Australian payment systems have been rigorously
overhauled in recent years and have acted as a model for regulators
elsewhere. While there is much debate over the effects these
reforms have had, there is no doubt they have influenced the growth
of electronic payments of all forms, as Victoria Conroy
reports.
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As one of the most
developed payment markets in the Asia-Pacific region, Australia’s
electronic payment landscape has been characterised by intense
regulatory scrutiny which has placed pressure on payment networks
and issuers to lower pricing and open up the market to more
competition. While industry players may argue over the effect
reforms have had on their business models, Australian consumers
continue to enthusiastically embrace electronic payments in all
forms.
Although there is relatively little
information available on cash payments, a consumer survey
undertaken by the Reserve Bank of Australia (RBA) in 2007 indicated
that, at that time, around 70% of the number of consumer payments
and 38% of the value were undertaken using cash. Cash is
particularly important for small transactions, accounting for
nearly all payments under A$10 ($9) and close to 90% of
transactions under A$25. Indicative of the potential future role of
contactless payments, about 75% of cash transactions have a value
of A$25 or less.
Some information can also be
gleaned from the value of cash withdrawals, which suggest that cash
payments continued to decline in importance relative to non-cash
payments over the past year. The value of cash withdrawals
increased by 1% in 2008-2009, around 4%age points slower than
consumption growth over the same period.
The value of ATM withdrawals, which
account for around 63% of the value of cash withdrawals, rose by
around 4% over the year, around the same as in recent years. The
value of over-the-counter cash withdrawals, which account for
around 26% of cash withdrawals, fell by around 5%.
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By GlobalDataAccording to the RBA, there was
substantial volatility in the month-to-month growth in cash
withdrawals for a number of reasons.
First, there was a substantial rise
in the value of cash withdrawals, both over-the-counter and at
ATMs, in December 2008 and March 2009, coinciding with government’s
stimulus payments made to consumers in an effort to bolster the
faltering economy.
Second, there was a large rise in
the number and value of EFTPOS (electronic funds transfer at the
point of sale) cash-outs in March 2009, possibly a reaction to the
introduction of direct charging at ATMs. Cash advances on credit
cards, a small and declining means of accessing cash, accounted for
only 5% of the total value of cash withdrawals in 2008-2009, down
around half a%age point over the past two years.
With cash and paper-based payments
gradually declining each year, the number of non-cash payments has
grown exponentially, and between 2008 and 2009, the number of
non-cash payments rose by around 7%, mostly driven by strong debit
card usage which were the most frequently-used non-cash payment
instrument over 2008 and 2009, or roughly one-third of the number
of non-cash payments.
Credit card payments and direct
credits each accounted for roughly one-quarter of non-cash payments
but in terms of value, direct debits and direct credits together
made up 85% of non-cash payments, reflecting the much larger
average size of these payments.
Other forms of electronic payment
have also continued to rise over the past decade, although over the
past two years the rate of growth has slowed in response to global
economic turbulence ensuing from the credit crunch that emerged in
2007.
Data from the RBA shows that over
2008 and 2009, the number of direct debit and direct credit
transactions each grew by around 6%, a little slower than the 9% in
2007/08.
However, growth in values slowed
more dramatically, from 14% to 2%, as the average size of direct
entry payments declined.
Nonetheless, average values
remained quite high relative to most other retail payment
instruments, at around A$8,000 for a direct debit and A$5,000 for a
direct credit, reflecting the purposes for which direct entry
transactions are used. Direct credits are typically used for
payments such as salary, rent, social security and tax refunds,
while direct debits are used for mortgage repayments and regular
bill payments.
The use of the electronic bill-pay
‘BPAY’ method also continued to grow strongly, although at a slower
pace than in the previous year.
In 2008-2009, the number and value
of BPAY payments grew by around 12%, faster than all other non-cash
payment methods except for debit cards. The average value of a BPAY
transaction was fairly steady at around A$700, reflecting the
concentration of payments in a small number of merchant categories
where transactions are related to large household payments. These
categories include, for example, housing and utilities, insurance
payments and payment of taxes and fines.
Payment card
usage
Apart from cash for small
purchases, the most common retail payment method is a debit or
credit card. There are some 48m plastic (debit and credit) payment
cards on issue or about 2.6 cards for every Australian over 18
years of age, according to statistics from the RBA. Australian
banks issue proprietary PIN-based or ATM debit cards, and Visa or
MasterCard scheme cards.
Despite the global economic
turbulence that afflicted most developed economies around the world
over the past two years, growth in card-based payments remained
strong in Australia up to June 2009, with total card payments
increasing by around 10% by number and 9% by value compared to the
year-ago period. However, these growth rates were slightly slower
than in the previous year, consistent with weaker economic
activity.
