Happy New Year! Reflections on consumer payments in the next decade

The turning of the year traditionally prompts personal reflection, if not resolutions. It’s the time in the busy working year to step back and think about the important but not urgent. This is all the more true as the decade changes: Roll on the 'teens'!

In the world of payments, the 'noughties' were quite a decade. In 2000, cash and cheques were king and queen, cards mostly came in two flavours – ATM/EFTPOS or credit – and no-one bought anything much online. In 2010, cash is king only of the micro transaction, no-one under 30 has a cheque book, cards come in every type and combination, and remote purchases and payments dominate the horizon. What is likely in 2020? 

I like this quote, from a blog by Scott Adams, the inveterate, irreverent blogger and creator of the 'Dilbert' comic:

 “Technically, you're already a cyborg. If you keep your cell phone with you most of the time, especially if the earpiece is in place, I think we can call that arrangement an exobrain. Don't protest that your cellphone isn't part of your body just because you can leave it in your other pants. If a cyborg can remove its digital eye and leave it on a shelf as a surveillance device, and I think we all agree that it can, then your cellphone qualifies as part of your body. In fact, one of the benefits of being a cyborg is that you can remove and upgrade parts easily. So don't give me that 'It's not attached to me' argument. You're already a cyborg. Deal with it.”

As usual, Adams points to an uncomfortable truth: we are increasingly dependent, by habit if not surgery, on our technology.  The rise of third generation mobile computing usage was striking as the last decade ended.

Adams takes it to the next level. He proposes the 'dilbert pocket' – a shirt pocket with handy window for the exobrain’s 'eye' (camera). Once you have the dilbert pocket, says Adams, the way is clear for your exobrain to really start adding value.  There are already apps (mobile computing applications) that will interpret and provide data on whatever you 'show' them: play your phone a song and it will tell you the artist and album, plus where to buy it. The next step (although this is harder) is that your exobrain will be able to recognise someone approaching you, and whisper their name in your ear.

So where do payments fit? Mobile payments have been much talked about, but have not met the more optimistic predictions in the noughties. As is so often the case, it is not for lack of technological innovation. Rather, it is a question of customer need and critical networking mass. From an Australian consumer’s perspective, what is the 'wow' factor in an m-transaction compared with an electronically authorised card transaction? 

For me, this is where the exobrain idea comes into its own. Like most Australians, I am using card and PIN for more and more of my shopping, and cash for less. What irritates me (particularly after Christmas) is my unwieldy, messy wallet. The problem is not the small amount of reserve cash in it, but the expanding bundle of cards and tickets (payment, store discount, loyalty, travel, insurance, etc etc), and the dog-eared wad of assorted receipts that are my only proof of purchase and reconciliation tool.

If I could get my mobile to hold virtual 'cards' (all of them, not just one), and replace paper receipts with reconciled account data, that would be great. Then of course, there can be apps for my exobrain to read the bar codes on shop merchandise; couldn’t it keep track of my 'shopping cart' as I wander around the shop (real or virtual), maybe even advise on discounts and competitive prices elsewhere, before it completes payment and reconciles automatically with my bank? My budgeting app could be hooked up to warn me when a purchase will take me over my card limit or budget – with an override button of course!

Like all predictions this is probably off-beam in some respects. (The dilbert pocket seems like fashion suicide to me, but who knows?) Whatever actually comes to pass, convergence of payment methods (both card- and internet-based) seems set to continue into the 'teens': it’s a fair bet the consumer of 2020 will expect to pick the account, the provider, the payment method and the loyalty programme on command (touch screen? voice? brainwave?). The leap forward is not so much how you do each transaction; it is increased choice and control combined with the simplicity of every payment seamlessly integrated on one device with the rest of your financial life. 

Consumers seem happy to pay for new mobile services of a breathtaking diversity, providing new markets, and opportunities for new revenue. Payments should not be any different, so long as the service is genuinely new. The challenge for us in the industry is establishing the safe, common framework across multiple different kinds of players for these services to be made real. 

Sounds like we will have plenty to keep us occupied this decade!

Staff change at APCA

At the end of 2009, APCA lost its respected Head of Self-Regulation, Temogen Hield, to the newly established EFTPOS Payments Australia. We wish Temogen all success in this exciting and challenging new venture. 

We are also delighted to welcome Susan Bray as the new Head of Self Regulation. Susan comes to APCA with a pedigree in network industry self-regulation, having been a senior regulatory policy executive at ASX and with experience in a range of other financial services roles. We are lucky to have secured Susan’s services, and I am sure members will enjoy working with her.

