Quest chief executive, Jan Mason
The Australian banking industry is on the cusp of a second revolution in the contactless payments market that promises to deliver cheaper service plans to small businesses.
Local banks are reconfiguring their merchant service offerings to accommodate a new mobile payments technology that will slash the cost of point of sale transactions and expand the number of small businesses connected to the interchange system.
Major banks are at various stages of trialling the new technology which enables small retailers to accept debit and credit card payments by using an app downloaded to an android mobile device instead of a merchant terminal.
Cardholders are able to transact with merchants by tapping a card or mobile wallet on the back of the merchant’s mobile device.
The cardholder’s request to pay is automatically processed for transactions under A$200. For payments above that amount the app generates a request for the cardholder to enter a PIN.
While a raft of offshore POS terminal providers including Worldline’s Ingenico subsidiary are still developing the new generation platforms, Melbourne-based payments solutions company Quest is the first to secure authorisation from AusPayNet to market a proprietary process to Australian banks.
The innovation is potentially transformational because it is expected to crunch the capital costs incurred by acquiring banks and clear a path for micro-businesses such as weekend vendors and mobile tradespeople to secure cheap access to in-person digital payments.
Merchant terminals, which cost banks between $300 and $500 each, could become obsolete hardware if the new mobile payments platforms win acceptance from SMEs and cardholders.
Quest is marketing its solution to Australian banks as Airpay Tap.
“We think Airpay Tap will offer merchants who currently can’t justify an ongoing merchant services plan a cheaper method for accessing online payments,” says Quest chief executive, Jan Mason.
“Merchant acquiring requires significant ongoing capex for banks – an app-based platform takes that cost out.
“From a bank’s perspective it’s a brilliant solution because they don’t have to stump up as much capital to buy hardware.
“Today, those costs are passed on to merchants when they lease terminals.”
NAB is likely to be the first of the local banks to offer the service after participating in trials of the Quest platform with several merchants last year.
However, other banks say they are also examining business cases to deploy the technology, including ANZ, which sees other benefits for merchants.
“Such app-based technologies have the potential for queue-busting in busy retail stores where shoppers can pay sales staff presenting hand held android devices, instead of having to wait at a checkout counter,” says ANZ’s head of acquiring, John Collins.
“If it gets widespread adoption the cost of the (merchant terminal) hardware will be able to be removed from merchant services plans.”
Payments experts believe Quest is likely to gain a first-to-market advantage over global rivals as SMEs with small turnover or seasonal sales profiles are progressively plugged into the payments system on cheaper plans.
“We are about to move away from the physical plumbing of the merchant payments market,” says Sydney payments consultant, Bradford Kelly.
“Software-based payment systems like Quest’s product are certainly a better option for small businesses in rural areas.”
Collins agrees but also highlights the reliability (or lack thereof) of 4G networks as the only constraint on roll outs of app-based services to rural merchants.
There appears to be a big market opportunity for technologies such as Airpay Tap because less than 23 per cent of Australia’s two million small businesses are hooked into the payments network.
According to AusPayNet, there were around 923,000 merchant terminals active in Australia at the end of December last year – down 52,000 on the corresponding period in 2018.
Given that major retailers such as Coles and Woolworths operate large fleets, it is estimated that only around 500,000 merchants are joined to the system with a terminal.
“All of the major banks are interested in new technology and we are working with a number of them to bring the service to market,” says Mason.
“We expect to see the service beginning to roll out from the middle of the year.
“Being a new service the banks need to be comfortable about security and customer acceptance so the process is likely to occur in stages.”
Innovations such as Airpay Tap might also offer timely remedies for the major banks as they come under growing pressure from the Reserve Bank’s Payments System Board to lower merchant costs for accepting credit and debit cards.
Banks such as ANZ and Westpac attribute the slow rollout of least cost routing to the challenge of having to upgrade multiple software programs that operate their merchant terminals.
Through Airpay Tap the banks would be able to bypass that problem because LCR capability is embedded in the app.
Apart from recasting the way in-store payments are transacted in Australia, the new platform could be a game changer for Quest’s balance sheet.
Mason says her company has been fielding enquiries from overseas banks about the mobile service after winning the green light from AusPayNet.
“AusPayNet approval is looked on very favourably around the world and that’s important for our program to export the technology,” she says.
“We are talking to a large number of international financial institutions.”