Last week’s announcement by the RBA that it will remove surcharges on debit and credit cards and undertake a review of interchange fees is not only welcome news for Australian consumers; it is also a great opportunity for Australian fintechs to mark their territory.
Understandably, the impending change has local merchants sweating about further soaring costs, but it’s not all gloom for small businesses.
Historically, it often takes a regulatory kick up the behind to change an industry, and that’s what this is – a reset of the Australian payments landscape which has opened a window for the fintech sector to flex its muscle.
20 years after things changed
Remember, it was only 20 years ago that Australians were still paying predominantly with cash or a clunky Eftpos terminal that required a card insert and pin. At the time, the Big Four banks were the only players authorised to process these payments.
Today Australians are among the highest users of digital and contactless payments in the world.
That started to change in 2003 when the RBA opened up access to the card payments system to institutions other than banks, ushering in the arrival of Tyro, and later others like PayPal and Adyen.
As these fintechs proved themselves both to consumers and merchants as more user-friendly and business-savvy alternatives, the effect snowballed with further local investment from global players like Square. One regulatory change was ultimately transformative.
Now digital payments are prolific, and we’ve reached a full-circle moment where the cost of these conveniences must be reviewed and regulated to better serve today’s merchant and consumer. But there is no denying the enormous benefit these fintechs have created both directly, and indirectly, by spurring increased competition and collaboration with each other, and the banking sector.
Small businesses and merchants will continue to need to offer digital-first consumer choice in their payments mix to remain competitive, but they are not entirely powerless to the regulation and close collaboration with the fintech sector will play a pivotal role in how this plays out.
Fintech can fill the gap
I recently attended the Fintech Australia ‘Finnies’ Awards and was blown away by the depth of services and talent emerging from the local fintech scene. A lot of this innovation has stemmed from recent regulatory changes like Open Banking and the launch of the world-leading New Payments Platform that facilitates the secure exchange of real-time cash payments between banks (Pay by Bank).
This week’s change will undoubtedly be a line-in-the-sand moment for Account-to-Account payments in Australia to enter the mainstream. Quite simply, this technology means consumers can access their cash directly from their bank without using a card – as it should be.
Introducing Pay by Bank as a default payment option will reduce the cost of payments for merchants, and give consumers a way to pay quickly and securely without the cost or risk of cards.
Merchants such as Amazon Australia have already made the move by introducing Pay by Bank (powered by PayTo). This project was implemented in collaboration with NAB, which has recognised the benefits of drawing on the established infrastructure of fintechs rather than building new technology from scratch.
Australian merchants are right to be worried and advocate for a review of fees, but they should be reassured by the knowledge that they hold more cards than they realise.
Merchants have an opportunity to rein in their costs, but it will require them to be proactive and explore options beyond the status quo. With the support of the business community, the fintech sector can help to shift attitudes away from fear and toward opportunity.
* Ben Zyl is Country Lead, Australia, at Banked