February 11, 2016
Here it comes, another Pay was just launched. A major Australian bank, ANZ, is tapping into mobile payments with its proprietary system ANZ Mobile Pay. There are two controversial parts to the news here. Firstly, it is another knife in Apple’s back as ANZ Pay will be Android-based. Secondly, ANZ Mobile Pay is just another Pay.
ANZ Mobile Pay is available on Google Play from today and allows customers to add a range of ANZ Visa and American Express credit cards as well as ANZ Visa Debit cards. It also offers different ways to pay—Wake to Pay, Launch to Pay and Passcode to Pay. For all payments over $100, users will need to enter their PIN. ANZ Pay will even allow withdrawing funds at supported contactless-enabled ANZ ATMs.
How does this impact the mobile payments in Australia?
Aussies seem to be rushing into mobile payments at an outstanding pace. As a reminder, NAB has recently launched its mobile payment service NAB Pay, which enables customers to use their mobile phones to make purchases. Android-based device owners who have an account with NAB could start using NAB Pay from January 25, which is available as part of the NAB Mobile Internet Banking App. NAB Pay was made available wherever contactless payments are accepted.
The Australian payments market is a particularly interesting one as bold external players like Apple Pay seem to be struggling in the market. Low-profit margins on transactions are making it extremely difficult to make it in Australia with a proprietary Pay. And the situation is getting worse with more Pays being launched by major banks.
A major issue for Australian banks is that the Reserve Bank of Australia (RBA) is planning to lower the interchange fee from 50 cents to 30 cents which will further hammer down the revenue for banks. Considering this, they would certainly not want to split the share with tech giants who will be processing on their already developed payment platforms.
In addition to the hurdles related to the requested share of transaction value, the strong position of another Pay owner provides a network advantage. If a major, well-spread bank launches its mobile payments system, it has the prerequisite of a large potential user base and ATMs supporting a proprietary system.
Australia’s FinTech ecosystem is certainly one of the most interesting ones and an increasing number of investors from Australia start looking around for promising ventures. Australia is also one of the most attractive international markets with an advanced financial industry. The LTP team had an opportunity to gather insights on the market to understand the most important things one needs to know about the Australia’s FinTech.
Australia’s mobile payments market is becoming more crowded as other major banks are being carried away with the race to push their own solutions to the market. It’s interesting that a booming market has a negative outcome for financial institutions in certain ways. Financial institutions believe that as the market is hot, everyone will be able to squeeze in and fill their pockets. The thought or practice of collaboration doesn’t occur, which leads to oversaturation. As a consequence, a crowded market fails each participant, no matter how great the solution is.
There are other banks looking to cut the biggest slice. The Commonwealth Bank of Australia is one of them. The bank has implemented its own payments system on NFC-enabled Android devices in October 2013.
Last year, Westpac has also enabled its customers to pay with their Android-based phones.
What does this mean for Apple Pay in Australia?
Apple Pay launched last year in Australia in partnership with American Express with no other bank support. With the launch, Apple faced certain issues in the country. One of the major obstacles for Apple Pay in Australia has been the high fee for transactions. In the US, Apple earns $0.15 for every $100 of transaction value. The company was looking for a similar deal in Australia, but the big four Australian banks weren’t willing to provide the same amount of interchange fee to the tech giant. The big four banks in Australia were reluctant to share that amount with Apple as it would significantly lower their interchange revenue.
According to these major Australian banks, the payments market in Australia is quite developed compared to the US and the UK, and the technology on which Apple Pay works has already been in the market for quite some time. Hence, according to them, the value sought by the tech giant was unreasonable.
Just when Apple Pay seems to have enough obstacles to overcome, its rival received support from another major bank.
Google is working closely with many of Australia’s major financial institutions—including Westpac, Bank of Melbourne, Bank of South Australia, Bendigo Bank, Cuscal, ING DIRECT, Macquarie Bank, and St. George—with the aim of bringing Android Pay to their card holders, and will continue to work with more banks throughout the year. Launched in Australia, Android Pay will support MasterCard and Visa credit/debit cards. The company is also working with EFTPOS to support their cards in Android Pay.
Just like NAB, Google built Android Pay using network tokenization. Network tokenization provides flexibility for the merchant and as they can still identify the card brand to aid in reconciliation, they are never subject to any artificial limits on transaction size and can use Android Pay to perform subscription payments.
Now, when ANZ launches Android-based payment system, it may not be directly in favor of Android Pay, but it is in favor of the parent company that strengthens the ties with the most powerful financial institutions in the country.