As a mature payments market, Australia experienced only modest growth during the last four years, boosted by a growth in online shopping and use of prepaid cards. However, there is still potential in the market and growth is expected to be driven by an increase in mobile commerce, reports CI
The Australian card payments channel registered marginal growth during the review period (2008-2012). A positive economic outlook, the need for more sophisticated prepaid cards and an increase in online shopping all combined to support the growth of the card payments channel.
During the review period, the card payments channel increased in volume at a CAGR of 5.18% to reach 98m cards in circulation in 2012. In value terms, the card payments channel valued A$601bn ($624.2bn). As more consumers move away from cash, card payments are expected to deliver strong growth over the forecast period.
The already mature Australian card payments channel has growth potential
The card payments channel grew moderately during the review period, both in terms of volume and value. In terms of transaction volume it posted a CAGR of 5.18%, growing from 80.1m transactions in 2008 to 98.0M in 2012. Debit and credit card transactions remained key growth drivers, followed by the emerging prepaid cards category.
The total card transaction volume is expected to grow at a forecast-period CAGR of 3.2% to reach 115.7m in 2017. In value terms, the channel recorded a review-period CAGR of 4.98%, from A$494.7Bn in 2008 to A$601.0Bn in 2012 and is expected to post a forecast-period CAGR of 3.47% from A$630.0Bn in 2013 to A$722.1Bn in 2017.
Growth is expected to be driven by increasing demand for prepaid cards, improvements to the regulatory framework, online and mobile commerce, and a positive economic outlook.
New technologies enhance consumer convenience and provide a secure banking environment
The emergence of mobile commerce in Australia has supported the development of contactless payments and near-field communication (NFC) platforms. The arrival of MasterCard PayPass, a smartphone contactless payment mechanism, is one of the main developments. To make use of the benefits of PayPass, a number of issuers are supplying PayPass-enabled cards. In 2011, Vodafone, in partnership with Visa, introduced a mobile wallet service to provide shoppers with the ability to pay for products or services via their smartphone handset.
The development of mobile wallets, specifically for mobile commerce, is expected to change the dynamics of the card payments channel. It will create a wave of new handset original equipment manufacturers (OEMs), and NFC chip makers, aiming to capitalize from this new revenue stream. This will increase competition between commercial banks, in many cases forcing them to adopt evolving payment technologies to gain a competitive advantage.
Regulations on gift and prepaid cards are yet to evolve
The Reserve Bank of Australia (RBA) was one of the first financial institutions in Australia to issue regulations. As the nation’s central bank, its aim is to promote competitive efficiency and stability. To this end it has taken a number of important steps such as restricting the "honor all cards" rule to allow merchants to decline cards. It also capped the Visa debit interchange fee, lowered the interchange fee for domestic electronic funds transfers at point of sale (Eftpos), and implemented transparency and disclosure requirements for interchange and merchant service fees.
The prepaid card category, however, is under-regulated but does have to adhere to the Corporations Act (2001). With the exception of the ePayments Code, which requires gift card issuers to be aware of the identity of the holder’s transaction history, the gift card channel is not subject to any regulation.
Card payments growth to be fostered by a number of economic and business drivers
A number of important economic, business and infrastructural drivers are expected to promote the Australian cards and payments industry. The growth of per capita GDP and lower inflationary pressures are bolstering payment channels. Prepaid cards, government purchase cards, e-commerce and mobile commerce are also considered positive drivers. Infrastructural drivers include the government’s insistence on bank-developed software applications for mobile and e-banking purposes.
Competitive marketing and pricing strategies
Due to competitive pressures, banks and issuers are developing marketing and pricing strategies with the aim of attracting more customers. Offers such as cashback, discounts, rewards points and insurance cover are some of the strategies that banks are adopting.
Banks are segmenting their customer bases to maximize the potential of expanding their market shares. Westpac and Commonwealth Bank of Australia have launched credit cards that specifically target college students, while Commonwealth Bank and ANZ have established a range of corporate cards designed to meet the specific needs of businesses. Commonwealth Bank of Australia offers a procurement management card for the management of end-to-end procurement activity, while ANZ offers payroll cards.
Mobile commerce growth and the introduction of contactless payments to change industry structure
The Australian mobile commerce industry is growing at a fast rate, and is acting as an engine of overall e-commerce growth by converting potential bricks-and-mortar sales to digital sales as consumers use smartphones while shopping in store. In 2011, Vodafone, in partnership with Visa, introduced mobile wallet services in Australia to give shoppers the ability to pay for products or services via their smartphone handset.
The country’s leading payment provider, Eftpos Australia, wishes to implement contactless card payment options using Europay, MasterCard and Visa (EMV) by the end of 2013.
While the acceptance of mobile wallets is expected to benefit the consumer, financial institutions could suffer as customers move to this platform, and therefore will be forced to innovate and adopt the required technology to support contactless payments.
