Innovation in consumer payments is a key issue for both industry and regulator. The need for further innovation featured prominently in the speech given by Reserve Bank Governor Glenn Stevens on 25 March 2009.
Innovation has also been identified by industry stakeholders as a key challenge for industry at the Card Payments Forum.
The first Card Payments Forum meeting in October 2008 noted the need for further research on innovation. In response, APCA commissioned Edgar Dunn to undertake research that examined payments innovation in Australia – in particular how we compare internationally and what are the barriers to further innovation. The research was presented at the Card Payments Forum meeting held on 27 March 2009 and is available on the Card Payments Forum website.
The Edgar Dunn research found that the Australian public was well served by current payment offerings. Australian consumers were highly banked and had lots of payment choices available. There was no overt customer demand for innovation (other than in mass transit) and, as a result, no 'obvious' gap between what consumers wanted and what was available.
Though the research findings identified Australians as generally content, in his presentation to the Card Payments Forum, Edgar Dunn CEO Lance Blockley, quoted Henry Ford, the automobile magnate, who said “If I’d asked people what they wanted, they’d have said a faster horse.” Carrying on the analogy, Mr Blockley highlighted that consumer payments, like the automobile, have remained essentially the same over a long period of time, though technology has radically improved efficiency and safety.
In this context, the Edgar Dunn research distinguished between different types of innovation – product versus systemic and incremental versus step change. Indeed, defining what one means by 'innovation' is often part of the challenge in having a constructive dialogue.
The Edgar Dunn research found the current Australian environment was more conducive to incremental rather than step change innovation. As well product innovation was generally easier than systemic innovation.
Systemic innovation was often challenging due to the numerous players involved and the challenge of building a clear business case within each organisation. The Edgar Dunn research identified the following pre-conditions as assisting in working towards systemic change:
• Consistent regulatory framework
• Government incentives
• Financial incentives/certainty for providers of payment services
• Completion of current core banking system upgrades
The Edgar Dunn research remained optimistic about Australia and innovation. It noted it is hard to argue that Australia does not have a competitive and modern retail payments system, with consumers well served and spoilt for choice. However, further systemic innovation remained an outstanding challenge requiring significant commitment from both industry and Government.