Eftpos' innovation complication

Eftpos may have what it takes to give MasterCard and Visa a run for their money but our big banks may have other ideas.

Eftpos recently launched a campaign telling consumers that by using the payments system they become “kings” of their own money. Interestingly, amid this regal pitch to convince more consumers to push cheque or savings instead of credit, eftpos may be eyeing another crown and lay claim over the technology that looks set to revolutionise the  way we make payments.

Both Visa and MasterCard have made moves towards innovation on the payment frontier. For example, both companies are working with Coles and Woolworths to introduce NFC payment systems to their checkouts. Meanwhile, the likes of Paypal and Square are also busy attempting to tap into the next wave of payment solutions. With so much competition in the market, Eftpos recently announced that it is working on its own form of NFC payment in the form of eftpos chip, which will be available from the end of 2012.

Company CEO Bruce Mansfield has high expectations for the chip. He says it bring the company in line with “next phase of its technological evolution” – if all goes to plan.

Coincidentally, the announcement has come at an interesting time for eftpos. The Reserve Bank, which administers eftpos is currently holding an inquiry to determine how it will be managed in the future.

A complex set up

Currently eftpos is part of a complex set up. The RBA administers a charter for eftpos Australia and the big four banks plus the two major supermarkets (Woolworths, Coles) serve as stakeholders within the system.

The current inquiry by the RBA is attempting to gauge how much influence its stakeholders should have on eftpos. It’s currently taking submissions on  how the system should be arranged,  but not everyone is happy with where things are headed.

Tyro payments founder Jost Stollmann has lashed out at the submissions made by Commonwealth Bank and Westpac to the enquiry.

According to Stollman, the banks are lobbying to gain more control over eftpos and that if they do, retailers and consumers will bear the brunt.

Stollman says the last time the four major banks gained any influence over eftpos, was when they made the most of the RBA’s decision to change the interchange fee system and decided to pass on the costs on to customers at ATMs.

Putting tech ambitions on ice

If Stollman’s hypothesis comes to fruition there may be more damaging implications for the group’s tech ambitions.

Australia’s major banks have a dual agenda when it comes to their dealings with eftpos. On one hand, they are compelled by the RBA to aid with the system. On the other hand, banks make more of a profit from the higher interchange fees that result from their customers ignoring eftpos and paying through credit.

Buddecom founder and analyst Paul Budde says that eftpos’ goal to innovate their own payment systems may be put on ice because of its ties to the major banks.

He says that if the banks were to encourage the innovation it would lead eftpos to better compete in the payments playing field. However, that would also mean “more competition and thus lower margins” for the banks.

“Banks have never taken a leadership role in internet or mobile based developments” Budde says. And it could be argued that they would not be too keen to see eftpos make it to the point where it is pushing interchange fees down through actively competing with MasterCard and Visa.

This potential threat comes at a time when eftpos finally appears to have hit a stride in breaking through to the Australian public. It has had its best month on record last December in terms of the total number of transactions on their system.

It also recently reported a year on year increase of 4.3 per cent in terms of the amount of people using the services “cash-out” facility during a transaction and is spruiking the statistics as another footnote in the company’s success.

Given the sufficient technological push, eftpos could make it to a point where they are able to take on the likes of MasterCard and Visa – who currently hold the advantage due their online payment facilities.

However, time will tell as to whether the internal politics of the eftpos arrangement with Australia’s four major banks will sabotage these ambitious tech goals.