Rethinking payments and competition for Australia’s post-Covid Digital economy
By Stephen Benton
As millions of Australians look in hope towards eased COVID restrictions, the nation’s businesses and policymakers are considering what life after lockdown looks like, and the implications for the nation’s Digital Economy.
Despite a COVID curve ball being thrown at the Australian economy, a rapid pivot to digital operations has helped many organisations endure what, for many, has been the biggest economic and emotional stress test of recent times.
It was pleasing to see the announcement from Federal Treasurer Josh Frydenberg this morning stating that the Morrison Government is committed to lowering costs for small business through the implementation of Least Cost Routing in the debit card market.
The Government wants the RBA to mandate “least cost” routing for tap-and-go debit transactions, so business merchants can avoid typically higher fees charged by international schemes and default to the usually cheaper domestic eftpos system.
The challenge for business and policymakers
For businesses and policymakers alike, the welcome retreat of the pandemic will also require fundamental decisions that recognise our commercial reality has changed forever.
Significantly, the way we pay for goods and services in a new economy has rapidly shifted to digital, with implications for cost, security and data sovereignty.
Even when we go to physical shops, the way we pay has changed to being almost exclusively no-contact tap payments, either via card or mobile.
There has also been a move away from cash, and from credit to debit cards, which now account for about 70% of retail payments, or around 8 billion transactions a year.
Therefore, we must ensure this rapidly expanding and changing world of Australian digital commerce is driven by the right principles to support efficiency, competition and secure outcomes for all Australians.
For example, it is essential that we guarantee our nation’s businesses access to competition and low-cost payments in a new, post-COVID world dominated by debit cards, mobile apps and eCommerce.
Similarly, as data quickly becomes a new currency, we must consider the importance of data sovereignty, ensure consumers have the ability to control the use of their data, and that Australian businesses can harness the power of data with proper consents.
The Federal Government is doing important work around the Digital Economy, aiming to boost productivity, increase access to secure infrastructure, support emerging industries, and ensure fit-for-purpose regulatory frameworks are in place.
We also welcome the recently released Treasury Payments System Review that recognises there are significant competition and access issues that need attention for the good of post-COVID Australia, and recommends new powers for the Treasurer to act.
Today the Treasurer said: “As part of our consultation on the Farrell Review into Australia’s Payment System, the government will consider changes that may be necessary to promote least-cost routing more broadly, particularly in an online and contactless environment.”
Least cost routing is essential in post-COVID Australia
One of the most pressing issue in Australian payments is that we ensure Australian businesses can access the lowest cost for accepting debit cards for payments across multiple platforms, including mobile and online.
In a world of tap payments in physical stores, competition in debit cards has been driven by the existence of 40 million multi-network debit cards – the cards that sit in almost everyone’s wallet that have access to two payments networks – eftpos and an international scheme.
These cards provide merchants with the ability to choose between two different networks via Least Cost Routing, and gain access to the lowest fees to process their transactions. It makes no difference to the cardholder, as the money comes from the same card and account no matter which network processes the transaction.
The gradual adoption of Least Cost Routing at physical stores has already resulted in merchant fees on debit card transactions being reduced by hundreds of millions of dollars a year.
However, as we move boldly into the new digital economy, this type of debit card competition is not currently available on platforms like mobile and eCommerce.
When consumers move their multi-network debit cards into these environments, the merchant cannot choose where to send the transaction to avoid higher fees. As a result, in most cases the merchant pays more.
The urgency of effective regulation in this area in a post-COVID economy is amplified by just how fast Australians have shifted to online and digital transactions in recent months.
As New South Wales hunkered down for a second time, the Westpac card tracker report of 30 July revealed online card activity in the state spiked sharply, with eCommerce transactions jumping to over 50% of all transactions for the first time – well above the peak of last year’s lockdown.
Data management and digital identity
As the Digital Economy grows, data is becoming a new currency that is currently dominated by global players (both in Tech and payments) and needs proper regulation/guidelines.
Policy makers are grappling the idea of data sovereignty and why it is important to protect our data onshore, under Australian rules.
Australia must avoid the use of international standards and principles as a substitute for clear Australian laws and regulations that support our national interest and protect our data sovereignty.
Ultimately, Australian Consumers should have the ability to control the use of their data and Australian businesses (large and small) should be able to access and harness the power of data with proper consent.
What is eftpos doing?
As an Australian company at the coalface of electronic payments, the company’s purpose is simple – to do good for Australia. To that end eftpos has recognised these challenges and invested more than $100 million over the last five years on digital upgrades, focused on security, eCommerce, fraud production and digital identity.
We have made big investments in online payments security, meaning that eftpos online transactions, including Least Cost Routing, carry significantly less risk to traditional security vulnerabilities that currently cost the Digital Economy and online businesses hundreds of millions of dollars a year.
This is in addition to other secure digital payments initiatives that eftpos is also rolling out in the Digital Economy, including QR code payments experience infrastructure, mobile wallet functionality and a digital identity service, connectID, where security and data privacy are key design principles.
In the case of connectID for example, we have developed a solution that offers citizens choice over where they store their identity data, and drives interoperability rather than centralizing data storage and creating siloed interactions.
It is clear that as we move into the post-COVID economy, the availability of choice for merchants remains contingent on regulators and policymakers being prepared to show leadership in the national interest.
Great opportunities await Australia as it enters a more digitised post-COVID economy. Getting the market and regulatory settings right around payments will make all the difference.