future of payments in Australia

Driving the future of payments in Australia: RBA’s renewed commitment

Last week at MRC Melbourne, I had the privilege of seeing Ellis Connolly, Head of Payments Policy at the Reserve Bank of Australia (RBA), present key findings on the cost of merchant fees in Australia.

These were very insightful given there have been many initiatives to help give merchants alternative ways to reduce the cost of payments. Here are my key summaries from his presentation.

Dominance of the schemes

In Australia, 40% of payments are made online. These are highly dominated by the schemes, which still impact business costs in regards to processing. Merchant fees have come down over the past 20 years, however the cost of card payments is substantial for small businesses, who pay much higher fees per transaction than large businesses – often over 1.5% per transaction.

Scheme fees have been rising, increasing costs for merchants. These fees can be very complex and not transparent. In 2022/23, scheme fees paid by acquirers and issuers to the card networks equalled around AUD1.9bn. As a result, most of the burden of these scheme fees falls on acquirers, which then gets passed on to merchants – who either incur these fees as part of the transaction or surcharge them to consumers.

Surcharging was introduced by the RBA with an aim to encourage consumers to use lower-cost payment methods, and to strengthen the bargaining position of merchants relative to payment system operators. However, merchant adoption of alternative ways to route ecommerce transactions – through low-cost means – has had low take up, which is contributing to higher scheme fees.

On top of this cost pressure, ecommerce fraud continues to grow too. With the ongoing growth in online payments, it remains a significant challenge, with an estimated five million fraudulent transactions – amounting to AUD700m – that banks or merchants have had to incur.

The NPP: A convenient, secure alternative

So what’s the alternative to help the RBA’s goal to support Australian businesses in using lower-cost payment methods?

We could see a wave of retail payments innovation unleashed in Australia through the New Payments Platform (NPP) and its PayTo service. This provides a convenient and secure way for consumers to authorise merchants to initiate a payment from their bank account via the NPP, as an alternative to cards.

The major banks have all made PayTo available to their retail customers, so it now has the critical mass of consumer accounts for payment services to launch.

In summary, the RBA’s goal is to provide merchants with:

Lower costs: Offering solutions that reduce transaction costs, helping small businesses thrive

Enhanced security: Advanced security features mitigate fraud risks, ensuring safe transactions

Consumer control: Give customers more control, modernising the payment landscape

At Volt, we’re excited about providing alternative ways for merchants across Australia and adding our innovative secret sauces from international markets for account-to-account transactions. We’re committed to transforming the payment experience for Australian businesses and consumers. Find out more here.