By PAYDAY NEWS correspondent, Michael Sainsbury
A lucrative part of the fintech sector that provides competition to Australia’s dominant banks in payments has been upended by the Albanese government’s intention to put an end to rising debit card fees (and surcharging), and a looming Reserve Bank of Australia (RBA) review.
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While these significant changes to competitors in the payments sector will be weathered by the big banks and multinationals like Square, Stripe and Ayden, it may be harder for three burgeoning payments companies, listed Tyro Payments Ltd, Smartpay Australia Limited and privately held Zeller, without significant change to their business models.
At present, they rely heavily on charging small businesses a relatively high flat-rate price, bundling both debit and credit card transactions which is then surcharged back to consumers. The banks offer similar pricing constructs.
In a detailed post on LinkedIn Wednesday, Zeller responded to the review, saying surcharging “should always be the merchant's choice”.
While the prevalence of such “blended pricing” models appears to fly in the face of current surcharging regulation that was designed to act as a price signal for different card types and avoid cross-subsidisation, the RBA and the Australian Competition and Consumer Commission (ACCC) have sat on their collective hands as fees for debit transactions continued to rise unchecked.
“Fintechs provide an alternative to the incumbents being the banks and with arguably better technology, as well as the potential to offer additional services that the banks can’t,” Independent Payments Forum co-founder Brad Kelly said.
Investors marked the two listed companies down on the day of the announcement with Tyro’s shares falling 11% to 80.5c. Smartpay shares fell 17.7% to 70c. They continued their slide on Oct 16 with a further 2.14% fall while Tyro’s stock edged up 1.24%.
Tyro said in a statement to the Australian Securities Exchange that it has already been actively engaged with the RBA and welcomed reviews that assess the true cost of card acceptance for small businesses and consumers.
Smartpay’s ASX statement said that it “is engaged with the RBA on the review of surcharging and will provide further information on any potential impacts of any changes once there is more certainty of the conclusion of the review or once the consultation and review period has been completed.”
The review has long been signalled by the RBA whose Head of Payments Policy, Ellis Connolly who first raised the prospect in April and in June and confirmed that it would soon get underway with the RBA releasing its Issues Paper on October 15.
The RBA has already encouraged more competition in debit payments, facilitating the introduction of the New Payments Platform (NPP) in 2018 after eight years of talks and development. Now owned by Australian Payments Plus (AP+) which was formed by the amalgamation of BPAY Group Holding Pty Ltd, Eftpos Payments Australia Limited (EPAL), and NPP Australia Limited (NPPA).
AP+ has already seen the launch of products like the PayID addressing service, Osko for account-to-account payments, and the secure direct debit product PayTo. A clutch of new fintechs have sprung up to leverage the new system including Monoova, Zepto, Zye and PapaPlane.
AP+ Chief Payments and Schemes Officer, Adrian Lovney, told PayDay News last week that his company had been encouraged by NPP’s growth to date, with 120.6 million transactions being processed in August 2024, and the NPP now accounting for over one-third of the volume of account-to-account (A2A) payments.
“We expect further adoption of PayTo, particularly as a modern alternative to direct debit for recurring payment use cases such as utilities, insurance and telecommunications. This is now possible as we have reached critical mass of consumer accounts enabled for PayTo at over 90%,” Lovney said.
While the prospects of NPP are promising in the longer term, Kelly said regulators need to keep their eyes on debit cards as they would continue to be the dominant form of retail payment for many years in Australia.
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