Real-time cashless payments, available 24/7, are reshaping the business landscape right around the globe.
By Lachlan Colquhoun
The way the world pays for its goods is being transformed, thanks to a raft of new payment platforms and technologies. Smartphones and smart watches are being used as digital wallets, and businesses are accepting a growing number of cashless payments at checkout.
For instance, there’s the just-walk-out shopping experience at Amazon Go, Amazon’s bricks-and-mortar store in Seattle, which uses technology including RFID (radio-frequency identification) and machine learning to detect when a shopper takes items off a shelf and automatically syncs the information with a user’s virtual cart on their mobile device. This lets customers breeze through checkouts, with the bill paid through their Amazon account.
In Australia, the number of individuals and businesses choosing to make digital payments has increased 37 per cent in the past five years, says the Australian Payments Clearing Association’s Australian Payments Network Milestone May 2017 report. The report also reveals Australia has among the highest penetration of point-of-sale terminals globally, with more than 40,000, exceeding Canada (36,331), Italy (32,750) and Singapore (31,096).
“Australian small businesses are owed about A$26 billion in unpaid debts ...” Trent Innes, Xero Australia
This is affecting how people use cash. The Reserve Bank of Australia’s (RBA) March 2017 bulletin shows cash now comprises just 37 per cent of total payments, down from 69 per cent in 2007. In Sweden, just 15 per cent of payments are in cash, says the RBA.
Similarly, Chinese consumers, especially those living in first-tier cities, favour digital wallets. EY’s The Rise of Fintech in China report shows Alibaba’s Alipay was the most frequently used platform by almost 80 per cent of the report’s respondents over the three months to May 2016, beating out cash, credit and debit cards.
Developing nations, too, are going cashless. Kenya’s 15 million people are using the M-Pesa money transfer mobile platform. In India, digital payment operators Paytm and MobiKwik experienced major spikes in activity after Mahendra Modi’s government unexpectedly announced the withdrawal of 500 and 1000 rupee notes from circulation in November 2016. For these companies, demonetisation was a boost. Paytm, which is backed by China’s Alibaba, hit a record five million daily transactions.
Everyday payments made easy
The big advantage of cash is that it’s transferred immediately, but there are now digital payments platforms that clear funds almost in real-time, reducing the financial pressure on cash-strapped business owners.
US e-commerce platform Square, which offers small businesses a point-of-sale service to accept multiple card payment methods, launched in Australia in March 2016. Square’s appeal is its convenience and a 1.9 per cent flat rate for transactions.
Meanwhile, the team at Afterpay says it keeps customers shopping both online and in-store with a buy now, pay later, interest-free instalment option. Using Afterpay is also a win for merchants, as they don’t have to wait until the buyer has paid in full to receive their funds; instead, they receive an upfront payment for the purchase from Afterpay.
The Australian Taxation Office (ATO) is also playing a part in allowing businesses to be paid faster, with the introduction of its national standard for electronic invoicing (e-invoicing) in August 2016, in consultation with the Digital Business Council.
That move came after the Digital Business Council – made up of industry and technology companies including MYOB and Xero – identified that a unified approach to processing electronic and automated invoices could save the Australian economy up to A$10 billion annually.
Xero Australia managing director Trent Innes says with 1.2 billion invoices sent every year on the company’s platform, any reduction in cost and time spent by businesses is welcome.
“We’re already seeing the benefit of this: businesses on Xero are paid 33 per cent faster using e-invoices over traditional invoices, while those using payment providers like Stripe and Paypal are paid 27 per cent faster than those using offline invoices,” he says.
“At the moment, Australian small businesses are owed about A$26 billion in unpaid debts, so any initiative that helps speed up payment times is good for the economy. We’re confident that the e-invoicing standards are a positive step toward bringing down payment times for everyone, while saving businesses up to $10 billion in administration and paper costs each year.”
CPA Q&A. Access a handpicked selection of resources each month and complete a short monthly assessment to earn CPD hours. Exclusively available to CPA Australia members.
Another move that could ease the cash-flow pressures on businesses in Australia is the rollout of the New Payments Platform (NPP), following similar moves by Singapore, Sweden, Mexico and the UK. When the NPP, a platform built by global payments group Swift, goes live later this year, individuals and businesses in Australia will, for the first time, be able to send and receive funds 24 hours a day, seven days a week, in real-time. That frustrating experience of waiting hours or even days for domestic fund transfers to appear in your bank account may finally be over.
