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Australia's Payment Revolution

Adoption of new payments technologies is growing fast in Australia and New Zealand. But have financial institutions made the right moves to embrace this digital future? Here we explore some of the mega trends driving the Australians payments landscape and where the opportunities lies for Australian banks to innovate, modernise and grow their customer value offerings. For additional detail see our whitepaper, "Why Australian banks need to rethink their role in the payments ecosystem."

Mega trends driving the Australian payment landscape

The Australian and Asia Pacific payment landscape (excluding China) is expected to grow at 7% in revenue, close to the 8% growth forecast in India and Indonesia. The one key territory Australia is trailing is China, where new products are rapidly introduced and widely adopted across its digital savvy urban population. That said, Australia has an aggressive payment innovation charter and is tightly governed against a timeline for enablement.

Australia is in a hot bed of transaction innovation and modernisation, primarily intended for overall customer, financial and societal wellbeing, as well as advocating greater choice and speed with absolute transparency. These “innovation candidates” are envisioned to be backed by a strong legal and regulatory framework with Government & Industry oversight.

These change catalysts are therefore targeted to lead to a series of focused transformations in terms of:

a. Ability of banks and financial institutions to modernise transaction processing     platforms

b. Need to uplift the surrounding payment infrastructure

c. Need for cutting edge technology

Australia’s New Payments Platform, for example, is designed to support innovation focused on five important payment mega trends:

1. Digitalisation of financial services

2. Consumer preferences for fast, safe, and easy to use payment methods     supported by richer financial data

3. Regulatory changes to support a digital economy

4. Improved risk management and compliance reporting

5. Open Banking and the rise of Fintechs

Beyond NPP, there is a lot of activity in the world of payments in Australia which we would like to qualify as five mega trends. All five align with the strategic direction that RBA called out in their recent narrative for “Future of Payments” in Dec ’21. While many have global resonance in terms of adoption and service offerings, they are expected to grow and lead to innovative customer value propositions in Australia’s transaction processing canvas over the next two to five years. Listed below are our take and qualification of these five mega trends:

1.     Declining use of banknotes and increasing use of digital commerce

While COVID has been a strong catalyst to accelerate this trend, other key contributors are the sector’s increased focus on customer experience and financial wellbeing, fuelling the need for higher transparency, increased security, and better reachability of services.

2.     Greater use of digital wallets

In the last 8-12 months we have seen a strong promotion and adoption of wallet-based offerings, confirming the significance of the Payment as a Service business model and the need to look at payments beyond financial services as a customer offering.

3.     Growing involvement of the ‘big techs’ in payments

Apple’s Pay Later in the BNPL segment and Google’s Google Pay offerings are strong examples of big techs leveraging Open Banking to give customers innovative variants supported by useful data-driven insights. As the number of choices goes up, we should be mindful of customer’s interest as the core of all offerings. Ethical and secured use of customer data across these players is an area to be mindful of.

4.     Growing community and political interest in the infrastructural and commercial

The growing interest in digital transactions is driving demand for increased resilience of payments services. While the Australian Government together with other regulatory bodies like ASIC and AUSTRAC stand committed to overhaul the Australian payments infrastructure, we also see continued innovation in digital identity services to address this need. This could manifest as PayID validations, tokenisation of accounts in the transaction workflow and other approaches to remediate online security concerns for monetary transactions.

5.     Increasing specialisation within the payments value chain and the emergence of         new business models

We see an abundance of ecosystem plays, integration partners and data players in the current market who are coming together to shape the ‘end to end customer journey’ across industry verticals, with payment services coming in as ‘embedded payments’ as part of an overall customer value proposition. These include Woolworths QR code payment options through its Everyday Rewards wallet merging loyalty points and payments, and Fintechs like Zepto and Paypa Plane offering PayTo services leveraging NPP rails.

While we recognise and get excited at the prospects of these mega trends, we also need to take appropriate measures to ensure that these trends have the desired favourable end outcome both for the customer and for financial institutions.

This includes banks and service providers aligning to operate in PaaS or BaaS models and undertaking a service-driven approach in an ecosystem setup. Partnerships such as Westpac working with Afterpay to provide BNPL to Australian customers through a BaaS model is a good example. Ultimately, financial institutions need the ability to monetise data quickly, efficiently, and securely.

Increasingly, there is a demand from customers for institutions to move away from being standalone platform providers. Becoming nimble ecosystem partners, readily adapting to a service driven approach through collaboration and co-creation, points to the greatest opportunities to grow into the future.

To learn more about how banks and financial institutions can reimagine the payments ecosystem, read our white paper, “Australia’s Payment Revolution.”

Robert Marchiori

ANZ Head of Markets, Cognizant

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