As chairman of the Australian Competition and Consumer Commission, Sims is concerned about the power of the ‘big four’.
Once upon a time, The Sims could have targeted the nation’s Big Four; ANZ, Commonwealth Bank of Australia, National Australia Bank and Westpac.
Sims refers to Google, Apple, Facebook, and Amazon which ironically disrupt banks and other domestic industries.
On one level, the disruption in Silicon Valley is to be welcomed.
Policymakers shouldn’t necessarily worry about whether local giants like big banks get their lunch eaten by Apple Pay and Afterpay. But we must be wary of digital disruptors who exploit regulatory blind spots in their march to dominate the market.
Governments should facilitate the technological foray by promoting competition, but ensure a level playing field and maximize economic gains for consumers.
The national economy has long been dominated by monopolies and oligopolies in banking, supermarkets, petroleum, media, energy retail, mobile telecommunications, internet services, retail energy, transport, insurance and domestic air travel.
Economists believe that more competition is better for lower prices, choice of consumer products, business investment, innovation and productivity (and perhaps workers’ wages if companies are forced to compete harder to attract and retain staff).
There are too few competitive champions. Consumers, the main beneficiaries, are not well organized politically.
Large incumbents benefit from less competition and push for regulations that raise barriers to entry for new competitors and protect profit margins.
Additionally, investment bankers and competition lawyers who cut the ticket on mergers and acquisitions will oppose Sims’ call for tougher laws to limit industry concentration.
Entrepreneurs selling their tech startups to big tech platforms and big banks also don’t like the ACCC potentially raining down on their big payday.
Silicon Valley giants and banks are buying dozens of emerging tech and fintech companies. The dream of modern entrepreneurs is to be bought out by a big company, not to compete with incumbents with deep pockets.
Afterpay is bought by US payments giant Square for $ 39 billion in the largest buyout in Australian history.
NAB’s takeover of neobank 86,400 for $ 220 million gave it superior mortgage processing technology.
ACCC is concerned that the acquisition of potential competitors will deprive the economy of future competition.
The Sims can try to stop domestic acquisitions in court, but it often has to rely on antitrust regulators overseas to block digital giants sucking up startups.
Big tech and banks are placing dozens of bets on start-ups, so it’s hard for regulators to know what the next big thing will be.
Additionally, governments are being left behind by digital technologies that can evade outdated regulations.
Millions of Australians use Apple Pay and Google Pay. Banks and merchants pay fees to Apple for processing payments through iPhones and Apple Watches.
Banks have paid hundreds of millions of dollars to modernize the national payments system, while Apple and Google have not funded the financial infrastructure.
Tech-savvy entrants are given a “free kick” to build a ladder to compete.
Buy now, pay later has exploited a loophole, operating outside of credit laws that cap fees.
Afterpay’s âno surchargeâ rule prevents small merchants from passing on average costs of 30 plus 4% of transaction value to consumers, a charge that retailers absorb or indirectly pass on to all consumers.
The Reserve Bank of Australia tolerates this level playing field, giving the buy now and pay later industry time to steal market share from debit and credit card payments provided by banks, Visa and MasterCard.
Regulators have a delicate balance.
The payment system is the financial plumbing of the economy. Innovation and competition are expected to reduce costs, boost productivity and improve economic efficiency.
Sovereign governments must also consider financial stability.
The explosion of digital wallets and cryptocurrencies, including Facebook’s alluded to Libra, adds new complexities to national sovereignty.
âStored value facilitiesâ offered by non-banks such as Square and China’s Alipay – popular with the Chinese diaspora in Australia – hold more customer funds, without the security of a government-guaranteed bank deposit.
One argument that bankers made to Frydenberg is that if foreign technology platforms infiltrate financial services, it could undermine national sovereignty in the event of an economic crisis.
Could Frydenberg call Facebook’s Mark Zuckerberg, Apple’s Tim Cook, Amazon’s Jeff Bezos or Square’s Jack Dorsey and ask for financial help from customers in Australia, as he successfully did to local bank executives during COVID? -19?
Frydenberg argued with Zuckerberg for months over the top news media trading code, forcing Facebook and Google to pay mainstream news publishers for the content.
To complicate matters, tech platforms are almost natural monopolies or oligopolies. Amazon dominates e-commerce, Apple smartphones, Google Internet search, and Facebook social networks. There are huge network effects and economies of scale.
The more users technology platforms have, the more relevant data they get about people’s shopping habits, internet searches, and other online activities.
Arguably this can lead to better product offerings to users and customers. But consumers have unwittingly become the product, even though the digital products they consume appear to be free.
Part of the answer may lie in empowering consumers by expanding consumers’ right to data to give them more knowledge and control over their personal data and the ability to sell their data to technology platforms, banks. and other businesses.
New Zealand is considering adopting Australia’s CDR, and US President Joe Biden’s executive order in July tied the collection of consumer data privacy to competition between US tech giants.
But sovereign governments are catching up with digitization in a struggle for economic power.