A few of my Cuscal colleagues, some of our financial institution clients and I have recently returned from a payments study tour to the USA. We started at Money 20/20 in Las Vegas (the world’s biggest fintech conference) where 10,000 delegates from 75 countries gathered to hear about the latest global trends in finance – 80 of them were from Australian companies. We then headed to Silicon Valley to chat with some global technology giants about the latest trends in payments and fintech, who were equally keen to hear from us about our early adopter digital and mobile market.
I’ve been back now for 3 weeks and it’s given me time to get the perspective necessary to strip away all of the glamour and bright lights and distil the main insights which are relevant to the Australian payments industry. My top 5 takeaways are:
1. Australia is a payments leader, but we need fintech companies to stay ahead.
While we think of the US as the home of technological innovation, Australia is arguably far ahead of the USA in several spheres. This is mainly due to Australia’s well-regulated banking environment, with far fewer financial institutions than the US, and a technologically-savvy population which quickly embraces new digital innovations. We have a long history of cooperation at industry level, aided by the big 4 major banks plus big 2 retailers, around rollout of new approaches like EMV (chip & pin) and NFC (contactless mobile payments) and also the presence of an active and interventionist regulator.
The combination of these factors has allowed us to collectively forge ahead, advancing the whole industry with new
- 70% take up of new payment forms like EMV and NFC
- Sophisticated banking app functionality like self-service credit limits and PIN setting
- Cross-industry plans underway to launch our faster payments system, the New Payments Platform (NPP) in 2017.
By contrast, the US has a highly contested payments industry with over 10,000 established banks. To counter this though, it also has a thriving, growing mass of thousands of well-funded fintech companies. This has caused a hotbed of innovative disruption in the USA that we monitor so we can use its best ideas to improve payments experiences back home.
2. The war of the wallet is upon us
‘The Pays’ (Apple Pay, Android Pay, Samsung Pay and PayPal) are all aggressively competing to be the dominant global payments wallet leader and Australia is next on their hit list. They are keen to come to Australia because:
- It’s an early adopter market
- With widespread smartphone usage in concentrated metropolitan areas
- And a high percentage of merchants with the necessary infrastructure and skills to accept contactless payments
This makes us an ideal market for English-speaking technology companies to test their new products in 2016. Apple Pay has already arrived (albeit in a limited form as it can only be used on Amex issued cards, less than 10% of cards issued in Australia) and the others won’t be far behind.
The arrival of The Pays will be a major step towards the future of the ubiquitous mobile wallet and Australian financial institutions need to get ready (see what happened to Barclays in the UK when it lagged in accepting Apple Pay). Financial institutions need to weigh up whether to continue to invest in developing their existing mobile banking apps, integrate their apps with one or more of The Pays and/or associate themselves with leading merchants to drive volume commerce transactions, loyalty and gift programs.
Judging by the interest that some of Silicon Valley’s tech giants showed in us and our clients, next year is looking like a big year for mobile wallets in Australia.
3. Commerce within trusted social networks
“The magic is about making the transaction come together when people come together…” Deborah Liu, Facebook’s Head of Payments and Commerce @ 2015 Money 20/20
With 79% of Australians using the internet on a daily basis, and 93% of all social media users using Facebook, the average Facebook user spends an average of eight and a half hours a week on the site. These are staggering statistics and are creating tremendous (and growing) opportunities to drive B2B, B2C and P2P transaction volumes – especially now that most people’s initial reluctance to buy things on social media has passed.
Issuers and acquirers alike need to make sure they’re a part of this vast, sticky social media communities that consumers and small businesses are increasingly relying on to search, find, buy and sell products and services. If financial institutions are not connected to these platforms, they run the risk of being increasingly locked out of their customers’ lives as they spend more and more time, and more and more money inside the social media world.
4. Alternate lending will be game-changing
Australian financial institutions need to embrace the trend towards alternative lending business models and practices that are already transforming the USA, Australia and other markets. New types of lenders are currently the largest group of fintech Unicorns and Semi-Unicorns in the USA indicating that these well-funded global startups are likely to enter the Australian market in the not-to-distant future – joining companies that are already here like Thincats, RateSetter and Kabbage (in partnership with Kikka Capital). Companies that specialise in positive credit scoring, online marketplace lending, robo-advisory services that leverage credit data models are becoming serious alternatives to traditional banking services.
With $250 billion in consumer finance and small and medium business loans with Australian banks this is one that can’t be ignored.
5. Blockchain is going to get bigger and better
The increasing use of blockchain by financial institutions and governments is going to continue. Its use of a distributed ledger, system and record of transactions that any device, person or entity can connect to is incredibly useful and is likely to be able to operate autonomous marketplaces in the future. Its record of unit exchanges is also likely to be extended to support many other forms of value (eg telecommunication minutes, green credits) and data around ownership or sharing of assets (eg real estate, stocks). Although it’s relatively slow compared with a real-time payments system, its main benefit to businesses and consumers is that it is an inexpensive way to run transaction processing and record transaction data. As the Internet of Things (IoT) such as cars, wearables, connected homes and Amazon Dash Buttons utilise new technology instead of legacy systems, financial institutions will be able to use blockchain in many new ways yet to be imagined.
Because of the incredible pace of change of the global payments industry it’s a challenge for anyone to keep up. We’ve heard so much about the threat to financial institutions of fintech disruption that I expected to come back from the USA worried about how the exponential growth of innovative fintech companies could easily wash over and drown our payments ecosystem. Instead I’ve come back energised both by how well placed we are in Australia and also the massive opportunities that partnering with fintech companies can bring. The critical success factor for Australian payments-focused companies will be whether we band together to grow the overall payments pie or squabble to protect our own shrinking piece – what will your approach be?
Please let me know what you think about these opportunities and potential threats for Australia’s financial services industry below – especially if you were also at Money 20/20 and had a different take!
By Natalie Yan-Chatonsky, Innovation Manager, Payments