Threat of real distortions in the EFTPOS market
Australia’s four major banks and Woolworths and Coles will potentially be the big beneficiaries if a new regulation of the EFTPOS payments system is allowed to proceed.
Under the proposals, the major banks and retailers will be allowed to negotiate special deals for themselves, while charging small and medium sized retailers higher fees if they wish.
This is because the big four banks and Woolworths and Coles through their ownership in eftpos Payment Australia Limited (ePAL) are being given the freedom to just do that.
Australia’s 350,000 smaller retailers could then be forced to pay more to use the EFTPOS network, which could flow through to higher costs for consumers.
Consumers already pay a high price to use their credit and debit cards.
Banks generated an estimated $3.1 billion in fees last year from the $436 billion spent on credit and debit cards. The pending proposals could lead to higher prices for retailers and consumers alike.
What Australia needs is more competition, not less. Imagine what could be possible in Australia if creativity could be unleashed and investment encouraged through an open market offering access and a level playing field.
But these proposals have the potential to line the pockets of the major banks, while disadvantaging everyone else.
The proposals come as Australia’s retail sector, the nation’s number one employer, is struggling to cope with online competitors.
More than 1.2 million Australians work in retail, while 26,000 jobs have been lost in the last 12 months alone[1].
I raised my concerns in a Tyro Payments submission to the Reserve Bank of Australia, in response to the RBA’s paper on EFTPOS charges released on 12 June 2012.
In my view, the foreshadowed new regulatory regime spells bad news for the small business community and new competitors challenging the establishment because:
1. Only members of eftpos Payment Australia Limited (EPAL), an organisation dominated by the four major banks and two big retailers, are subjected to regulation. Coles and Woolworths using their dominant market power could leave ePAL and negotiate directly favourable terms without any regulatory oversight; or use that threat to obtain those directly from ePAL.[2]
2. New entrants and innovators are at the mercy of the four dominant banks, since there is no access regime forcing the banks to implement the required agreements to grant new participant access to the EFTPOS system.
3. Retailers and ultimately consumers are at the mercy of the four dominant banks, when those increase the EFTPOS fees. Once given the freedom, ePAL has already raised the EFTPOS interchange fee[3] pocketed by the banks by an estimated $150 million and the scheme fee for themselves by $46 million. The reality is that except for Woolworths and Coles, no retailer and no consumer has the ability to impact the EFTPOS interchange fee.
The Australian banks gain the freedom although they have failed consumers, with regular EFPTOS outages through old infrastructure and other glitches. Tyro’s Internet based payment system has instead delivered new levels of speed, reliability, security and integration to Australian businesses and consumers.
New technology allows revolutionizing the way we shop and pay. Imagine what could be achieved in Australia if innovators had fair and open access to EFTPOS to allow them to develop innovative alternatives to the stale offering of the major banks.
Australian consumers, retailers and innovators should be protected by the independent regulatory hand of the Reserve Bank of Australia, mandating the outcomes and standards of the payment system and ensuring access and a level playing field for new entrant innovators.
[1]http://www.nra.net.au/images/120403-NRAMediaRelease-FebruaryRetailTrade-FINAL.pdf
[2]The RBA states on page 23 of its Review: “The practical effect of this is that any regulation imposed by the Bank in relation to the new designated EFTPOS system will directly affect only EPAL and its members. This does not mean that debit card transactions cannot occur outside EPAL; rather, that the interchange fee and access arrangements imposed by the Bank on the designated EFTPOS system will not apply to those transactions.”
[3]The interchange fees are payments made between the retailer’s bank or financial institution (known as the acquirer) and the EFTPOS cardholder’s bank or financial institution (known as the issuer). Retailer’s banks charge retailers a merchant service fee. Retailers can elect to charge their customers an additional fee (surcharge).
Jost Stollmann is Executive Director and Chief Executive Officer of Tyro Payments. In 1984 he founded and grew the German system and network integrator CompuNet Computer AG into a one billion dollar company. In 1996, he sold it to GE Capital US and led the integration and expansion of GE Capital IT Solutions across Europe. In 1998, as Federal Shadow Minister of Economy and Technology, Jost ran his successful election campaign making a significant contribution to the landslide victory of Gerhard Schröder to the Chancellorship of Germany. Jost commissioned an award winning 40m high performance racer-cruiser and sailed with his family around the globe before settling in Sydney in 2004.
Jost Stollmann is the CEO of Tyro Payments.