APCA hosted the International Council of Payment Association Chief Executives (ICPACE) annual meeting on 26 and 27 November 2009 in Sydney. This brought together the CEOs and senior staff from the national payment associations of the United Kingdom, USA, Canada, South Africa, Ireland and Australia.

The annual ICPACE meeting provides a unique opportunity for APCA senior management to learn and share with overseas counterparts about the challenges facing national payment associations. The response of governments, regulators and industry to the recent global financial crisis was a major focus of discussions, as were the perennial issues of industry collaboration, standard setting, new technology and fraud prevention.

Next year’s ICPACE meeting will be hosted by the Canadian Payments Association (CPA) to coincide with the CPA’s Payments Panorama 2010 Conference in Vancouver.

Back row: Paul Smee (UK Payments Administration); Jan Estep (NACHA, USA); Walter Volker (PASA, South Africa); Chris Hamilton (APCA).
Centre: Arun Kendall (APCA); Paula Gray (IPSO, Ireland); Pat McLoughlin (IPSO, Ireland); Priscilla Holland (NACHA, USA); Guy Legault (CPA, Canada).
Front row: Pierre Coetzee (PASA, South Africa); Brad Pragnell (APCA).

With leading international industry figures in Sydney for the ICPACE meeting, APCA took the opportunity to hold a special morning seminar for its members.

Attendees at 'Global Perspectives on Payment Challenges', held at APCA on 30 November 2009, heard the latest on global payments from guest speakers Ms Jan Estep (USA) and Mr Paul Smee (UK).

Ms Estep is Chief Executive of NACHA, the Electronic Payments Association which oversees Automated Clearing House Network in the USA. Mr Smee is Chief Executive of UK Payments Administration (formerly APACS) – a service provider to the UK payments industry. He is also Chief Executive of the Payments Council – the body which sets strategy for UK payments. 

Focussing on the impact of evolving technology, Ms Estep and Mr Smee discussed payments developments in their own jurisdictions, the lessons learnt and what future challenges may lie ahead. A key take-away was the need for national payment associations to work closely with members and stakeholders in facilitating collaborative solutions that foster innovation and efficiency. Mr Smee also provided insight on the lead up to the recent announcement by the Payments Council on the phase out of cheques in the UK by 2018.

The presentations were followed by a panel discussion with the audience, moderated by APCA Chief Executive Chris Hamilton. Ms Estep and Mr Smee were joined on the panel by Mr Lance Blockley, Managing Director of Edgar Dunn & Company and Mr Peter Roeleven, NAB General Manager White Label Services.

L to R: Chris Hamilton; Jan Estep: Paul Smee; Lance Blockley; Peter Roeleven.

The Australian Competition and Consumer Commission (ACCC) has reauthorised regulations governing the operation of APCA’s Consumer Electronic Clearing System (CECS). The regulations represent an arrangement amongst competing payment service providers for the efficient clearing and settlement of ATM and EFTPOS transactions. Authorisation recognises that this arrangement has net public benefit, and protects against any risk that the rules breach pro-competition provisions of the Trade Practices Act 1974.

The CECS Regulations and Manual were first authorised by the ACCC in 2000. With authorisation expiring in November 2009, APCA re-assessed the trade practices implications and decided to seek reauthorisation only for provisions relating to the certification of CECS participants and suspension and termination of CECS membership.    

In issuing its final determination, the ACCC said that the certification, suspension and termination provisions promote the efficient operation and enhanced security and integrity of CECS. Furthermore, it found that refusal of CECS membership does not preclude an organisation from participating in ATM or EFTPOS system as it can enter into an agreement with a CECS member to process, clear and settle transactions on its behalf.  

The ACCC has granted reauthorisation for five years from 6 January 2010. 

Click here for the ACCC’s determination.

Productivity Commission Draft Report on Gambling

In late October 2009, the Australian Government’s Productivity Commission released its Draft Report on Gambling. The Report puts forward a number of draft findings and draft policy recommendations on addressing the economic and social impact of gambling.    

Access to cash and credit is addressed in some detail within the Draft Report, with a particular focus on ATM/EFTPOS facilities within gambling venues. 

In its draft findings, the Productivity Commission identifies a link where access to ATM/EFTPOS facilities does appear to increase spending by problem gamblers. However, an outright ban of such facilities is seen as having 'uncertain benefits and costs'.