According to the RBA, trends in the
growth of debit and credit card payments continued to diverge, with
debit card payments continuing to grow strongly credit card usage
moderating.
Debit card payments grew by around
15% by both number and value in the year to June 2009.
In contrast, growth in credit and
charge card payments slowed further to 4% by number and 5% by value
over the same period. Consistent with these trends, the number of
debit card accounts increased by nearly twice the rate of credit
card accounts at 5%, compared with 3% on credit cards.
Nonetheless, while debit cards made
up a higher share of card payments by number (57%), credit cards
still comprised a higher share by value (62%), reflecting the
higher average size of a payment made on a credit card.
Figures from the Australian
Payments Clearing Association (APCA) show that in 2009, debit cards
in particular have benefited from regulatory reforms aimed at
opening up the market to increased competition and lower pricing
for ATM transactions.
As of the end of 2009, there were
23.7m debit cards in circulation, an 11.75% rise compared to 21.2m
debit cards in 2008 and 20.5m in 2007. However, looking at the
number of ATM withdrawals, 2009 saw a marked decrease, amounting to
70.8m transactions per month compared to 72.9m in 2008 (the highest
number on record).
Several factors have influenced
growth in debit usage over the past four years, most significantly
reforms implemented by the RBA, which have dampened credit card
usage.
A forced reduction in credit card
interchange fees led to issuers increasing annual credit card fees
and reducing the level of loyalty programme rewards on offer. Also,
increased use of surcharging by merchants discouraged consumers
from using credit cards at the point of sale.
Another important factor is the
growing popularity of internationally-branded debit cards at the
expense of EFTPOS cards, as the former can be used for
card-not-present transactions (such as on the internet) and for
transactions taking place abroad. Additionally, because
scheme-branded cards have a higher level of interchange, (and
therefore higher revenues for bank issuers), they have been
actively promoted by Australian banks.
RBA data shows over the year to
June 2009, the value of scheme debit purchases increased by 35%,
compared with a 12% increase in the value of EFTPOS transactions.
Scheme debit cards accounted for around one-quarter of the value of
debit card payments in the June quarter of 2009, compared with a
share of around one-fifth in the year-ago period.
Debit card usage has also been
bolstered, as in other markets, by the global financial crisis
which saw consumers worldwide cutting back on credit card spending
and turning to debit cards to maintain control over their
budgets.
In Australia, government stimulus
payments also boosted debit card spending and cash withdrawals.
Credit card repayment levels indicate that consumers used stimulus
payments to pay down credit card debt.
Meanwhile, credit card usage is
continuing on a gradual downward trajectory, with the number of
credit cards in circulation in 2009 amounting to 20m, compared to
20.3m in 2008 and 22.9m in 2007 (the highest number on record).
But credit card transactions per
month appear to be on a relatively stable plane, totalling 118.8m
per month in 2009 compared to 119m in 2008 (the highest number on
record).
According to the RBA, the
stagnation in credit card transactions appears to reflect weak
growth in card-present transactions, rather than card-not-present
transactions.
The number of card-present
transactions, which comprised 77% of the share of total credit card
transactions, was virtually unchanged over the year to the June
quarter 2009, while card-not-present transactions grew by 7%. Of
card-not-present transactions, the strongest growth was in online
transactions, which made up around 10% of total credit card
transactions, but mail-order and telephone-order transactions also
grew strongly.
Cheque usage on the
decline
One consequence of slowing credit card usage is that
growth in balances outstanding on credit cards has slowed
significantly over the past two years. The growth in balances
accruing interest has also slowed, suggesting that there has been a
greater tendency to pay balances off by the due date.
The usage of EFTPOS appears to be
showing no sign of abating, with the number of transactions per
month in 2009 reaching 165m, compared to 144.6m in 2008 and 121.9m
in 2007. At the same time, the marginal cost of making EFTPOS
transactions has been reduced for many customers as a result of the
introduction of ‘all you can eat’ deposit account pricing, which,
in part, reflects the RBAs intervention on EFTPOS interchange
fees.
Cheques were the dominant non-cash
payment form in Australia until the 1980s, when payment card usage
began to take off.
Whereas a decade ago cheques
accounted for around 30% of the number of non-cash payments – the
highest share of all non-cash payment instruments – they accounted
for just 6% in 2008/09, and 11% of the value of non-cash
payments.
Today, cheques are mainly used
where immediate value is not required, such as business-to-business
transactions. Cheques nevertheless remain important for a variety
of transactions, especially high-value payments such as property
settlements and business transactions. The average value of a
cheque in 2008-2009 was A$4,225, a slight decline from A$4,492 for
the previous year.
