AFR, 15th February, 2021
Retailing and small business groups have attacked plans by the banks to merge the three domestic payments systems, suggesting the move could push up costs by reducing competition and is merely “a smokescreen for a monopoly”.
Submissions to Treasury’s review of the payments system, published last week, indicate that the major banks have a tough road ahead in convincing the major representative groups of core business customers that the merger of eftpos, Bpay and the New Payments Platform is in the public interest.
The banks say the deal, announced in December, was necessary to allow them to focus investment and create scale to bolster domestic infrastructure to make it more competitive against the likes of Visa and Mastercard, which run competing payments networks and issue major bank cards.
But retailers say the deal would reduce the competitive impact of eftpos, the domestic debit scheme, and result in Visa and Mastercard pushing their higher-cost networks deeper into the Australian market.
The Council of Small Business Organisations Australia described the proposed governance structure of the merged eftpos, Bpay and NPP as “messy” and said the deal was “about protection of profits rather than the development of competition to the benefit of consumers and small businesses”. The structure proposed by the boards of the three companies was “a smokescreen for a monopoly”, COSBOA said.
The Australian Retailers’ Association, Australian Chamber of Commerce and Industry and the Master Grocers Australia & Timber Merchants Australia are also highly critical of the deal, which will be scrutinised by the Australian Competition and Consumer Commission through an authorisation process.
Master Grocers Australia & Timber Merchants Australia said it had “grave concerns the creation of a single payments entity with greater scale and resources will destroy competition in card related payments, handing the advantage to the two large international card schemes”. The group wrote to the ACCC last year expressing concerns about the merger.
“MGA TMA considers this is the wrong approach at the wrong time and the regulatory environment needs to protect against outcomes that reduce competition and choice for merchants in terms of their preferred payments systems,” it said.
The Australian Retailers’ Association said the proposed deal was taking place in a “regulatory vacuum”, given the Reserve Bank and Treasury were currently examining payments regulation in separate reviews. It also questioned RBA oversight as it was a shareholder of the NPP.
The ARA said its main concern was “rules or major decisions will be made that set parameters for future of the payments system which will hamper retailers”.
“While we do not have a position on whether the consolidation of the three entities is desirable, the process of consolidation must occur with sufficient oversight to ensure that competition and cost-efficiency remain primary concerns to enhance economic productivity,” it said.
“The future of eftpos – which provides retailers with a low-cost transaction method – is unknown, and a merger could undermine competition in the payments system. Should eftpos cease to exist as an independent payments system, some innovations seen in the market (which occur on the card network) could be in jeopardy, potentially undermining competition elsewhere in the payments system.”
The boards of eftpos, Bpay and the NPP have provided concessions in an attempt to appease the critics, including pledging to ensure the short-term plans of each entity to roll out new services continue and providing veto rights to the users of each scheme, allowing them to prevent reductions to service standards. But these have not satisfied the retailing groups.
The Australian Chamber of Commerce and Industry said its members were “very concerned about the consolidation of a single payments platform” and it was crucial to maintain competition in payments infrastructure and among the schemes that use it.
“The competitive tension between the NPP, [direct entry bank transfers] and eftpos results in beneficial outcomes for consumers and businesses,” ACCI said. “If amalgamation of payment platforms were to proceed, merchants risk a governance structure that may result in similar circumstances that have arisen in the UK.”
Mastercard acquired the domestic debit scheme that had been established by a group of British banks in 2002, which has resulted in the US payments giant becoming the dominant player in debit payments in Britain.
The Australian Banking Association’s submission to Treasury’s payments review does not mention the merger. But NPP Australia said the “proposed domestic payments consolidation should further assist with capability deployment and supporting innovation, with faster speed to market of new capability, more efficient allocation of capital and a more integrated industry payments roadmap”.
NPP Australia proposed the merger of the three domestic payments schemes in June 2020 after RBA governor Philip Lowe pointed to the idea in a speech in December 2019 after the RBA payments regulation review issues paper in November 2019 also raised the issue. Late last year, Treasury called its own review of payments regulation to run in parallel with that of the central bank.