In this context, the draft recommendation is for a $200 per day limit on cash withdrawals from ATM/EFTPOS facilities in gaming venues across Australia. The Report suggests this would be a 'per card' limit similar to that being introduced in Victoria. There are also draft recommendations that ATM/EFTPOS facilities be located a reasonable distance from the gaming floor, as well as visible to the public and venue staff yet not visible to gamblers from the gaming floor. ATM and EFTPOS devices should also have warnings and help messages regarding problem gambling affixed or nearby.

The other draft recommendations, which reflect measures already adopted in certain States, include a ban on the use of credit cards for gambling purposes, requiring winnings over $250 to be paid by cheque or direct credit and tightening cheque-cashing within venues.

The Draft Report and more information about the Inquiry on Gambling can be found here.

The Productivity Commission will submit its final report to Government by 26 February 2010.

EFTPOS interchange fee regulation
APCA’s submission to the Reserve Bank of Australia (RBA) on proposed changes to EFTPOS interchange fee regulation was made on 23 October 2009. 

In its original September 2009 consultation paper, the RBA proposed to alter its restrictions on EFTPOS from the existing interchange fee band of between 4 to 5 cents to the card acquirer to a new 12 cent cap of interchange fees to the card issuer.

Following a period of consultation, the Payments System Board (PSB) decided at its 23 November 2009 meeting to take a slightly different approach. The PSB agreed to maintain the existing 4 to 5 cents to the card acquirer restriction for bilateral EFTPOS interchange fees while introducing a 12 cent cap to the card issuer for any future EFTPOS multilateral interchange fees. 

The RBA says these changes are intended to facilitate and stimulate competition between EFTPOS and scheme debit systems. 

The amended standard came into force on 1 January 2010 and is available on the RBA website.

Click here to access the 23 October 2009 APCA submission.

APCA submission to Department of Human Services Discussion Paper
As reported in the previous edition of Payments Monitor, the Minister for Human Services, Chris Bowen MP released the Better Dealings with Government: Innovation in Payments and Information Services Discussion Paper on 14 September 2009. 

APCA made its submission to the Discussion Paper on 30 October 2009. The submission outlined the importance of the Department and its agencies (such as Centrelink and Medicare) as users of the payments system and the need for engagement with industry. APCA identified a number of projects arising out of the Low Value Payments Roadmap that would benefit from the Department’s input. The APCA submission also outlined a process for further consultation between the Department and industry.

The Discussion Paper and related material can be found here.

Click here to access APCA‘s submission.

New US Federal Reserve consumer protection rules on overdrafts through ATMs and debit cards

The US Federal Reserve Board has announced new consumer protection rules that restrict the ability of a debit card issuer to charge fees for overdrafts on ATM or debit card transactions unless the consumer consents.

Prior to opting-in, the consumer must be provided a notice explaining the overdraft services, including fees associated, and the consumer’s choices. 

These rules will be effective 1 July 2010.

Click here to access more information on the US Federal Reserve Board consumer protection rules.

The Reserve Bank of India outlines vision for payments

The Reserve Bank of India (RBI) has released its Vision 2009-2012 document for the payments systems of India. 

The RBI is responsible for authorisation of payments systems under the Payment and Settlement Systems Act 2007, with a role to ensure all payment and settlement systems operating in the country are safe, secure, sound, efficient, accessible and authorised.

The Vision document outlines an Action Plan for the RBI that includes authorisation of payment systems, smooth functioning of existing payment systems, infrastructure building and improvement (in collaboration with the newly established National Payments Corporation of India), promotion of electronic payments and reduction of risks in paper-based clearing.

The Vision also outlines a number of new projects and major initiatives to be taken forward in collaboration with the industry-run National Payments Corporation of India. These include:

 •  Implementing a new and feature-rich real time gross settlement (RTGS) system
 •  Establishing India Moneyline – a new system akin to UK Faster Payments
 •  The India Card – a national domestic debit card to promote competition
 •  Redesigning the existing bulk electronic system to operate as an automated clearing house (ACH)
 •  Establishing a national infrastructure for facilitating real-time mobile payments

Click here to access 'Payment Systems in India - Vision 2009-12'.

In the previous edition of Payments Monitor, we advised a number of changes in the board of directors, including the resignation of Mr Geoff Bebbington as the director appointed by National Australia Bank (NAB).

We are now pleased to announce that effective 6 November 2009, the new director appointed by NAB is Mr Steve Aliferis, NAB’s Executive General Manager of Working Capital Services. 

Mr Aliferis's career has spanned more than 20-years in the finance sector. His extensive knowledge and experience covers a number of specialties such as funds management, life insurance and banking in both product management and new business acquisition.

We welcome Mr Aliferis to the APCA board.