Payment System

All payments are part of the Australian Payments System, The system is built upon five clearing streams of direct debit and electronic transfers, cards, cheques, high value, and cash.

Trends In Consumer Payments

RBA data suggests 40% of credit card values in Australia are now card-not-present

Change is pretty well the only constant when it comes to consumer payments. In Australia, we have seen a rapid uptake in contactless card use as well as increased use of online payments. Conversely, we have seen a rapid decline in personal cheque use as well as an ever-diminishing use of cash. Monitoring changing payment usage can be notoriously difficult. The Reserve Bank of Australia (RBA) and APCA collect and publish statistics from industry participants on cheques, cards and electronic payments as well the number of ATMs and POS devices. However, other types of usage such as cash use and the split between card-present (point-of-sale) and card-not-present (internet, telephone and mail) transactions are more difficult to track. Consumers and merchants don’t regularly record or report their own payments activity – meaning we only get a partial picture of how payments use is evolving.
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Systemic Innovation

The return of collaboration

As I think about payments developments in 2014, what strikes me is that the payments world is now in a phase of collaborative systemic innovation, the like of which we have not seen in 20 years. I have written about the cyclical nature of network evolution before. It’s all about network effects - ie the reality that, in payments as in other network industries, the net value of a service is proportional to the number of other people using the service. Wherever there are large network effects, an evolutionary balance must be struck continuously between service innovation based on the existing network, and systemic innovation to enhance the network itself. The former uses new technology and/or new business thinking to improve services to end users without trying to change the network itself - because this is expensive and hard to do. Service innovation tends to be competitive in nature. A good example is Square, which innovates in the merchant/customer interaction by riding the rails of the existing card schemes. The latter - systemic innovation - seeks to upgrade the underlying network so that new and better services can ultimately be delivered to end users. The current global enthusiasm for real-time payments is largely in this category - building new networks to (eventually) deliver better services. Because this needs a large number of existing participants to coordinate in upgrading their technology and operations at the same time, it is typically collaborative more than competitive, and government often has an important role to play.
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Payment Costs

Payment costs in Australia – early observations from new RBA research

With complex processes and multiple parties, determining the costs of payments can be difficult. In recent years, the Reserve Bank of Australia (RBA) has taken up the challenge and released a research report on the cost of payments in Australia. This represents a long-awaited follow up to research last done in 2006. The most recent RBA report dated December 2014 draws upon data collected in 2013 from financial institutions, businesses and consumers and seeks to quantify the overall cost of payments and the cost of various payment methods. This includes both “resource costs” (the costs to the whole economy) and “private costs” (the costs borne by consumers, merchants and financial institutions respectively).
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Bitcoin

Towards a sensible dialogue on cybercurrencies

If you work in payments, you will for sure have been part of a Bitcoin debate in the last 12 months. Until recently, such discussions usually took one of two forms: they were either pep rallies or exorcisms. Actually, the most entertaining events in my memory happened when participants turned up expecting one, and got the other. A brief terminological note: “cybercurrencies” in this context means any open protocol for the retention and transfer of value where the attribution of value, and the recognition of ownership, does not derive from or rely on a national currency. There are many ways of doing this, including open loyalty schemes, game currency platforms and algorithmic currencies, but the best known is Bitcoin.
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Mobile Contactless Payment

The prospects for mobile contactless payments in Australia

Many Australians believe their smartphone might one day replace their contactless cards. Research by Lonergan Research, on behalf of CBA, found that 73% of Australians believed their smartphone would replace their wallet by 2021. Australian financial institutions have, to date, met the demand for mobile payments through the use of NFC-enabled stickers and cases. The February 2014 announcement by VISA and MasterCard on “host card emulation”, where the secure element for a contactless payment can live in the cloud rather than in the phone, has reignited global interest in use of mobiles at point-of-sale, with a local trial being announced in Australia in March 2014. With consumer sentiment and facilitating technology shifting in its favour, what are the prospects for wide-scale embrace of mobile contactless payments in Australia?
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