2023 The year in Aussie payments and what 2024 has in store.

2023

It was an Annus Horribilis for Aussie Payment fintechs, specifically Buy-Now - Pay-later Apps and any business reliant on them for survival.

Last month I posted "In Memoriam" for these failed businesses and a few others.

It was by far my most popular post of 2023 with about 150,000 impressions.

2023

Visa and Mastercard lose market share in Australia to eftpos and American Express

• eftpos Payments Australia added around $30Bn in sales
• Visa and Mastercard debit down 12%
• 5% decline for Visa and MasterCard credit to American Express (or around $60Bn over 2 years) despite 14% growth in total market
• Charge cards growing at 34% (AMEX has this to itself)

2024

The same but different

BNPL

• Now that the BNPL bottom feeders are gone, Zip Co and Afterpay are left behind. These loss making businesses will look very different in the next 6-12 months.
• Both launched credit card products called "Plus" as a way to clean up the customer base, increase fees, earn interchange and comply with regulation.
• Zip have low balled the interest rate at 12.95% and $9.99 a month. Expect that to rise dramatically over 2024. Interest rates over 30% will be the norm.
• Afterpay don’t have an interest bearing product….yet. Afterpay are working on cleaning up the merchant book with rolling reserves and other risk mitigating policies.
• BNPL will become a feature of these credit cards in order for them to survive. Both companies will become consumer finance businesses similar to Latitude Financial Services and humm group with the latter exiting BNPL "Little things"
• Zip and Afterpay will need to shrink to survive and place a heavy focus on risk management.
• BNPL will be dominated by PayPal with its 9 million Aussie Customers.
• Quality Bricks and Mortar merchants is the new BNPL battleground (PayPal is online only in Australia)
• Apple have indicated that they wont be launching Apple Pay later in Australia.

A2A Payment Fintechs (NPP enabled)

New Payments Platform (Australia) (NPP) roll out and performance issues were called out by the Reserve Bank of Australia Governor in a speech at the recent Australian Payments Network (AusPayNet) conference.

The loss making fintechs who connect to NPP via Cuscal Limited in the overcrowded A2A payments space ignored all of it and instead took a victory lap and celebrated BECS being retired by 2030 despite this being only a target date not an iron clad guarantee.

Target dates need to be taken with a grain of salt.

Hard limits on PayTo and NPP transactions by some Banks are not helping. See BankWest below:

Not playing isn't helping either. ING has 2.8 Million Customers.

Key points on NPP and PayTo

• NPP transaction growth is strong at around 30% Year on Year.
• The only Bank that can currently initiate a PayTo agreement is ANZ.
• NPP is not 100% enabled by all Banks so the likelihood of BECS closing down by 2030 is unlikely.

Risky and Frisky in order to survive

• Some payment fintechs are having to take on high risk merchants such as Crypto Wallets, adult sites and gaming by utilising their NPP capability (using PayID) to facilitate payments to get volume through and survive.
• These merchants are typically not supported by Visa and Mastercard and if they are, the pricing and terms are predatory so instead the merchant relies on local fintechs providing PayID via NPP instead.
• There is nothing to suggest that any of this is illegal or nefarious and not all payment fintechs are courting this kind of business.
• These high risk Merchants provide significant volume albeit through only a handful of merchants.
• With NPP there is no chargeback risk to the merchant because there is no dispute process and no chargebacks. Payments are sudden death.

Unsustainable

• Risky and Frisky merchants are not a sustainable strategy. Banks avoid these businesses for a reason.
• I expect consolidation of payment fintechs and at least one to fail.
• At least one will survive in its current form given that they have kept their powder dry by avoiding risky and frisky merchants.

Im sure that this is not what the RBA had in mind with the creation of NPP.

Regulation, Regulation, and more Regulation

Highlights.

·      Digital Wallets Apple Pay and Google Pay to be regulated

·      Least cost routing to be mandated mid-year (Currently only 52%)

·      Surcharging to be allowed on BNPL transactions. This is the death knell.

·      BNPL apps to be regulated and require ACL’s

Corporate card Fintechs. When you're failing just Rebrand!

I have been open about my views on these particular fintechs for several reasons namely:

• Strategy was to build these businesses on interchange revenue. This is a fools errand and a known failure point.
• Many are issuing debit cards which is consumer product and a disaster for Pre-Auths at Hotels or renting a car. Businesses tend to do this a lot.
• Debit is also bad for working capital and cash flow as there are no interest free days.
• Business cases predicated on incorrect numbers sometimes just made up.
• Some are issuing digital only cards. Outside of Australia, ApplePay is not ubiquitous. Good luck with travel.
• Businesses either want points and perks or credit terms and these products usually offer neither.
• When the fintech starts to fail, they rebrand to make it look like they are doing something.
• Social media teams focus on building a cult of personality around the founder and congratulating themselves for awards they paid for.

AMEX owns the Business and corporate payments space, and their business is growing at 20% per annum which I expect to continue to grow.

Last year, AMEX Australia UPLIFT ALONE was $16BN which is more than the sales for the entire local BNPL industry combined.

Good luck dislodging that with a debit card.

Most of the fintech’s in this space issue Mastercard.

My view is that MasterCard use them as a surrogate product incubator that they can utilise for their own purpose once the fintech has burned through all the VC money and is on the brink of collapse.

It can then fold into the MasterCard product suite or be left to die on the vine.

I dont think any of them will survive 2024.

Who will lead Aussie payments in 2024?

ANZ

• A focus on the Institutional and Business Bank as evidenced by the PayTo biller product launch
• Worldline (who's share dropped 60% in 1 day) runs the ANZ acquiring business and ANZ are glad to see the back of it.
• Inbound TT last mile transactions to NPP is a growth hot spot for them.
• Card issuing business? Meh. Bigger fish to fry.

