Bank payment monopoly shifting

Technology innovation, the New Payments Platform and regulatory change will open the payments market to new entrants. This is the assessment of SmartPay CEO Bradley Gerdis. He believes these three themes will also loosen the monopolistic grip of the big four on the payments industry.

SmartPay is New Zealand’s largest payments processor, providing EFTPOS and payment solutions to businesses, and Gerdis is looking to the Australian market for growth opportunities. The South African born, Sydney-based CEO said banks will lag the sector as payment technology continues to evolve.

"Banks were the traditional providers of payments but at the end of the day they are financial services firms not technology providers," Gerdis said.
"As payment technology evolves, banks have been left behind in being relevant payment suppliers to merchants. We see the opportunity in the gap between what merchants need and what the banks are capable of delivering."

For example, point of sale systems are increasingly moving towards the cloud and, by recognising this shift in technology, SmartPay is readying for the launch of a payment-based cloud product.
"We have developed the first phase of the product and we are piloting the commercial program with a number of merchants," he said. The product is expected to be launched shortly.

Productisation and the NPP

Under the NPP, retailers are expected to get faster clearance on payments and customers will be paid instantly. According to Gerdis, the NPP will be the new banking infrastructure and will drive "productisation" in the industry.

“The NPP will bring efficiency to the market and will also create data richness and that is where the opportunity is. Banks are currently focused on building the pipes and are not focused on the productisation around that data opportunity," he told AB+F.

SmartPay is eyeing the productisation opportunity around the NPP that can be offered to retailers and even consumers.

"We have a lot of experience in developing merchant and consumer-facing fintech payments. We see a huge opportunity to be able to productise the new functionality of the NPP. This also sits well with our cloud-based payments ecosystem that we are developing."

Gerdis also believes that regulatory change will widen the scope for innovation, bringing in new entrants to the payments industry.

A $2 billion opportunity

Until recently, there was a regulatory requirement that only businesses with a banking licence could process merchant transactions – closing the sector to other financial institutions. Banks charged merchants between 1 and 2 per cent as a merchant acquiring fee.

In January 2015, the Reserve Bank of Australia (RBA) removed the requirement for a banking licence to acquire card transactions.

"The decision by the RBA effectively removed the regulatory monopoly that controlled in excess of $2 billion worth of acquiring fees. This revenue is now open to businesses like SmartPay. As providers of EFTPOS terminals we will be able to provide the same acquiring service as a bank," Gerdis said.

"This shift will have the effect of transferring the value from banks to payment providers. It has been one of the biggest regulatory change seen in payments in recent years."
SmartPay is also positioned to benefit from the Chinese payment market. The business already has a China UnionPay offering.

"We really see that market developing particularly with Alipay and WeChat. We have been working with them for a while and are looking to bring those payment products to both the Australian and New Zealand markets," he said.

"UnionPay is already the bigger than Visa and Mastercard combined. The Chinese consumer will be driving global commerce and we will be positioned for that growth."

Bradley Gerdis will be speaking at the RFi Group Global Digital Banking Conference in New Zealand on the 8th of March.

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