Australian Payments at Key Cross Road

Pivotal moment as key Treasury Inquiry ‘buried’ and major merger in doubt

Payments in 2030?will revolve?around fully portable 'digital'?consumer and business IDs?which are supported in cyberspace and do not require a card, watch or phone --- rather a consumer 'calls up' the ID at any point of sale and confirms the sale using?bio-metrics and/or security features which work in?person or remotely for digital and online transactions.?

Portability and convenience will be the key drivers while service levels, data and ID protection are critical deliverables.?This future poses key challenges for regulators who must be aware of the changes and react quickly to pre-empt excesses.

How will Australia embrace its payments future?

Seems our past history will be our future – zombie payment companies owned and control in the dark backrooms and board rooms by banks, enabled by spin, politicians and regulators.

If this continues it will be a significant lost opportunity for the wider Australian economy and the biggest losers will be consumers, business both small and large with higher costs and much lower utility.

RAPID FIRE TREASURY PAYMENT INQUIRY – WHERE IS IT?

Announced in October 2020 this quick fired inquiry is examining Australia’s payment landscape, its digital capability, architecture and regulators.

?All be completed by April 2021 – it’s now mid-July and nothing has been sighted - Why?

The undue haste was questioned - did government and Treasury expect to make key decision in just 10 weeks? Clearly not, given the report is sitting on the Treasure’s desk – Why?

Or, have key decisions already been made but not announced until the PR climate is better?

Or, its waiting for the ACCC approval of the BPay,Eftpos, NPP merger?

Or, the RBA is to be stripped of its role as the payment regulator and that is taking time?

Or......

Considering the economic and strategic importance of payments this Inquiry is critical as it sets up the next two decades. Payments by Australian governments, businesses and consumers make up 14% of GDP.

Australia has an expensive US/Anglo legacy based payments system which will be challenged by new technology, new data uses, new players and the need to protect consumer rights and data. The need for updating systems and change comes at a cost, who will pay? Note the trend here, the investment dollars required by banks are mounting.

The need for real competition is the single biggest issue – yet barely rates a mention by Treasury. The UK made competition and consumers major requirements in 2013 which has resulted in major changes in competition with a flood of new players including 1200 Fintechs.

Strategically the retail payment network is far more important and has a wider reach than mobile phones, broadband, 5G coverage and fixed line phones – yet receive scant coverage by comparison. The NBN when complete will only reach 70% of households at best.?

China offers a different option – in 10 years Alipay and WeChat have built mobile payments and the ultimate super apps, all of which run at one third the cost of Visa/MC/Amex etc. In a decade sales have built every year – 2020 sales in China and 28 countries were US$51Trillion. Compare this to Visa/MC/Amex/JCB/Discover-Diners who after 60 years (70 years in the case of charge cards) had sales in 2020 of US$22 Trillion – go figure!

FORCED MERGER OF BPay, eftpos and NPP

BPay is a payment utility mark used for bill payments, eftpos is a domestic only debit/cash card and eftpos brand/network, while NPP is a digital payment platform replacing EFT transactions – not much synergy there.

Announced in December 2020, this back room plan cooked up by NPP, its shareholders and touted by the RBA awaits ACCC competition approval in September 2021

The RBA has significant conflicts of interests as the regulator, investor and a government entity, yet the RBA and politicians appear oblivious to these conflicts.

The public rational for the merger is - a unified entity will reduce payment costs and "seek to bring average merchant fees (paid to banks) down further". They also say it will allow new payment features to hit the market more quickly.

The boldest claim by the NPP and its spin merchants is – the deal would create a larger, coordinated player better able to compete against US card giants Visa and Mastercard, which have been stealing market share.

Yet, who is responsible for the rapid rise of Visa and Mastercard?

Australian banks who have preferred the much higher priced US products over eftpos, who canned bankcard in 2006 (possibly THE worst strategic blunder in Australian payments history) and under invested as shareholders in eftpos.

?eftpos market share has gone from 86% in 2003 to 39% share in 2020 – a stunning decline, simply because of chronic under investment, poor management and poor strategies. eftpos current management and board have the unenviable job attempting to salvage the company.

Now we are told all of this will be reversed by merging three unrelated companies? Really, that stretches any logic?

Open access the key in payments merger proposal

THE AUSTRALIAN?–?JOHN DURIE 20th July?

The big payments merger has proved more difficult than first realised and the ACCC has delayed its decision originally due next week, for two months – until September 10.

On paper, the landmark decision on the merger of Australia’s three payment systems aimed at improving its efficiencies, looked like a walk in the park. But the fact it is controlled by the big banks, and some protectionist arguments used to justify the merger, have clouded the issues.

The new system to be called Australia Payments Plus, will combine, the RBAs New Payment Platform, Eftpos and BPay.

Proponents say the big four control will actually be diluted, but there is some political intrigue in the merger discussions, including the reluctance by some folk at Eftpos.

Fintech has a lot riding on the outcome and is supportive, as long as there is open access and consolidation means clearer definitions around things such as digital ID.

Assembly Payment’s Tim Dickinson put it well, saying the digital based new payments platform is akin ti the internet and BPay and Eftpos like old post office, so combining into one brings the entire system into life in a better way.

The key assumption is open access.

Small business has complained that the merger will make it easier for banks to avoid the least cost option, which may mean going with one of the big operators like Visa or Mastercard.

In 2025 it is estimated Eftpos will account for 59 per cent of all low-value transactions and proponents argue it is better such payments are controlled by an Australian entity.

The difficulty in the pro-merger case is expressing just what are the benefits of the merger of systems that most people have little known contact with even though they use it many times a day. Protectionist arguments about beefing up to combat the international cards giants are not the answer.

