Forty per cent of all face-to-face Visa transactions in Australia are now made using Visa payWave, our contactless technology. With this infrastructure for contactless payments already in place, the jump to mobile payments will happen quickly.
In the next 12 months, I expect to see cloud-based mobile payments take off in the Australian market too.
In many ways it’s impossible to predict exactly what the financial landscape will look like in the future, especially in the rapidly evolving world of payments.
David Murray, the chairman of Financial System Inquiry noted recently technology is one of the major themes of the 270 odd submissions made to the inquiry.
That speed of innovation means it’s crucial for the FSI to recommend changes that give the financial system ample room to adapt to future developments - both predicted and unforeseen.
Here at Visa, we are calling for three main changes, all of which support what we believe is future-proofing our industry in Australia.
- Firstly, the definition of what constitutes a payments system needs to change. Under the Payment Systems (Regulation) Act, regulation is applied unevenly across existing payment systems. This grows more complex when you take into account the vast potential for new entrants in the future. Last year alone, there were more than 900 start-ups in the payments industry. Broadening and clarifying the definition of a payments system will ensure a level playing field and fair competition for existing, new and future market players in Australia.
- Secondly, interchange, the fees paid between issuers of payment products and processors of transactions in the payments system, is another area where equal and fair regulation is key to future-proofing. Research by Deloitte Access Economics shows the increasing share of unregulated payment systems have cost merchants $125 million in higher fees in the 2013 financial year and a cumulative $770 million since reforms were introduced. Higher costs for merchants can discourage innovation because it can lead to fewer merchants accepting cards for payment or promoting use of less efficient payments, like cash. On the other hand, insufficient issuer interchange revenue, which is also impacted by interchange regulation, could lead to reduced investment in new technologies that encourage efficient and secure payments. If all payments systems are treated equally, there is more balance in the ecosystem for issuers, merchants and cardholders and very critically, competition is based on merit rather than distorted by regulatory disparity.
- Thirdly, another barrier to electronic payments is surcharging. It is clear that any move to support a reduction in excessive surcharging needs legislative support. Merchants aren’t going to ‘go it alone’. Visa has been actively working with merchants and financial institutions to reduce excessive surcharging since the Reserve Bank introduced new guidelines in March 2013. But to enact meaningful change that protects consumers from unnecessary costs, a ban on surcharging is needed.
Payments innovation is being driven in large part by consumer choice. Consumers want faster, more convenient transactions, which new form factors like contactless cards and mobile payments give them.
A survey on Visa payWave usage revealed one in two customers choose to use contactless due to its speed and 83 per cent of customers said they were satisfied with the convenience of contactless transactions.
Australians are also carrying less cash, with one in four consumers carrying less than $20. The RBA’s recent research on payments behaviour shows use of cash is declining across all demographic groups, which the RBA says could be in part because new payment technology can match or surpass the speed of paying with cash.
It’s time for regulation that supports evolving consumer behaviour because we’re in a time of change and there will always be new ways to pay.
It’s not just payments that are looking to be future-proofed. If you look at the submissions of industry bodies like the Australian Bankers Association (ABA) or Australian Retailers Association (ARA), you will see these organisations calling for regulation to be open and plan for the future.
The ABA emphasises the importance of getting cloud computing regulation right as banks increasingly look to adopt ‘as-a-service’ models. The ARA also talks about the ability to adapt to future innovation, urging the FSI to take into account the need for merchants to upgrade their technology platforms with cost effective solutions.
It’s clear that any new regulation addressing technology will impact us all, from small independent merchants to the largest financial institutions. As the industry awaits the FSI interim report in mid-July, it’s reasonable to predict technology and innovation will be a significant component of the findings.
What will ensure the continued success of Australia’s financial system is making sure the recommendations put in place today are equally conscious of what will come tomorrow.
- RBA Consumers’ Use of Payment Methods
- ABA submission to Financial Services Inquiry
- ARA submission to Financial Services Inquiry
Stephen Karpin, Group Country Manager, Visa Australia, New Zealand & South Pacific.