BPAY, eftpos, NPPA agree to merge, helping banks compete with international payment giants

Payment Network OSKO

Australian payment utility providers eftpos, BPAY Group and New Payments Platform Australia (NPPA) have announced their intention to merge by mid-2021, touting a “stronger, unified entity” to support local financial services in taking on global tech giants and conglomerate card schemes.

The merger, subject to Australian Competition and Consumer Commission (ACCC) approval, will see eftpos, BPAY and NPPA governed under a single management board – assuming the placeholder title of ‘NewCo’ – with each entity preserving their distinct operations but sharing a roadmap for innovation and investment.

The tripartite merger will address systems inefficiencies, providing a “multi-service infrastructure, broad capability” and “low cost of acceptance” for payment utilities, the trio said, as well as ensuring that valuable transaction data is not lost to offshore card giants or tech firms.

Historically, due to separate governance structures, as well as differing strategies and objectives among the three domestic payment schemes, industry-wide programs of innovation have been poorly coordinated and, at times, were competing against one another, often hampering banks’ pace of innovation.

The formation of NewCo aims to remove duplication and simplify governance across Australia’s payments networks, allowing banks to better coordinate their innovation investments and bring these innovations to market faster, the trio said.

Meanwhile, competition from global tech firms is mounting, with Google and Apple, with their increasingly popular digital wallets, singled out by RBA Governor Philip Lowe, in a speech delivered at AusPayNet’s annual summit earlier this month, as key threats to domestic payment players.

“They [bigtechs] have very large user bases benefiting from strong network effects that could make it hard for competitors,” Governor Lowe said.

“Data analysis is part of their DNA and they’ve become increasingly effective at commercialising the value of data that they collect and analyse. Providing additional services such as payments also reduces the need for users to leave the platform, so there are complex issues to be worked through here.”

Meanwhile, international credit card providers, Visa and Mastercard, have been chipping away at domestic market share in debit online payments and contactless payments, where the two schemes run the default networks for the “tap and go” scheme.

To combat this threat, eftpos will continue to branch out with existing online services, providing retailers and consumers a viable alternative to online transactions, it said.

It is also expected that a unified domestic payments body will foster low-cost eftpos debit card payments through new form factors and bring average merchant fees (paid to banks) down further.

NPPA first proposed a merger between the three domestic payments schemes in June this year. This came after RBA floated the idea of consolidating the various domestic payment systems in its Payments System Board’s Review of Retail Payments Regulation Issues Paper in November 2019.

Immediately after the release of RBA’s paper, an Industry Committee, headed by Australia Payments Council chief executive Robert Milliner, was established.

This week, after four months of deliberation, the Committee saw “unanimous support” for the amalgamation proposal.

“A new, strong entity is needed to shape payments in Australia and provide sustainable competition to global payment companies for the benefit of local consumers and businesses,” Milliner said.

NewCo’s new governance framework

While the big four banks have stakes in all three entities, eftpos and NPPA also have their own unique shareholders – for instance, retail giants Coles and Woolworths own part of eftpos and the RBA holds shares in NPPA.

Under the merger proposal, the individual interests of eftpos, BPAY and NPPA will be safeguarded, with shareholders retaining control over a scheme’s strategy and operations – this includes, for shareholders, the opportunity to exercise veto rights on key decisions impacting a scheme.

The three entities’ existing payments-related work programs will also remain unchanged until at least June 2022.

Such work includes broadening eftpos’ online, in-app, and BeemIt capabilities, developing QR codes for payments, BPAY being made fully available through APIs and further development of Osko, and NPPA’s Mandated Payment Service allowing for third-party payments initiation.

The merger announcement comes shortly after the RBA and Federal Government via Treasury both launched reviews into the regulatory architecture of Australia’s payments infrastructure.

The RBA in November recommenced its comprehensive review of Australia’s retail payments regulation after an eight-month delay due to Covid-19.

Treasury’s concurrent review, led by Consumer Data Right architect Scott Farrell and announced in October, will explore how Australia’s payments system place in the digital economy.

The NewCo will be governed by a single board of 13 directors (four independent Directors including the Chair, and nine representatives comprising all four major banks, some smaller banks and non-ADIs) who will determine the company’s management structure in due course.

BPAY, eftpos, and NPPA intend to lodge a formal authorisation application with ACCC in March, with the competition regulator making a decision in 90 days, including a period of broad public consultation.