We are living in one of the most exciting times in the payment space. It would have been hard for many to predict 30 years ago that we would make payments with mobile phones or even digital watches, and transfer money to each other in real-time. In Australia in particular, the great payments shake up has only just begun. 

Figures recently published by Treasury reveal that less than a third of transactions in Australia are done with cash, compared to more than two thirds only ten years ago, and another recent study provides an even grimmer outlook for cash, predicting it will be used in only 2% of transactions in 2024. 

The growing appetite for digital payment solutions, combined with a relative lack of regulations in the space, has left the doors wide open for a diversity of players, from tech and financial giants, to smaller disruptive players, to position themselves and introduce innovative solutions at different levels of the payment spectrum. And like any fast-growing space, everyone is trying to get their piece of the pie, offering consumers and businesses a larger than ever variety of solutions to pay for things and each other. 

All signs indicate that the sector will continue to innovate and evolve in the upcoming months and years.

Let’s look at what is in store in the payments industry. 

A year of regulatory adjustment

Recognising the changing nature of the payments industry, governments and financial regulators around the world are increasingly focusing on deploying regulatory frameworks that will ensure the accessibility, efficiency and security of new payment frameworks and solutions for end users, and fair competition in the space. Australia is no exception. 

After consultations with industry players and bodies, the Treasury recently outlined its priorities to regulate the space. Among its key initiatives, the government is planning to update the Payment Systems (Regulation) Act 1998, recognising that “the RBA’s regulatory powers are constrained by outdated definitions which mean it may no longer be able to adequately capture the full suite of systems and participants within the payments ecosystem”. 

The government also wants to introduce a tiered payment licensing framework, where different rules would apply depending on the type of license delivered to each organisation. Those obtaining a license would also need to be compliant with the ePayments Code, which is going to be updated as well. The Treasury said they would open consultations early this year, with the objective to settle at least the new tiered licensing framework by the end of the year, which will be marked by regulatory adjustments.

More of the same… and then some

Payment innovations have already permeated society. The roll out of the New Payments Platform (NPP), and frameworks such as Osko are significantly accelerating payment timeframes, phones and smartwatches, combined with digital wallets, have become popular payment tools among consumers, who have also become regular BNPL users, transfer money to each other in real-time using PayID, and pay their bills with BPay. The uptake of these new payment tools should continue, and given the competition in the space, there is no doubt that more innovations are in store for the year ahead. 

Among them, a major one is PayTo, which should start becoming available from mid-2022. PayTo is a new digital payment solution from the NPP that enables merchants to initiate real-time payment collection directly from customers’ bank accounts with their consent. It will be a relevant real-time payment option for a variety of scenarios, including for recurring payments and subscriptions, one-off payments, and will integrate in third-party apps and e-commerce websites, where consumers will be able to choose it as a payment option. Time will tell how quickly and deeply consumers will embrace PayTo, but the concept is exciting and in many ways brings improvements to existing payment options such as traditional, data-blind direct debit. In a study of 600 Australians commissioned by Zepto among Australian consumers, almost two in five (38%) said they found the concept appealing once it was explained to them. Education around PayTo will be vital to its uptake. 

Another industry focus is to optimise the payment’s user experience.

With online payments, this means eliminating the steps, or clicks, within the customer journey necessary to finalise a purchase, which Mastercard, Visa and Amex are aiming to tackle with the launch of their Click to Pay solution last year. We are continuing to see in-store innovations as well, with a consortium of Australian banks and large retail brands partnering with Eftpos to launch eQR, a new payment system allowing customers to skip the checkout line by finalising in-store payments via QR codes and earning rewards in the process. This is what Woolworths’ Scan & Go is. 

From a business perspective, many industry experts are predicting an increased adoption of BNPL solutions for B2B payments, which due to its structure and the flexibility it affords customers, makes it a relevant option for businesses. RBA’s Philip Lowe has also reiterated the reserve bank’s willingness to see “payment with document” introduced rapidly in Australia. Payment with document would enable companies to include a link to process a payment directly within documents such as invoices, which could greatly optimise B2B payments. 

The payment industry is going through an exciting and pivotal time, and the potential for improvements is still gigantic. The aforementioned examples illustrate the many aspects of the payment spectrum that are ripe for optimisations, and there is no doubt that 2022 will be another year marked by innovation in the industry.