NPP chief executive Adrian Lovney, who came to the role from credit union group Cuscal, says Australia will have one of the most advanced payment systems in the world in terms of data standards, access and settlement.
One of the big advantages will be the new addressing and identification system. Instead of quoting bank state branch (BSB) and account numbers when requesting payment, people and businesses will be able to use their phone numbers, email addresses or even nicknames as identifiers linked to their accounts.
If they change banks, they will just reconfigure the details behind the identifier, avoiding much of the pain currently involved in changing accounts and updating direct debits. People will also be able to send requests for payment, something that is outside the existing payments system.
Naturally, in any new market, there can be tensions – and the digital wallet sector is no different. Apple Pay, which uses near-field communication (NFC) technology to transfer funds from a digital wallet on an iPhone or Apple Watch, arrived in Australia in 2015. It struck deals with all major credit card companies and nearly 50 small financial institutions but only one large local bank, ANZ.
When the Commonwealth Bank, National Australia Bank, Westpac and Bendigo Adelaide sought to bargain collectively with Apple, the move was rejected by the Australian Competition Consumer Commission.
The larger banks have also avoided Google’s Android Pay, although ANZ and a host of small banks and credit unions have signed up. A third digital wallet, Samsung Pay, has struck a deal with Westpac, so nine million of the banks’ customers can now use the service with the tap of a smartphone or smart watch.
Beyond the Android-Apple and banks divide, Leila Fourie, CEO of the Australian Payments Network, says any competition is not so much about smartphone operating systems but the global battle between NFC and QR code technology.
“What is actually driving market use is applications rather than the phone operating system,” she says.
“This is as much a debate around phones as it is around NFC and QR. If you look at China, there have been very powerful applications-based payments platforms developed by fintechs like Tencent and Alipay.”
Fourie envisages the future payments landscape will see banks partner with the new fintechs to devise innovative payment applications for diverse industries, technologies and personal uses.
“Banks are very much customer led and there are huge opportunities,” she says. “Fintechs and banks can now engage with each other, and innovate in ways which were not possible previously, and together they can enhance customer-led activity.”
The move began last year within the walls of KPMG, which set up the Mutual Fintech Accelerator Program (mLabs), a 12-week program designed to help mutual banks work closely with fintech start-ups to develop and test prototype products and services.
Ian Pollari, KPMG’s global co-lead for fintech, said at the time of the mLabs launch: “The mutuals are eager to engage the start-up community and, for the fintech ventures, the prospect of innovating with the mutuals, who represent a combined customer base of more than two million, is a very attractive proposition.”
Fraud, privacy and other challenges
The other big challenge for cashless payments is around fraud and privacy. This has brought up the concept of the “digital identity”, verifiable through blockchain technology, which people and businesses can use to identify themselves and maintain the integrity of transactions. According to previous reports by Reuters, banks in China have started hiring blockchain experts so they can harness the technology to combat fraud.
On privacy, Fourie says there are two schools of thought.
“The trend has very much been that consumers have given up privacy in exchange for services,” she says. “Some believe we have moved on and privacy is no longer a human right, and customers are now comfortable with the trade-off. Others have a growing unease about this and think this is only going to get worse as more breaches occur.”
“Banks are very much customer-led and there are huge opportunities.” Leila Fourie, Australian Payments Network
She points to an Australian fintech start-up called Meeco as a potential way through this challenge. The company is building a platform for consent based on real-time data sharing. It’s designed to manage all of a person’s “digital relationships”.
There are other players, such as credit card providers, that continually invest in their security systems to help curb fraud attacks against businesses and consumers alike. In April, Mastercard unveiled a biometric card that combines its existing chip technology with an embedded fingerprint sensor to help verify a cardholder’s identity for purchases.
“Whether unlocking a smartphone or shopping online, the fingerprint is helping to deliver additional convenience and security. It’s not something that can be taken or replicated, and will help our cardholders get on with their lives knowing their payments are protected,” said Ajay Bhalla, Mastercard president of enterprise risk and security, in a statement.
With so many moving pieces on the global payments landscape, there is only one thing that’s certain: business owners will be the winners when they start seeing their money sooner.
Cashing in on real time payments