It has one of the world’s most developed payment card markets, and the average number of monthly card transactions and the average annual spend per card are higher in Australia than in other mature markets such as the US, the UK, Canada and Germany. So what is the great southern land doing right?
Australia’s payment cards market is one of the world’s most developed. In 2015, the Australian payment cards market accounted for 3.3% of the transaction value, and 7.6% of the transaction volume in Asia-Pacific.
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The average number of monthly card transactions and the average annual spend per card are higher in Australia than in other mature markets such as the US, the UK, Canada and Germany.
Electronic payments have steadily gained popularity in Australia, aided by contactless technology’s rising prominence. Banks such as the Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Westpac offer payment cards with contactless functionality. The number of contactless cards increased five-fold from seven million in 2011 to 37 million in 2015.
A key element in the rapid uptake was the introduction of contactless cards by multinational providers Visa and MasterCard to gain market share in Australia.
In line with its international counterparts, domestic debit scheme provider Eftpos, supported by the central bank, raised $41.3m (A$40m) via the one cent scheme introduced for all transactions in 2011, which was utilised to implement contactless technology as well as EMV migration.
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Debit card payments continue to grow
Australia’s debit cards market is concentrated in terms of transaction value, with the five leading issuers accounting for 65.2% of the market in 2015. Debit cards remained the largest in terms of transaction value, with a 56.1% share.
Payment card product preferences changed between 2011 and 2015, with a gradual shift in favour of debit cards. Debit card transaction volumes increased from 3.5 billion in 2011 to five billion in 2015. The shift away from credit card use can be explained by an increase in consumer avoidance of debt, and RBA initiatives to regulate interchange fees.
The RBA’s intervention to cap the debit interchange fee, remove surcharges on card transactions, and the ‘honour all cards’ rule to allow merchants to accept cards, succeeded in changing the cost of using debit cards. This resulted in increased volumes of debit cards over the last five years, a trend that is expected to continue until 2020.
Regulatory reforms change market dynamics
The central bank has made several reforms to the credit card market since 2003, including a cut in interchange fees. To compensate for revenue loss, banks increased annual fees on credit cards, and made reward points and other credit card benefits less generous.
Card schemes provided banks with incentives to promote cards with higher costs, but within the RBA’s rules. Card issuers responded positively, formulating new strategies and turning their attention to high-income consumers. New pricing strategies included upgrading gold cards to platinum cards, and offering more generous value-added services or rewards at no additional cost.
Some banks began offering companion cards linked to two different credit card networks, allowing customers to earn the benefits of whichever one they choose to use at the purchase point. As a result, credit card products with companion cards attached have increasingly replaced traditional single-card reward programmes in the product lines of all major banks.
CBA, NAB, ANZ Bank and Westpac offer at least one companion card account as part of their premium card accounts.
Rise in uptake of alternative payments
Consumers are increasingly using faster and more secure payment options, and mobile operators, traditional and online retailers, and other service providers are introducing alternative solutions.
These include online and mobile payments, and are conducted through alternative instruments such as bPay, Paymate, MasterPass, Visa Checkout, ANZ Pay, NAB Pay and POLi.
The launches of global solutions such as Apple Pay, Android Pay and Samsung Pay are expected to increase uptake of these solutions.
E-commerce offers scope for card payments
Australia’s e-commerce market grew from $16.9bn in 2011 to $21.3bn in 2015, at a CAGR of 5.97%, and is anticipated to reach $30.7bn in 2020.
Rapid smartphone adoption, growing internet penetration, the availability of secure online payment mechanisms, reduced delivery times and the popularity of online shopping are key reasons for the growth of Australian e-commerce.
The country’s young and urban populations are highly media-literate, giving a platform for e-commerce companies to reach more potential customers. Key online retailers include eBay Australia, Gumtree, Amazon and OzBargain.
Payment cards continue to dominate online shopping, with promotional offers and benefits such as discounts, reward points and cashback offered by card issuers.
Banks and issuers such as CBA, Westpac, NAB and ANZ Bank offer benefits such as cashback, reward points, discounts, purchase protection insurance, extended warranty, zero card fraud liability and flexible repayments to encourage online shopping.
Emerging payment methods such as digital and mobile wallets are also gaining prominence, with the availability of solutions such as PayPal, MasterPass and Visa Checkout.
Online retailers and regulators, however, should concentrate on increasing consumer confidence as online card fraud rises.
Prepaid cards for retail and corporate users
The prepaid card market grew rapidly in terms of the number of cards in circulation, at a compound annual growth rate of 8.01% between 2011 and 2015. Anonymity, changing consumer attitudes to debt, and bankless transactions were the main factors, giving prepaid cards the potential to capture a wide range of consumers, including the unbanked, students and immigrants.
Prepaid gift and travel cards are expected to be a major driver of the payment card market in Australia. Prominent examples of gift cards in Australia include NAB Visa Gift Card and Australia Post Visa Gift Card.
The rising popularity of gift and travel cards is a result of demand from corporate and individual buyers. Prepaid gift cards are often given by businesses to reward customers for a product purchase, while companies use gift cards as incentives and benefits for employees. Demand for gift cards has also risen with the development of electronic forms. For use on smartphones, electronic gift cards can be delivered by text message, email or smartphone app.
Banks now offer a range of prepaid cards with attractive features. To expand the overall target market, banks have created prepaid cards designed to reflect the needs of teenagers, and can improve financial independence in that age group.
For instance, ANZ Bank offers a campus prepaid card with Sydney University, which provides access to university buildings, acts as student identification, and enables purchases on campus.
Similarly, the Canvas Visa Prepaid, designed for young individuals, requires no bank account, interest or credit check.