Payments is how you pay for things with cards linked to your bank accounts and most just take the mechanics for granted.

Woolworths is beefing up its services through Wpay, designed to sell its services to smaller retailers who want access to its payment expertise.

The supermarket giant is happy to work with closed shops like ApplePay because it is your bank not Woolies that ends up paying Apple fees.

The big four banks in recent years have not exactly established themselves as consumer or small business champions, which is why some suspicion remains.

The RBA is supportive and by, by separating itself from the operating business by selling NPP into the merger, establishes a better governance system.

This is being considered in a separate report – already in Josh Frydenberg’s hands – from Mallensons CDR guru Scott Farrell.

The merger is being championed by former King & Wood Mallesons boss Robert Milliner.

The devil is represented by the likes of Visa with revenues totalling $29.1bn, Apple at $367bn and Samsung $267bn.

The ACCC will look at the merger against any national interest gains if the merger is deemed anti-competitive.

While the RBA has strongly backed the merger, the ACCC has left the door wide open.

The RBA said in its submission: “We expect that a consolidated entity would be better able to deal with co-ordination issues and the challenges that three schemes currently face in getting industry participants to take decisions to support new products or build new infrastructure. “The RBA has acknowledged that banks have been slow in adopting so-called?least cost routing (LCR), which would guarantee lower costs for merchants.

The differences are important because charges from Visa and Mastercard are falling and the difference in annual cost for a smaller retailer total $30,000 or more, based on transaction throughput.

The retailer has to either wear the cost increase or increase consumer charges. Merger advocates say if the schemes were not combined in Australia, Eftpos would be uncompetitive and Australia would be left open to the international card giants.

In an open economy internationally competition is generally seen as positive but in this case the argument is the international players would be harder to control.

The RBA noted “Progress has been made with the implementation and take up of LCR but it has not been as fast as the RBA would like.”

It added “However, two major banks are now providing LCR on an ‘opt out’ basis to some merchants which is a positive development.

“The banks’ business units responsible for card issuance receive interchange fee revenue from the card schemes and may be offered incentives to issue only the cards of a particular scheme.”

While collectively the major banks have an incentive to keep Eftpos, there may be enticements for individual banks to sign a deal with one of the ICS in return agreeing to issue single-net-work debit cards.

The RBA added it “does not expect that outcome to eventuate effectively, it expects the collective (long term) incentive to outweigh the individual (short term) incentives.”

Conflicted RBA trumpets payments merger benefits to ACCC

19 July 2021 BANKING DAY?George Lekakis

The Reserve Bank of Australia has revealed the major banks are likely to appoint “more senior” directors to oversee the country’s three domestic payments schemes if the ACCC approves their planned merger.

In a supplementary submission to the ACCC’s review of the proposed merger of NPP Australia, Eftpos and BPay, RBA Assistant Governor Michelle Bullock highlighted the benefits of consolidating the three schemes.

“We expect that a consolidated entity would be better able to deal with coordination issues and the challenges that the three schemes currently face in getting industry participants to take decisions to support new products or build new infrastructure,” Bullock told the competition regulator.

“We expect that the directors appointed to the board of the consolidated entity by its shareholders would be more senior than the directors appointed by those shareholders to the current boards of Eftpos and the other two companies.

“We expect that Eftpos in particular would benefit from strategic decision-making involving more senior representatives who have greater ability to support Eftpos initiatives within their own organisations.”

While Bullock said the RBA was “not taking a position” regarding the merits of the merger application, the supplementary submission made no reference to any potential for the union to lessen competition in the payments market.

As the regulator of payments policy in Australia and a foundation shareholder in the New Payments Platform, the RBA has been trying to manage a conflict of interest in its public comments about the domestic payments schemes.

That conflict began to intensify in December 2019 when Governor Philip Lowe mounted an argument for merging the three schemes in a keynote speech to an AusPayNet conference in Sydney.

His comments helped to kickstart a push by NPP Australia and the schemes’ common owners (the four major banks) to engineer a consolidation.

While the Reserve Bank has indicated it will liquidate its interest in NPP Australia if the merger goes ahead, it is not clear whether its investment will be cashed out at cost or at a marked up value if the ACCC approves the deal.

NPP Australia has a lot riding on securing a green light for the deal because it could derail emerging competitive threats from Eftpos and BPay in markets relating to instant payments, digital identity services and QR code-driven payments.

Given these considerations, the RBA might find it considerably easier to offload its stake in NPP Australia at a profit if the merger goes ahead.

The RBA’s conflict has been an issue of concern to a myriad of stakeholders in the payments system, including small business groups campaigning for the retention of Eftpos as a stand-alone scheme and global card schemes such as Visa, which disapprove of payments regulators having skin in the industry they regulate.

“It is equally important that systems and policies are in place to ensure the independence of decision-making and governance through the removal of any conflicts of interest – for example, when regulators also own or operate payments system infrastructure,” Visa told the Treasury review of payments regulation in February.

“Otherwise, there is the risk of disrupting the level playing field within the payments system.”

Industry concern with the RBA’s conflict of interest might help explain the ACCC’s unusual move on Friday to publish a detailed file note of a meeting it held with RBA officials on 24 June about the proposed merger.

The meeting, which was attended by Bullock, the head of the RBA’s payments department Tony Richards and 11 ACCC executives and staff, was mostly focused on the strategic position of Eftpos’ payments services.

The competition regulator has not published any file notes or records of meetings held with other stakeholders since the merger review started in March.

The ACCC did not explain why it voluntarily published the file note but the likely reason was to demonstrate transparency with industry stakeholders about its dealings with a fellow regulator managing a conflict of interest.

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