According to Visa Australia country manager Vipin Kalra, thousands of V.me accounts were opened that day last October. CatchOfTheDay’s website crashed – which is not particularly unusual. And by 7.30pm that night, Visa’s website was getting jammed – which is unusual.
That one-off sale did more than merely testify once again to Australians’ appetite for Apple hardware; it also demonstrated Australians’ enthusiasm for new payment mechanisms.
Indeed, new payments mechanisms are emerging thick and fast in Australia right now. We’re in the middle of what amounts to a payments ‘land grab’.
The explanation lies not just with our innovation-friendly consumers but also with the Reserve Bank of Australia (RBA), which has been keen to open up the payments frontier. The RBA’s 2012 strategic review of innovation in the payments system made a series of recommendations that will, by the end of 2016, make the system more flexible for financial services providers and more convenient for consumers.
The review spurred the creation of a collaborative payments hub, allowing near real-time settlement.
There are also now plans to establish a central addressing hub that could let people transfer funds knowing only the payee’s mobile phone number.
The Australian Payments Clearing Association and KPMG are steering that initiative and have signed up 17 organisations, including the big banks, smaller deposit-taking institutions and payments giant PayPal, to work on the hub.
Not that the industry is sitting back and waiting for an official blessing for innovation.
In 2010, ANZ pioneered mobile payments, which can be made from smartphones or tablets, when it released an iPhone app called goMoney. Commonwealth Bank pushed a step further when it introduced a special iPhone case featuring a near field communication (NFC) chip to allow contactless payments using its Kaching app.
The underlying NFC technology is the same as that used on the MasterCard PayPass and Visa payWave credit cards, designed for contactless payments. ANZ has contactless smartphone payments apps in trial, and NAB has launched its Flik app, which allows contactless payments on NFC-enabled phones. And both Commonwealth Bank and
Westpac announced new versions of their mobile banking applications in late 2013 that will allow contactless payments on selected Android phones from early 2014.
Although Apple has so far spurned NFC chips for the iPhone, there are now cheap NFC stickers – available in Australia from retailer Coles or CBA, for example – that allow contactless payments from a smartphone coupled with a payments app. Smartphone makers are also including NFC, and by 2017 there should be 1.2 billion NFC-ready phones worldwide, according to Juniper Research.
Alternative contactless payment systems are also emerging, such as 2ergo’s wi-fi-based podifi system. But given it is slower and less secure, it’s not expected to get the same sort of traction as NFC.
[breakoutbox][breakoutbox_title]Payments by the numbers[/breakoutbox_title][breakoutbox_excerpt][/breakoutbox_excerpt][breakoutbox_content]
210
Number of credit or debit card transactions the average Australian performed in 2012/13, according to the RBA. It’s double the count of five years earlier. Non-cash payments now dominate the Australian payments landscape.
15.4 million
Number of credit and charge cards Australians use over the course of a month.
$22.6 billion
Value of purchases or cash advances made with those credit and charge cards.
$8.1 billion
Value of cash flowing out of Australian ATMs monthly.
$42 million
Value of the one million personal cheques now signed by Australians each month.
6,400
Number of bricks-and-mortar access points to the payments network – mostly bank branches – at the end of the 2012/13 financial year. There were also 3,241 Australia Post outlets.
29,989
Number of Australian ATMs.
779,555
Number of Australian eftpos machines.
100,000
Approximate number of Australian eftpos machines equipped to accept contactless payments.
69%
Australians who said they used PayPal in 2013, according
to financial intelligence firm RFi Australia.
67%
Australians who said they used a credit card in 2013, making this the first year that reported PayPal users exceeded credit card users. The value of credit card payments remains, for the moment, higher, while virtual currencies remain very much a fringe alternative.
US$235 billion
Expected value of smartphone-based payments globally in 2014, as forecast by IT research firm Gartner. That’s 44 per cent higher than the 2013 estimate. Gartner predicts that contactless mobile payments will still represent only 5 per cent of all mobile payments by 2017.
Sources: RBA payment statistics August 2013; RBA points of access statistics, June 2013; RFi; Gartner 2013 Mobile Payment update.
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Merchants and banks spur demand
According to Alex Boorman, research director at financial intelligence firm RFi, Australians lead the world in contactless payments. The pace of change has been spurred by large retailers, such as Coles and Woolworths, which benefit from reduced friction and more customer data and have been quick to install contactless card readers.
Contactless smartphone payments have been slower to take off than contactless cards. But Boorman believes digital wallets could change that, as merchants and consumers benefit from the loyalty cards, coupons and rewards vouchers that can be stored in the wallets.
Whatever the underlying technology, the major banks are racing to mobile payments. They don’t want a repeat of the PayPal experience, where they considered themselves invincible, only to then see PayPal eat their lunch.
Bankwest executive general manager of enterprise services and chief information officer Andy Weir speaks for many bankers when he says bluntly, “We should be worried.”
Weir adds: “I was in the US recently and Starbucks had an app on a phone to buy coffee. That [app] went from zero to 25 per cent of all transactions in less than 12 months.”
It should be noted that Australia already has Beat the Q, a smartphone app that lets people order and pay for coffee using PayPal before they get to the coffee shop.
PayPal Here, meanwhile, uses a plug-in device that turns a smartphone into a credit card reader (although the current version won’t work with chip-only cards). In response, CBA has announced its own payments platform, called Pi, designed to turn smartphones into credit card readers and a mobile POS device.
Accounting systems embrace innovations
The flurry of activity in payments is also being spurred by start-ups, which are disrupting the banks’ status quo. Weir says the incumbents “need to embrace new entrants in the value chain” and argues that they must choose whether to “create walled gardens or try to connect with services that meet other needs”.
He says that is also the approach taken by accounting platforms such as Xero. Xero provides a core service, but then opens its platform to all comers. Xero’s Payment Services facility, for example, can take PayPal data directly into the system and also integrates with payments gateway eWAY.
Accounting consultant David Smith, of Smithink 2020, says that the app store approach taken by Xero – and increasingly a range of other accounting software companies – means any payments innovations can be simply plugged into a cloud-based accounting platform. This ability, notes general manager of Xero in Australia Chris Ridd, is “a fundamental benefit of being in the cloud”.
MYOB is also partnering directly with payments innovators. It last year signed a deal to distribute, license and integrate Mint Wireless’s mobile payment system with MYOB software.
Simon Raik-Allen, MYOB’s chief technology officer, says that by providing access through application programming interfaces (APIs) – the digital hooks that let programs connect with each other – accounting systems can integrate with all sorts of payments, including virtual currencies like Bitcoin.
As far as the operation of the accounting platform is concerned, as long as the payments data can be fed in through bank feeds or through an API, “there’s no difference if it’s a credit card, a virtual currency or PayPal”, according to Raik-Allen.
And peering further into the future, the MYOB technology chief believes many more payments models will emerge. “Accounting companies could create their own currency,” he muses. “I’m not saying we will do it, but we could.”
