Innovation is the lifeblood of Australia. Study after study has shown most businesses that embrace innovation, profit immensely from it. In fact, it could be argued that, without innovation, most businesses are doomed to a slow (sometimes fast) death.
But what is it with the banks?
They claim to ‘talk expert solutions’, ‘live in your world’ and even ‘dare to be different’.
But when it comes to innovation, our big banks have been laggards in technology adoption. And, for that matter, in other things, especially with regard to electronic and online payments. That is why some actually accuse them of stifling innovation and protecting their turf by resisting the entry of newer players.
Last month, when the banks gave up on a five-year-old initiative – the MAMBO project – there was a distinct ring of truth to the allegations. The project was to create a new secure online payment mechanism. It had spent $225 million when the banks just walked out of it. Naturally, this has left many frustrated and some seething in rage.
“Recent complete outages of the payment system have made the entire community aware of the growing gap between the banks’ shiny online real-time front-ends and the reality of out-dated legacy batch system in the back office,” said Jost Stollmann, chief executive of Tyro Payments, the sole new entrant in the payments processing industry over the past 15 years.
“It is high noon the regulator mandated the performance standards and set appropriate incentives to force the banks to make the necessary investments. If the regulator and the banks do not address the requirements of a changing market place, entire new payment systems will appear totally outside the banking space, unregulated and with grave security concerns.”
‘Rein in the banks’
Stollmann believes big banks need to be reined in, and prevented from stifling innovation in Australia’s $400 billion card payments system. He says the big banks have failed to sufficiently improve electronic and online payments, despite demands to do so from the Reserve Bank and the Payment System Board.
“Australians make four billion credit and debit card transactions annually, or more than 250 each every year and they need a better deal,” he asserted. “While the RBA and the Payment System Board have been demanding innovation in core areas such as timeliness and reliability of settlements and online payments for years, the banking industry has not delivered.”
Banks may have shot themselves in the foot with their decision to abandon MAMBO.
This is because this might have been their last effective way to protect their market share from erosion by non-bank, global players, such as PayPal and systems managed by retailer Amazon and Google. Worldwide, there is a move away from banks towards these players, and in the absence of innovation in the banking industry, its fate may be sealed. By 2013, nearly one-third of all transaction in Australia may be made using alternative payment methods, according to a study by Javelin Strategy & Research.
“The reality is that the Australian payment industry is dominated by two international schemes, four major retail banks and two big retailers,” said Stollmann. “Industry self- regulation has failed. Tyro is the only new entrant providing innovation in the acquiring space.”
Tyro provides a variety of card services and electronic funds transfer but unlike banks does not accept deposits. These include credit, debit, EFTPOS, gift and loyalty cards, and Medicare claiming and rebating services. It is regulated by the Australian Prudential Regulation Authority.
According to Stollmann, the Payment Systems Board “has the power to drive the innovation agenda by setting the required performance and access standard as well as incentives and penalties for the industry.”
The question, then, is: What are we waiting for?