Australia forging its own path on digital payments

By Wei-Weng Chen
Published November 23, 2022 | 3 min read

Australia’s payments sector is going its own way and expanding into new opportunities, when it comes to digital transactions.

In the process, it is rationalizing to build a more robust and innovative domestic payments framework, according to a panel at the recent RBC Capital Markets Australian Technology Conference.


Consolidating part of a broader strategy

In September 2021, the Australian Competition and Consumer Commission (the ACCC) authorized the consolidation, subject to undertakings, of Australia’s three ‘traditional’ electronic payments solutions: eftpos, BPAY and NPP (New Payments Platform) Australia. The new body, known as Australian Payments Plus (AP+), seeks to create a more efficient and agile payments group, delivering significant benefits to Australian payments users. One of AP+’s key objectives is to further advance payments solutions and deliver more innovative, efficient and competitive payments products.

Each of the bodies had some mutual shareholders including Australia’s major banks, as well as Australia’s two largest retailers. AP+ CEO Lynn Kraus said of the amalgamation, “We are passionate about our role in ensuring that Australia can keep its own domestic payments infrastructure and a set of domestic payment solutions.”


Providing a better mobile payment experience

AP+ is at the center of the discussion when it comes to a local payments infrastructure that is both owned and regulated in Australia. The aim is to provide businesses and consumers a payments infrastructure that is efficient, reliable and trusted while also providing experiences that are frictionless and create value. This is important, Kraus believes, in light of the growing trend towards payment via mobile wallets, and the dominance of Apple and Google in the space.

“People choose to pay by wallet because it’s frictionless and creates a simple and quick check out process.” Kraus noted. A significant majority of these transactions are then routed to international schemes. “If we don’t open up the payment flow” Kraus added “It will be irrelevant if AP+ delivers a pristine set of infrastructure rails, as there will be no traffic on them.”

What doesn’t exist in the pay by wallet transaction is the chance to localize the experience for Australians, whether that be the merchants or the consumers.  Kraus identified this as an opportunity for innovation in the Australian payments sector where parties can work together to create value and experiences that are worthwhile, “If we’re going to compete as a sector, we have to work on the points of stickiness that would lead someone to say ‘I’m not going to simply pull out my current wallet but instead chose to pay in another way because I get more value from the transaction”.


Big finance moving into small data

The panel acknowledged that there is growing concern regarding mobile wallet usage and data sovereignty, with these transactions facilitated offshore and data therefore held offshore. While the increasingly complex relationship between data and payments may pose new risks for the industry, it is also providing new opportunities for Australia’s digital payment sector.

AP+ will soon launch its own service, ConnectID, a national digital identity ecosystem that will rely on the data collected by Identified Institutions such as financial services organizations, to create a single ‘identity interchange’ that can be accessed and used by  merchants.

“If you need someone to prove they’re over 18 to purchase alcohol you won’t need their date of birth any longer,” Kraus explained. “Instead they can consent through their banking app to provide you with information that simply asserts they are over 18”.

While this may cause some to raise privacy or security concerns, ANZ Bank’s Banking Services Portfolio Lead, Nigel Dobson, says that having a network of high quality identity providers should actually enhance both.

“A national Digital ID scheme that’s administered [by AP+] would mean people have to give out less data rather than more - that’s something that’s a real positive in light of recent events.”

Dobson says that this would also alleviate the burden that many small businesses face of having to identify customers and maintain this data. Instead the responsibility would be in the hands of financial institutions that have a robust data collecting infrastructure and have built up requisite levels of trust and governance, effectively creating an opportunity for data minimization.

“Banks could essentially become ID providers and could monetize the data they hold through providing different levels of attestation. This relieves others from the obligation of holding data.”


Capitalizing on tokenization

Another area in which Dobson sees banks innovating to provide the infrastructure needed for future payments is through tokenization. Dobson, who describes the move to tokens as an inevitable ‘protocol hop’, believes that tokenization will transform the entire infrastructure of financial markets, as well as payments.

In line with this belief, ANZ Bank recently issued a stable coin linked to the Australian Dollar. The currency has been designed to be used to trade digital assets.

“If you take the view that tokenization is inevitable, then we need to build coins that will anticipate what might happen, and even work with our customers on their tokenization strategy.”

While this may sound far-off, Dobson also points out that the decentralized infrastructure for tokenization - which includes digital wallets - already exists.

“We don’t have to build much at all, we just have to orchestrate the customer experience” he explained. “This is what Apple and Google do so well.”

Dobson noted that ANZ had already worked on a POC with the ATO, using tokens in combination with QR Codes, to support more accurate estimates of excise payments in Australia’s alcoholic beverage sector. He saw the options for wider tokenization as limitless, suggesting they could be incorporated into manufacturing, and noted that they also had the potential to revolutionize supply chains and illiquid assets such as property.


What does the future hold?

Wrapping up, the panel shared their views on what the future holds for the payments landscape. All agreed that innovation and change were here to stay. Among their predictions for the next five years were increased use of QR codes including for account-to-account transfers, removal of cheques from the payments landscape, a more open payments ecosystem that unlocked value and addressed inefficiencies, and the cessation of discussions around distributed ledger technology (DLT) and Blockchain. Instead, they argued, the focus would shift to the front-end applications underpinned by these technologies.

Wei-Weng Chen

Wei-Weng Chen
Director, Equity Research
Royal Bank of Canada, Sydney Branch