With payment card numbers and
transactions rising strongly over the past four years in
particular, cheque usage in Australia has suffered a significant
decline from 2007 – from a monthly transaction volume of 40.3m in
2007 (for a total value of A$160.3bn), the number of cheque
transactions per month in 2008 slumped to 33.7m (A$139.3bn), and
33.6m (A$132.8bn) in 2009.
Clearly, efforts by Australian
regulators to promote electronic payments at the expense of
paper-based payments are paying off, perhaps at a more rapid pace
than anyone expected.
A rundown of the
reforms
The RBA has implemented several
reforms across all sectors of the payments sphere. The most
significant reform in terms of the impact it had on Australian card
usage (and elsewhere) occurred with interchange fees, a process
which began in 2003 and which saw them slashed – the benchmarks are
currently 50 basis points for credit card transactions and A$0.12
per transaction for Visa debit card transactions.
Interchange fees in the EFTPOS
system are also regulated by the RBA. These fees (which are
bilaterally negotiated and are paid by the card issuer to the
transaction acquirer) are required to be between A$0.04 and A$0.05
per purchase transaction.
In the area of merchant service
fees, on average, the fee paid by merchants when accepting payments
on MasterCard and Visa credit cards was 0.81% in 2008/09, the same
as the previous year but 0.58%age points lower than prior to the
RBA’s reforms.
According to the RBA, the aggregate
net savings to merchants over 2008-2009 from declines in merchant
fees across all four schemes since the reforms were introduced was
estimated at A$1.2bn or around A$0.74 for every credit or charge
card purchase over the year.
Average merchant fees for EFTPOS
transactions fell slightly over 2008-2009 to A$0.075. Nevertheless,
average EFTPOS merchant fees were A$0.09 per transaction higher in
June 2009 than they were prior to the reduction in interchange fees
in 2006.
As for credit cards, competition in
acquiring has resulted in a reduction in the margin of EFTPOS
merchant fees over interchange fees. Prior to the debit card
reforms, the average merchant fee was around A$0.18 higher than the
interchange fee but this had declined to around A$0.11 per
transaction by the June quarter 2009.
The pricing of EFTPOS transactions
to customers is typically built into deposit account pricing and
has not changed significantly over the past year. Debit cardholders
are usually charged a flat account-keeping fee of around A$4 per
month, for which they are entitled to an unlimited number of free
electronic transactions, including EFTPOS, scheme debit, own ATM,
BPAY and direct entry transactions.
One major pricing development
during 2008-2009 was the introduction of direct charging by ATM
owners for ATM services and the accompanying abolition of ‘foreign
fees’ which had traditionally been charged by financial
institutions when customers used an ATM belonging to another
network.
An important element of the RBA’s
reforms to card payment systems was the removal of the ‘no
surcharge’ rules that had previously been imposed on merchants by
the international card schemes. Under these rules, merchants were
unable to pass on the costs of accepting these cards to
cardholders.
Following the removal of these
rules in January 2003, merchants could choose to surcharge for
transactions, allowing them to better signal the relative costs of
different payment methods, while also providing them with more
ability to exert competitive pressure on interchange fees.
In June 2009, just over one-third
of very large merchants (those merchants with annual turnover
exceeding A$340m) imposed a surcharge on at least one of the credit
cards they accepted.
The rate of surcharging among
smaller merchants has also risen noticeably over the past several
years, although it is still around half the rate of larger
merchants.
Data on merchants’ plans to
surcharge suggest that strong growth in surcharging will continue.
As at June 2009, only 6% of very large merchants surveyed had no
plans to surcharge in the near future, down from 46% four years
ago. Even among very small merchants, less than 30 per cent have no
plans to surcharge – down from over 83% in June 2005.
Fraud remains
problematic
While fraud rates in Australia have
remained relatively low by international standards, they have risen
in recent years.
The most recent data show that
payments fraud rose to A$0.082 for every A$1,000 of payments in the
year to December 2008, from A$0.063 in the preceding year.
Credit and charge card fraud
continued to be the most significant and fastest growing component
of payments fraud in Australia. In the year to December 2008, the
rate of fraud on credit and charge cards increased by 19%, from
A$0.45 to A$0.53 in every A$1,000 of credit and charge card
payments.
The fraud rate on debit cards fell
from A$0.072 to A$0.066, while for cheques, fraud rates remained at
less than A$0.01 per A$1,000. The weighted-average fraud rate for
debit and credit cards together was A$0.32 in every A$1,000
transacted during 2008, up from A$0.28 in 2007.
The two largest components of
credit and charge card fraud are card-not-present fraud and
counterfeit or skimming fraud.
Card-not-present fraud increased by
33% in 2008, and accounted for nearly half of the total value of
credit and charge card fraud.
Counterfeit/skimming fraud was the second most common type of
card fraud in 2008, accounting for one-third of the value of all
credit and charge card fraud.
