These three commercial entities, along with the self-regulatory and governance-focused Australian Payments Network (AusPayNet, formerly Australian Payments Clearing Association or APCA), evolved organically with changing market needs.
Historically, each has had a distinct purpose and set of service offerings. But changing customer and regulatory expectations, along with advances in technology, have started to blur the boundaries between service propositions.
Payments need networks
A critical and somewhat unique aspect of all payments systems compared with other banking services is their reliance on a network effect. Consumer choices in payment instruments are largely dependent on merchant choices in acceptance. And vice versa.
Equally, a ubiquitous network is required in order to ensure payments can be sent and received across the industry and economy. Therefore, arguably more so than other utilities, payments infrastructure requires a high level of collaboration to enable competitive services to customers as quickly as possible.
BPAY, ePal and NPPA are collaborative entities in their own rights – but with separate governance structures and siloed objectives. So initiatives are often developed in an uncoordinated manner and in competition with each other.
This competition may not always be beneficial. There is an argument it introduces the risk of duplication and inefficiencies without any clear benefits to consumers and retailers. The case for proposed change is consequently based on the argument that rationalisation of the payment industry structure will improve the industry’s ability to deliver benefits to payment customers by enabling a single, clear strategic roadmap across payment clearing systems and initiatives.
Today, the lack of such a public roadmap creates confusion and hesitation rather than the intended outcome of customer choice and rapid innovation.
This context explains why the consolidated governance of payment utility services in Australia is not necessarily anti-competitive. It may in fact be necessary to create a robust platform for digital innovation and market-led solutions that can compete (and, where appropriate, collaborate from a position of strength) with conglomerate international schemes.
Australian financial institutions - as shareholders and customers of these utilities - might support a strategy that marshals the best talent in Australia around a clear vision to enable simpler and more customer-focused solutions.
Any attempt to consolidate three successfully operating, separate entities is wrought with risk and complexity. The proposed approach involves establishment of an Industry Committee made up of the 22 shareholders across the three organisations.
So who earns a seat at the table?
Relationships with these bodies sit across multiple divisions and functions within each shareholder organisation. The right level of seniority is necessary to ensure effective decision-making and appropriate conduct. However, this needs to be balanced with a strong understanding of payments and the infrastructure under consideration.
Will discussions include Company Directors? Management? It will be difficult to progress the agenda with so many chefs in the kitchen - although engagement and buy-in from all stakeholders will be fundamental to progressing the effort.
Additionally, what happens with work in progress during this process? It would be unreasonable to suggest the industry just stop ongoing initiatives for what may realistically be a number of months. However, company priorities and investment will be under review, and they will risk prioritising work that will potentially be duplicated and ultimately wasted.
Potential to simplify
Even with the obvious challenges, consolidation is still worth exploring in earnest, with the end goal of a more effective, productive and networked payments system that best serves its end users.
Such a move is not unprecedented. In 2017, the United Kingdom established Pay.UK as one operator for all UK retail payments, including BACS (Direct Debits and Credits), Faster Payments and Cheques. (Notably Pay.UK does not include the domestic debit card scheme which was merged with MasterCard’s Maestro scheme in 2002.)
As a company limited by guarantee, Pay.UK’s 36 guarantors have collective liability, essentially functioning as customers rather than owners of the infrastructure.
More similar to the proposal for Australia, Singapore also consolidated their payments governance under NETS in 2017. The acquisition brought together domestic card schemes, cheque clearing, direct debit bill payments and Fast and Secure Transfers (FAST), a real-time account to account payments system. While consolidated into a single entity with one governance structure, the existing businesses largely operate autonomously with separate management teams.
So consolidation, while challenging, is not impossible.
There is no doubt that if done successfully, the establishment of an entity with a broad vision, plan and governance structure for the Australian payments system might, as the NPPA Board has said, “advance the public interest, and be in the interest of all stakeholders”.
In an increasingly fast-paced digitised payments ecosystem, with competing priorities and finite resources, a single entity is in a position to champion a more agile platform and better support the innovation agendas of the competitive institutions that build services across its network.
Jackie Kallman is Head of Payments Industry and Engagement at ANZ