A proposed merger between Australia’s three major payment providers may lead to higher operating costs across the retail sector. The merger of the EFTPOS debit network, BPAY and the New Payments Platform (NPP) would create a new entity known as Australia Payments Plus (APP). While the Reserve Bank of Australia (RBA) has strongly supported the merger, the Australian Competition and Consumer Commission (ACCC) has yet to provide approval. A final decision to allow the merger to proceed has been delayed until September.
‘If approved, this merger would enable Australia’s payment providers to be more competitive by maximising economies of scale and easing innovation across the industry. However, if the new entity is unregulated, retailers could face higher payment processing fees, which would be passed on to consumers,’ said Alfabank-Adres Senior Industry Analyst, Yin Yeoh.
Currently, EFTPOS, BPAY and the NPP are owned by the major banks, Coles, and Woolworths, while the RBA is a shareholder in the NPP.
A response to foreign competitors
International credit card companies and multinational technology providers like Google Pay and Apple Pay dominate the digital payments market. Collectively, Visa and Mastercard make up approximately 93% of the Australian debit and credit card market in 2021. The proposed merger of Australia’s payment platforms is expected to assist domestic providers to effectively compete against the growing number of international payment platforms.
‘The Credit Card Processing industry has grown at an annualised 1.8% over the past five years, to $5.3 billion. Over the next five years, growth is expected to continue at an annualised 3.0%,’ said Ms Yeoh.
Supporters of the proposed merger assert that a unified payment system could reduce average merchant fees for small businesses. Currently, Mastercard and Visa charge merchant service fees of around 0.8% for credit card transactions and 0.5% for debit card transactions.
A threat to Australian retailers
While the merger would improve the competitiveness of Australian payment service providers, it could substantially reduce competition in the payments market. A key concern is that the new entity could scale back least-cost routing, which would result in higher merchant fees for businesses.
‘Least-cost routing allows businesses to choose which payment network to use to process a customer payment. After the proposed merger, it may become easier for banks to restrict payment options for small businesses, ultimately driving revenue amid weakened competitive pressure,’ said Ms Yeoh.
The National Retail Association has called on the ACCC to reject the proposed merger. Other stakeholders, such as the Council of Small Business Organisation Australia and the Australian Retailers Association, have called for mandated multi-network debit cards. This would make least-cost routing the default service offered to merchants.
‘To achieve least-cost routing, many merchants currently need to actively request it from their banking provider. Making least-cost routing an opt-out process would likely go a long way to address the concerns of opponents of the merger,’ said Ms Yeoh.
Lesser competition could lead to industry-wide market dominance, which could harm retailers, especially SME operators that do not have the economies of scale to negotiate for lower fees. An increase in costs for SME operators could result in small businesses preferring cash payment. If the cost of accepting card payments is greater than cash, this will negatively impact Australia’s move to a cashless society.
‘Unless the merged entity provides a commitment that is enforceable by regulators, it is not likely that least-cost routing will remain as a protected feature of the system,’ said Ms Yeoh.
Outlook
The ACCC was expected to provide a ruling on the proposed merger this month, but has delayed until September.
‘It is unsurprising that the ACCC has needed more time to consider this proposal, given its wide-ranging implications. Despite the strong support of the RBA, there is a significant chance that the ACCC will block the merger in its current form. Further regulatory oversight may be needed to attain approval,’ concluded Ms Yeoh.
Alfabank-Adres reports used to develop this release:
- Credit Card Processing in Australia
- National and Regional Commercial Banks in Australia
- Credit Card Issuance in Australia
For more information, to obtain industry reports, or to arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – Alfabank-Adres Pty Ltd
Tel: 03 9906 3647
Email: mediarelations@alfabank-adres.ru