NAB

• Ongoing integration of the Citi Retail business.
• Completion should be 2025
• Commonwealth Bank should be nervous.
• Overall it's a solid, well run and somewhat boring Bank which is exactly what it should be.
• Merchant Acquiring business needs work. Will DataMesh Group investment start to bear fruit?
• LCR at 14% is a laggard.

American Express

• 20% growth year on year.
• Focus on charge cards for Business and Corporate is a winning strategy.
• Has this market all to itself.
• Deals with Fiserv erv and Tyro Payments to onboard and manage merchants tackles acceptance issues.

eftpos Payments Australia ustralia

• 25% of online debit now goes to eftpos. LCR mandate will drive significant volume at PoS which is the big issue.
• Unfortunately, acquirers are gouging eftpos debit transactions with flat rate deals which sound great but aren't as they use eftpos to subsidise higher cost channels such as scheme credit and AMEX.
• Overall, the strategy is clever and eftpos gets the debit traffic but the merchant pays dearly and ultimately so does the customer.
• In the case of Square they sell the debit transaction at up to 1.9% and buy at around 0.26%.
• Not a bad mark up at over 700%

Payment Gateways

• Diversified business models with solid customer base are the engine room of payments outside of Banks.
• Overall excellent tech
• Relatively low overheads
• Expect these to continue to flourish.

PayPal

• 9 million customers in Australia has already won the BNPL race.
• Share price being bashed up on the NASDAQ.
• Not fintechy enough to hang out with the cool kids any more.
• Need to buy more black t-shirts and have a scruffier CEO.
• Currently Online only in Australia.

More of the same

Tyro Payments

• Should have taken Potentia offer at $1.60.
• Now languishing at around $1.05.
• Stuck with retail customers.
• Didn't capitalise on original Bendigo deal from 2017.
• High overheads but strong growth in transaction volume
• The only strategy announced at AGM was to issue a debit card and launch internet Banking. Party like its 1999.
• Won't be a redemption story for 2024. They cant get out of their own way

New Payments Platform (Australia)

• Banks will continue to drag their feet despite growing volumes.
• Outages and poor performance to continue.

• Batch payments are not currently supported by NPP. (RBA called this out)
• BECS will survive.
• Despite this, NPP Volume will continue to grow.

Fraud and scams

• Will continue to increase.
• NPP solution is to slow down transactions to combat this which defeats the purpose of real time payments but will help.
• Banks are frustrated with Crypto wallets
• 50% of scams end up in Crypto according to Australian Financial Crimes Exchange

Debit and Credit cards

• Debit volume trajectory continues upwards thanks to eftpos.
• Credit/Charge cards continuing upward trajectory thanks to AMEX.
• Limited if any new credit card products (Besides BNPL players).
• Increasing revolving balances, fees and interest rates

Least Cost Routing for Debit cards

• More feet dragging and excuses from acquirers.
• Reserve Bank of Australia will intervene and mandate mid-year but full implementation will take time.
• Evil twins will complain vociferously and obfuscate.

Westpac

• Lost at sea.
• Losing IB market share.
• Focusing on SME acquiring customers.

Commonwealth Bank

• Over focus on retail and SME.
• Far too many fintech partnerships.
• Lots of products but how do they all fit together?
• I gave up trying to follow it all. A bit of a mess.
• At least they can deliver a PayTo mandate to a customer (Conditions apply*)

Crystal Ball time

Revolut

• No Banking licence for you
• Stop delaying publishing your bad numbers. We know what you're up to

Splitit

• Will have a lovely time in the Cayman Islands and wont be back.

Klarna.

• CBA did their dough on this one.
• Does anyone use Klarna in Australia?
• Aussie business is just a "pin on a map" exercise for IPO.

Access to cash

• Will become a critical issue as Linfox Armaguard Pty Ltd misjudged cash use post Covid.

Apple Pay

• Continued growth beyond current 35% share of card payments.
• Will not like regulation but will have to suck it up.

Unprofitable Payment Fintechs

• On the brink as funding dries up.
• Some may look for a sale to a Big Bank, merge with each other or take a dignified exit.
• Their PR machines will work overtime to pump up the tyres on small deals

Cash App

• Doubts over Australian launch
• Failed to launch in Ireland due to regulations.
• Failed in Canada and UK.
• If it does somehow launch here – it’s not solving a problem like it does in the USA. It cant work as a remittance in Australia like the USA and would cost a fortune to run on domestic eftpos and NPP payment rails.
• We already have Beem and NPP anyway.

The ones to watch

Constantinople

• Not a pure payments play but if anyone can make BaaS work in Australia it's the ex-Westpac Directors.
• Great Southern Bank involvement will make Cuscal Limited nervous

Wise

• You didnt think I noticed you there did you?
• NPP participant.
• Powder dry.
• Inbound/outbound Overseas payment via NPP is a smart strategy. Just ask ANZ.

Adyen

• Share price down 50% and only just recovering.
• Grew 35% in Australia.
• Will the magic wear off?

Stripe

• Grew 34% in Australia.
• IPO still in doubt.
• Acquiring is a tough business.
• Premium pricing wont help

Square

• Fallout from major outage still being worked through.
• Major outage cost $3Bn in sales
• CEO resigns. Dorsey now at the wheel
• Solid growth in Australia

Crypto 

• Just another cult. The less said the better.

AND THE WINNER IS...

There's 5 of them actually.

• American Express Charge Cards up 34%
• eftpos Payments Australia PoS LCR will suffocate the evil twins
• New Payments Platform (Australia) massive increase in transaction volumes north of 30% but faces ongoing issues
• Adyen and Stripe massive uplift this past year

Honorable mention

• ANZ

Evil Twins are watching