Payments - Dud Review in Australia?

Very interesting and pivotal times in Australian payments

Australian review of payment strategy reports April 2021

Treasury has one month left in its 'review', so it’s crucial for any last minute proposals, as this will set the agenda for the next 10 years.

The RBA has a long list of 'things to do', that's if they are still the payment regulator - meanwhile the industry rolls on 

Retailers, fintechs, payment providers and banks should be considering how they can influence the debate.

Is it possible to vastly reduce all interchange (including BNPL) with debit near or at zero on the basis that debit is really consumers accessing their own cash?

The future of the NPP is also critical - the RBA forced the first product offering as replacing electronic funds transfers (EFT). This was not strategically important and low hanging fruit. 

The press pces below from Canada show another option - Interac is a stronger version of eftpos Australia, it has a full range of debit products. Interac’s 'purpose' is try to keep US payment companies out of Canada (some would say a forlorn task).

One option for the next NPP development is the mirror the Canadian approach with eftpos the core of the next NPP development - not an easy option - but well worth considering?

Other options to consider – India developed its own debit card – RuPay in 2009. Today it’s the largest payment vehicle in India (eftpos has only 36% of the Australian market). Since 2012 RuPay added international electronic payments at all Indian banks, maintaining international ties with Diners Club/Discover Financial, JCB, Pulse ATMs, CUP China, Nets Singapore BC card Korea and Elo in Brazil. Rupay credit cards were in operation since June 2017, along with pre-paid, contactless and BharatQR – a product range that would make eftpos eyes water.

My view is NPP strategy is deeply flawed.

Now 54 countries with real time payments - I have yet to find any other country that has replicated Aussie approach and the banks don't want to pay for continued product development.

The real issue is the future - China demonstrates clearly the future model - in 10 years Alipay and WeChat had 2020 sales of US$51 trillion, while costs 70% cheaper than Visa/MC - yet do Australian banks even know this? No, they dismiss it as some emerging market stuff - just like they dismissed phone payments in 2001.

YE 2020 Visa/MC/Amex global sales US$24 trillion, after 60 years - so which model will dominate? 

Australia is obsessed with BNPL apps which is totally locked into Visa/MC payment rails and after 15 years has global volume in 2020 of US$65 billion at best.

So China Mobile US$51 Trillion vs BNPL apps US$65 billion – no contest!!

Spending $1 billion on NPP by changing EFTs is nonsense and very low hanging fruit (in fact it’s picking up windblown fruit) it’s also not profitable, it’s only a cost save.

The other real prize in digital payments is real time P2P, just as the US has done and taking on Visa/MC - just as Canada is doing. That's the real digital proposition, saving costs, delivering revenue and real competition.

Zelle, Venmo, PayPal Cash, Square Cash and Dwolla are all 3rd generation US P2P transfer apps on smart phones primarily aimed at 15-35 year olds -- these apps have zero cost for consumers and are a quarter of the cost to operate vs debit/credit cards.

 Zelle (re-branding of ClearXchange) owned by 7 US banks, Venmo owned by PayPal as well as other with have 275 million users spending US$1 Trillion by 2021 year end

Consider the Australian credit card market - banks have lost 6 million customers in the last 5 years - not to BNPL apps, but to debit cards - now 52 million in Australia – what’s the revenue loss? 

Plenty to consider in the last 30 days…. 

Interac wins Canadian real-time payments deal

15th March 2021

Payments Canada has picked local debit network Interac as the exchange solution provider for the country's new real-time payments system.

Payments Canada is in the midst of a multi-year, multi-system payments modernisation initiative.

As part of this, it is creating a real-time payments system, called the Real-Time Rail (RTR). Late last year Mastercard-owned Vocalink was awarded the contract to build the RTR clearing and settlement infrastructure.

Now Interac has won the deal to provide an exchange solution that allows Payments Canada members participating in the RTR to send and receive payment messages, tapping into the debit network's existing infrastructure and connectivity to nearly 300 financial institutions.

Tracey Black, president and CEO, Payments Canada, says: "The Real-Time Rail will be the foundation for faster, data-rich payments and act as a platform for innovation.

