Payments industry stakeholders are drawing new battlelines in the debate over the proposed union of the three domestic schemes – BPay, Eftpos and the New Payments Platform – after shareholders submitted a formal application to the ACCC on Tuesday.
The banks and other owners of the schemes revealed their application included an independent report prepared by payments industry consultant Lance Blockley of The Initiatives Group.
In his report Blockley invokes competition and sovereign risk arguments in support of the merger.
“In my opinion, without the proposed industry consolidation and in the absence of significant regulatory intervention, the eftpos domestic debit card payment scheme is likely to cease to exist within the next 10 years,” he states in the document.
“The lack of a domestic debit card scheme in Australia could be viewed as creating both a sovereign risk and a pricing risk, as without a local competitor pricing leverage for both financial institutions and merchants would be limited.
“The sovereign risk comes from the fact that card-based payments now dominate retail payments in Australia, and, without the eftpos domestic debit card scheme, this activity would be in the control of foreign owned entities. If these foreign owned card systems were shut down, e.g. by disabling access to the network switching infrastructure, then retail payments and consumers’ ability to pay would be severely impacted and Australian economic activity threatened.”
Leading payments consultant Grant Halverson believes Blockley’s arguments about Eftpos’ strategic vulnerability are “highly debatable”, noting that Eftpos was the only domestic scheme to grow earnings last year.
In 2020 Eftpos more than doubled its net earnings to A$10.7 million, while NPP Australia suffered a 27 per cent profit slide to $4 million and BPay posted a loss for the third year in a row.
“In financial terms Eftpos is the strongest of the domestic schemes and today it has the most progressive product development roadmap,” Halverson said.
“If there is sovereign risk in the payments system the banks have created it because they have preferred the Visa and Mastercard schemes over Eftpos.
“The banks prefer the global schemes’ higher fees that help them make more money.”
Small business groups such as the Master Grocers Association are opposed to the merger without the major banks giving enforceable undertakings to deliver least cost routing and other services that reduce merchants’ costs of acceptance.
“We’re still not convinced the merger will deliver synergies that will benefit our members and other small businesses,” said Jos de Bruin, chief executive of the Master Grocers Association.
“We want to see enforceable guarantees from the banks that they will offer least cost routing and other future innovations on a default basis to small businesses.
“Given that small businesses account for fifty per cent of debit transactions it also seems unfair that the board of the merged company will not have representation from small business.”
Robert Milliner, the chair of the payments industry committee steering the merger application said the purpose of the merger application was not to address the least cost routing issue.
“We never said this (the merger) was to address least cost