Using CDR will allow Way Forward to quickly gather data, with their client’s consent, about their referred client’s financial situation, to help deliver faster and more tailored outcomes than they could by traditional means.
We are excited to see more and more use cases for the CDR especially as we look to the addition of energy sector data sharing going live November 2022 and the further expansion of the CDR into telecommunication and finance.
But while we appreciate how well the banking sector has taken up the CDR, we also take CDR compliance very seriously. To protect the integrity of the CDR we will consider enforcement action against data holders who are not meeting their obligations.
We understand CDR obligations are sometimes complex, but the law now provides a data right for consumers and data holders need to meet their legal requirements.
Conclusion
In conclusion, the ACCC’s work in enforcing competition law in the financial services sector is vital to a vibrant competitive economy and we are committed to expand and increase our engagement with the sector in the coming year.
Our priorities in enforcement, payment services and digital platforms, market studies, scam disruption and delivering on the CDR will mean we are engaging with the banking sector more than ever before.
We look forward to further cooperation in the manner of best practice compliance and scam disruption with all of you in the banking and finance sector as well as our fellow regulators, and Treasury to meet and tackle the many emerging challenges ahead.
[1] Payment Systems Board Annual Report 2021, Section 2, Innovation is shaping the payments landscape.
[2] ACCC Media Release dated 30 May 2022, Reserve Bank of Australia, Review of Retail Payments Regulation, Conclusions Paper, October 2021, Section 3 Dual-network debit cards and least-cost routing.
[3] ACCC Digital Platform Services Inquiry Interim Report No. 2 – App Marketplaces March 2021 page 59.
[4] ACCC Digital Platform Services Inquiry Interim Report No. 2 – App Marketplaces March 2021 page 63.