Reforms pertaining to interchange fees are expected to benefit consumers
During the review period, the announcement of relatively high interchange fees by the Reserve Bank of Australia (RBA) had a noticeable effect on the credit card category. For MasterCard and Visa schemes, transactions on platinum cards currently attract a 1% interchange fee, compared to the interchange fees on standard credit cards: 0.4% for Visa and 0.3% for MasterCard.
These developments increased the interchange and other revenue received by credit card issuers, which they may use to fund more generous reward programs without needing to increase annual fees.
Corporate and consumer both segments are generating demands for prepaid cards – gift cards, loyalty and incentive cards
With an average load value in 2011 of A$57 and over 30,000 cards in issue, the annual worth of gift card in Australia ranges from A$1.5Bn to A$2.5Bn. The increased popularity of gift cards has emerged from demand in the corporate and consumer segments. Closed-loop gift cards form nearly 90% of the nation’s gift card sales. Prepaid gift cards are often given by businesses to customers as rewards on purchasing a product, while companies use gift cards as incentives for employees. Demand for gift cards has increased with the development of electronic forms. Electronic gift cards can be delivered to the receiver via a text message, by email, or through a smartphone application.
An increase in the use of government purchasing cards is expected to boost the overall card payments transactions
Over the forecast period, government purchasing cards are expected to be a driver of the card payments channel. Purchasing cards are being used by the government to streamline purchases by public authorities. By using purchasing cards, authorities are able to monitor purchase procedures and transactions, ensuring effective cash management and administrative efficiency. At present, the Western Australian government has contracted two banks, ANZ and the National Australia Bank, to issue purchasing cards to government agencies.
Enhanced banking applications designed by banks drives card-based payments
A key driver of card-based payments is expected to be banking applications developed by banks. ANZ’s application, ANZ goMoney, enables users to make secure transactions, transfers and bill payments through mobile devices.
Similarly, Commonwealth bank has a number of applications designed to facilitate banking through smartphones and tablets. Commonwealth bank designed the CommBank Kaching application for iPhone users, and the ‘Netbank’ application for tablets. The applications can be used for online trading, everyday banking and bill payments.
EMV smart cards
In 2007, the government announced plans to introduce EMV smart cards in the financial services and health and welfare payment services sectors. EMV is the standard for the inter-operation of integrated circuit cards, and a move to an entirely EMV-based system is expected to be implemented by the end of 2013. EMV-based cards have proved effective at enhancing security against frA$, according to the Australian Payment Card Association.
Contactless payments are an extension of a bank’s cards business. Contactless chips can securely manage, store and provide access to data on any device in which they are embedded. Technologies that support the issue of contactless cards are Bluetooth, infrared and radio frequency identification (RFID). Of these, RFID has gained the most momentum in Australia. According to a study conducted by National Australia Bank in 2013, the use of contactless technology by Australians grew 100% compared to 2012.
In Australia, m-payments posted a review-period CAGR of 91.27%. The value of m-payments rose from A$27.7m ($23.2m) to A$371.0m ($385.3m) in 2012.
The increase in mobile payment and mobile wallet services is driven by the falling prices and increasing capability of smartphone devices, collaborations between various industries and the ability of mobile payment systems to drive financial inclusion in emerging economies.
Most banks and ATM service providers are expanding their use of anti-skimming technology to prevent fraud. Anti-skimming technology comes in the form of software or the installation of a control module, magnetic field detector and ultrasonic module. The control module detects the presence of cameras and other recording devices such as Bluetooth and Wi-Fi. The magnetic field detects skimmers, and the ultrasonic module identifies the presence of any abnormal protrusions such as a false keypad.
Growth in prepaid cards – gift cards, loyalty and incentive cards
With an average load value in 2011 of A$57 ($58.8) and over 30,000 gift cards in issue, the annual worth of gift cards in Australia ranges from A$1.5 bn ($1.2bn) to A$2.5 bn ($2.5bn). The increased popularity of gift cards has emerged from demand in the corporate and consumer segments.
Closed-loop gift cards form nearly 90% of the nation’s gift card sales. Prepaid gift cards are often given by businesses to customers as rewards on purchasing a product, while companies use gift cards as incentives for employees. Demand for gift cards has increased with the development of electronic forms.
Electronic gift cards can be delivered to the receiver via a text message, by email, or through a smartphone application.
An increase in the use of government purchasing cards
Over the forecast period, government purchasing cards are expected to be a driver of the card payments channel. Purchasing cards are being used by the government to streamline purchases by public authorities.
By using purchasing cards, authorities are able to monitor purchase procedures and transactions, ensuring effective cash management and administrative efficiency. At present, the Western Australian government has contracted two banks, ANZ and the National Australia Bank, to issue purchasing cards to government agencies.