"Participants in the payment system will be able to connect and develop new and exciting ways for Canadians to pay for goods and services, transfer money and better compete nationally and internationally."

FINTECHS ON THE FENCE AS INTERAC CHOSEN FOR CANADA’S REAL-TIME PAYMENTS PROVIDER

Payments Canada has selected its second solution provider for the country’s upcoming real-time payments system. In response to the news, Canadian FinTechs are taking a wait-and-see approach as to whether they will directly be able to participate in the new system.

Interac Corp. has been selected as the exchange solution provider for the Real-Time Rail (RTR). Expected to launch in 2022, RTR consists of two components: a clearing and settlement component and an exchange component. Mastercard-owned Vocalink was selected last year to operate the settlement component.

‘Canada has long lagged behind similar markets when it comes to payments innovation; more than 54 other countries around the world already use an RTR system.’

A real-time payment system designed to modernize Canada’s core payments infrastructure, RTR will allow for payments to be sent and received within seconds. The system will be operated by Payments Canada and regulated by the Bank of Canada. The idea behind RTR is to create a payment system that is fast, secure, and flexible, to allow for innovation.

Interac might be considered a natural choice for Payments Canada to work with when it comes to building the exchange. Interac is set to use the already-existing technology behind its Interac e-Transfer service to build the exchange component of Canada’s RTR. Interac e-Transfer is currently used by millions of Canadians daily and connects to almost 300 financial institutions in the country.

Tracey Black, president and CEO of Payments Canada called Interac “a well-suited partner” to support the launch of Canada’s new real-time payments system. She noted Interac’s significant investments in infrastructure, services, and existing connectivity to financial institutions, which she said will enable the rapid adoption of real-time payments in Canada.

“The Real-Time Rail will be the foundation for faster, data-rich payments and act as a platform for innovation,” said Black. “Participants in the payment system will be able to connect and develop new and exciting ways for Canadians to pay for goods and services, transfer money and better compete nationally and internationally.”

While Canada has been working to modernize its payments infrastructure in recent years, the country has long lagged behind other similar markets when it comes to payments innovation; more than 54 other countries around the world already use a similar type of RTR system. The RTR project began in 2015 with consultations involving more than 100 organizations within the payments ecosystem.

Among those organizations are Canadian FinTech startups, who have faced many barriers trying to bring competitive products to market, including receiving banking licenses and pulling customers away from the Big Banks.

How the choice to work with Interac will affect Canadian FinTechs is unclear. Currently, FinTech startups cannot directly access e-transfer rails, which is the peer-to-peer (P2P) method in Canada. Historically, Interac’s system has been more easily accessible for traditional incumbents like the Big Five banks.

“If Interac opens up, it could work, but their track record is not encouraging.”

A member of the Canadian FinTech community told BetaKit that if Interac chooses to adopt a fair policy and payments framework that includes FinTechs instead of upholding the status quo, it could be a positive step for startups. “If Interac opens up, it could work, but their track record is not encouraging,” the source said.

Payments Canada has been working to secure its exchange provider over the past year, noting in November that it was in the final stages of the vendor procurement process. One source with knowledge of the partnership told BetaKit that while Interac was a natural fit to be the chosen vendor, Payments Canada had to pressure the payments company to sign the deal. According to the source, Interac delayed the process, “dragging [its] feet,” until Payments Canada stated plans to work with another company to build the exchange component.

RTR is one component of modernizing the country’s payment system. There are also ongoing consultations regarding open banking, which also include both incumbents and startups. Open banking refers to a framework where consumers and businesses can authorize third-party financial service providers to access their financial transaction data through secure online channels, as well as providing authorized third-party financial service providers to initiate payments on their behalf, through APIs.

Multiple sources with knowledge of the consultations have expressed frustration to BetaKit about the open banking consultation process, with one even calling it a “massive waste of time.” The sources indicated that the signals coming out of the consultations are that the Bank of Canada is going to follow the lead of the Big Five banks rather than working with innovative financial companies to create new technology, infrastructure, and processes.

More than just a card | INTERAC Debit