The Paradox of Apple’s Entry into Open Banking: Balancing Access and Control
Tech giants are leveraging their substantial resources and market dominance to reshape the financial landscape, ushering in innovations that disrupt traditional banking models, according to The Fintech Times. Finance commentator Igor Pejic, an expert in tech-driven shifts in banking and finance, explores the specific actions and strategies employed by these tech giants, which are causing disruptions in the financial industry.
Around a decade ago, European Union lawmakers began to express concerns about the stagnant state of payment systems, which had seen minimal innovation since the advent of credit cards. The entrenched positions of banks, payment processors, and credit card companies left little room for innovation. To address this issue, the European Parliament introduced the second Payment Services Directive (PSD2) in 2015, aiming to enhance competition in consumer finance by unbundling financial services. This directive required banks to share their interfaces with any licensed and authorized player, whether another bank or a fintech company.
This move effectively prevented dominant firms from restricting their customers’ access to competitors. Customers could now freely access their bank data through fintech applications and link their cards to platforms like PayPal, fostering competition and innovation.
The concept of open banking quickly gained traction worldwide, driven either by regulatory mandates, as seen in the UK, or market forces, as observed in the US. This trend unleashed a global wave of fintech innovation, making financial services more affordable, accessible, and enriched with new features.
Recently, Apple introduced a new feature called ‘Connected Cards’ for iPhone users in the UK. This feature allows Apple Wallet to display users’ bank account balances and transaction histories, eliminating the need to log into individual banking apps. While seemingly unremarkable, this feature aligns with the vision of open banking advocates, raising questions about its implications.
The key distinction lies in who controls these open banking interfaces. Apple’s scale and influence raise concerns for traditional banks. More significantly, Apple and Google jointly dominate mobile operating systems, effectively dictating the rules governing what happens on users’ phones and restricting app access to hardware.
While Google has not yet restricted access, Apple has blocked certain payment features, such as PayPal and Venmo, from accessing the iPhone’s NFC chip, a crucial component for contactless payments. This creates a situation where users are forced to use Apple Pay for certain transactions.
Ironically, the push to force banks to open their interfaces and share customer data has eliminated many entry barriers for financial services. Paradoxically, Big Tech is capitalizing on this open door to penetrate the financial sector while simultaneously locking another door for competition.
Apple’s actions have led to a private antitrust lawsuit in the US, where banks and credit unions allege excessive fees. Moreover, this practice stifles innovation, eliminates competition, and gives Apple an unprecedented advantage over banks and fintech companies.
In response to mounting pressure, Apple has promised to grant rivals access to the iPhone’s NFC chip in the EU. However, the details of this proposal, its acceptance by the EU Commission, and its impact on Apple’s strategy in non-EU markets remain uncertain.
The resolution of this issue will shape the future of the retail banking sector, extending beyond payments. Apple Pay has expanded into savings accounts, installment payments, and potentially investment features. The question arises of whether Big Tech should be excluded from the open banking ecosystem entirely, which some argue would be inappropriate. Instead, the gatekeeper role of Big Tech must be regulated to ensure fair and open competition.
The German effort known as ‘Lex Apple Pay,’ which forced Apple to provide direct access to the NFC chip in 2020, could serve as a model. In cases involving critical interfaces, regulatory intervention is essential to level the playing field and promote efficient competition.