Hold on to your mobiles, digital payments are heating up

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The disruption caused by technology innovation in the financial sector shows no sign of slowing down. And although no one can predict the future, it seems clear there will be more disruption to come.

Accelerated competition

The payments industry is experiencing rapid change and growth. That growth has attracted unprecedented competition in Australia over the last 12 months across online, mobile and in-store payments.

In March, Square launched its card reader, in April Apple Pay launched with ANZ; in June Samsung Pay launched in partnership with Amex and Citibank card holders; in July it was Android Pay’s turn to launch with ANZ. Two online shopping giants announced market entry with Alibaba/AliPay indicating in April they had plans to enter the domestic market and Amazon announcing they’re opening new services in Australia.

When I began working in payments, it was a highly profitable slice of the financial services industry — but nowhere near as high-profile as it is today. Today, the world’s largest consumer tech companies are competing in payments — tech titans such as Apple, Google, Amazon and Alibaba. They have large, loyal and highly engaged user bases and are integrated into multiple aspects of their customers’ lives and with vast cash reserves. It certainly ups the ante.

However payments is a complex and specialised area. It will be interesting to see which players continue in the space and which ones fail to gain traction.

Consumers expect more, faster, easier

Coupled with increased competition, comes higher expectations from consumers. The Millennial generation (18-34 year olds) overtook the Baby Boomers as the largest global demographic group in 2015. Millennials are technology-savvy both as consumers and business operators. As a result, browsing, buying and selling is becoming an increasingly sophisticated experience.

Mobile and social commerce is driving expectations for convenience and immediacy beyond those of any prior generation. Now, 85 per cent of Australian Millennials shop on their mobile with 47 per cent making mobile purchases at least once a week and 17 per cent of them having purchased via social media.

The much-anticipated 2017 roll out of the New Payments Platform (NPP), overseen by the Australian Payments Clearing Association, will modernise the way Australians engage with their money online. The NPP will enable funds transfers in minutes rather than days and flexible payments using an email address or a mobile number rather than BSB and account number.

Policy adapting to disruption

The disruption caused by digital commerce hasn’t gone unnoticed by policy makers. In 2016, the Productivity Commission began a 12-month public inquiry to investigate how public and private datasets could be made more available. This would allow consumers to access and aggregate financial data currently held across multiple financial institutions. Enabling consumer choice through access to data, whether by law or otherwise, will be a source of disruption in itself. It will encourage financial product and service innovation, greater economic efficiency and better financial outcomes for consumers.

And with access and choice comes responsibility. More than ever the security of our devices, network infrastructure and databases is of paramount importance to consumers, businesses and governments. Our growing reliance on connected devices increases our dependency on those with the competence to manage and maintain the security of data — personal and financial. Trust is critical to the ultimate success of the digital society.

Cyber-security education a must

The human element is still often the weakest link with scams, frauds and phishing exploits destroying our collective confidence in online commerce. General consumer education of cyber-awareness and appropriate precautions is urgently required. Our instinctive checks and balances in the offline world need to become habitual in the online world too.

Digital change has brought substantial immediate challenges for government, particularly in terms of taxation and value capture, the relevancy and adaptability of laws and the protection of the vulnerable. It has also brought opportunity in the form of new service delivery options and the capacity to track and audit citizen engagement.

The Federal Government’s announcement of a ‘Black Economy Taskforce’ in December, which will review an enforced cash payment limit and the proposed removal of the $100 note, is a defining moment in recognition of Australia’s move to a cashless society. Digital payments will continue to grow in popularity. Payment by cash will become the exception to the rule.

While the digitisation of money will span years, governments have recognised that transaction costs, security, citizen demand and convenience make it imperative to carefully and constructively manage this inevitable change.

Libby Roy is Managing Director, PayPal Australia

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