Payments – Debit Card Spend Up 42%

Australian Debit Card Spend Increases Significantly

Debit card spend in May 2021 increased by $10.55 billion or 42% over the same month last year.

This shift started in 2008 and has continued since. It also makes least cost routing a major issue between retailers and banks/issuers as the more debit card transaction grow the larger the least cost routing gap becomes.

Australian Retail Payments

Total consumer payments $1.46 trillion.

Australia 70.1 million cards spending $725 billion

National Payment Platform (NPP/Osko) 6.8 million users with $607 billion

Cash and ATMs $115 billion

BNPL $11 billion

Cheques $4 billion

Debit Cards Dominate

Debit cards are really consumers accessing their own cash while paying expensive fees.

April 2021 spend $35.4 billion up 42.4%%

Annual spend $420 billion annual up 16.6%

Debit cards issued 52.1 million (includes pre-paid) – 41 million ‘pure’ debit an increase of 1 million in 12 months

Average Spend 12 months $10,209 per card -- up 14.6 % vs prior year

Debit Card Shift Started in 2008

Credit card spending in 2008 increased 2.2%, while debit cards increased 13.1%, that trended has continued to today.

Credit card sales 2008 -?$177.2 billion????????????????????????2021 May?$248 billion

Debit card sales 2008 -??$121.5 billion????????????????????????2021 May?$420 billion

Debit Cards vs BNPL apps

?In one month debit card sales increased by $10.55 billion – that almost equals BNPL annual $11 billion sales in Australia – no amount of spin or PR can change this fact.

?BNPL sales actual have fallen by 12% in 2021 verses total retail payments – will any of the spruiking stock brokers, investment bankers or those in the reprint press release brigade take any notice? I doubt it because many are so conflicted it’s not even funny.

Least Cost Routing (LCR)

Australia has a number of major exceptions within its payment market, the two major issues are legal surcharging and least cost routing.

Australia is the only major payments market to have legislated surcharging which was introduced in 2003. Interesting question why no other market followed Australia's lead?

Least cost routing (LCR) is an associated issue – given many Australian banks/issuers do not provide merchants the lowest cost of processing.

LCR applies to electronic transactions within dual networks, that’s machines that accept both domestic eftpos and Visa/ Mastercard. When LCR is activated a consumer ‘tap and go’ transaction is routed to the lowest cost route. This is the exception and not the norm – sure looks like gouging?

How can a regulator?not take prompt action to stop clear gouging??

?8 years ago the issue was raised - Australia was and is a clear exception globally?– today least?cost routing?is not universal (CBA has just rolled it out while Westpac is late 2021) - yet the RBA are 'happy' - really!!

So what’s the cost of inaction – my calculation is annual cost of $550 million x 7 = $3.85 billion!

Contrast the RBA with Austrac – Westpac is busy fixing its AML issues - why? Because of Austrac’s strong actions, high fines and?enforcement?- yet Westpac and others are allowed to?continue?to gouge retailers well into 2022??

?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.

?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.

?One of the most obvious (but not mentioned) products is replicating US success with P2P digital cash – now expected to reach US$2 trillion in 2022. A similar take-up in Australia would see $200 billion plus sales annually – a significant product innovation, especially compared to the over hyped BNPL at estimated $8-9 billion in sales in 2020.

?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?

?The 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 by 2019 – a stunning decline, simply because of chronic under investment, poor management and poor strategies. eftpos current management and board are 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?

?The ACCC is at least asking the right questions about this concocted deal – watch this space.