News

Independents making headway in Oz

With the Reserve Bank of Australia's decision to award a settlement account with the Payment Systems Board to an independent, Cashcard, and a continuing dialogue over giving ATM deployers more control over usage fees, it looks as if Australia's independent market is coming on strong.

May 9, 2002

The growing popularity in off-premise ATMs is bringing significant changes to the Australian market, with regulators granting the first non-bank electronic payments service provider an exchange settlement account and Australia's largest ATM manufacturer appointing a master reseller to begin capitalizing on the small retail market.

The Reserve Bank of Australia on March 13 made a landmark decision to award electronic payments provider Cashcard Australia an exchange settlement account (ESA) with the Payment Systems Board.

Number one

The move positions Cashcard as the first independent organization to operate as the settlement institution in the retail payment system. It comes three years after the board's announcement of its intent to widen access arrangements to organizations falling outside the traditional banking code.

Cashcard's chief executive, Greg Baker, said the decision was a milestone in the evolution of the Australian payments system because it no longer needed to rely on third parties to settle payments for its members.

"What it means is that we have the ability to participate in the [retail payments] system on our own two feet and we do not have to rely on bank terms and conditions to settle. It's a strategic development that provides for our future independence," Baker said.

Under the old system, Cashcard was required to contract with a bank to settle payments on its behalf through the Reserve Bank, despite having arrangements with all major banks in the payment system.

Cashcard settles obligations of more than $10 billion annually for its daily ATM and EFT/POS services to financial institutions and corporate firms. It services more than 50 member financial institutions, including Australia's leading regional banks, building societies and credit unions, as well as hundreds of corporate customers.

Baker said the decision was a reflection of the Reserve Bank's desire to encourage greater competition in the payment systems market and would bring significant benefits through operational efficiencies. Implementation of the ESA project would begin in the fourth quarter of 2002.

"It's improving efficiency, but it also creates opportunities for us to become more involved in payments processing and payments generally," Baker said.

More to come

Ken Gaunt, chief executive of off-premise ATM provider Electronic Banking Solutions, called the move a coup for the off-premise market.

"It shows that private enterprise can come in and operate in traditionally what has been the banks' space and do it to a level that the banks didn't do it before," Gaunt said. "Currently, I have to partner with a bank to run my ATMs. In the future I may not need a bank to do this. It's a step in the right direction for allowing a more liberal playing field."

EBS is taking advantage of the burgeoning off-premise market with its appointment as master reseller for NCR's EasyPoint line of ATMs, created for the smaller retail market.

Gaunt said the continued closure of bank branches in rural areas has opened new opportunities for the off-premise market. One in four banks throughout Australia have been closed since 1996, according to the Financial Services Consumer Policy Centre, Faculty of Law at the New South Wales University.

"Last year was the first year off-premise devices exceeded those of traditional or on-premise bank sites," Gaunt said, referring to an NCR statistic that its ATM shipments to non-banks exceeded shipments to financial institutions for the first time in 2001. "We're putting in devices in far smaller locations than what the banks do because we're not driven by the high-cost infrastructure."

EBS has deployed about 2,000 of Australia's roughly 4,000 ATMs in off-premise locations. Gaunt said EBS, which has the largest independent network of ATMs in Australia, had the potential to deploy another 5,000 ATMs in the current climate.

Fee control

However, potential for even greater sales would come if control of the interchange fee structures was handed to ATM owners, Gaunt said.

"If changes come in the current share of the fees then the market will increase, because we're only picking the larger locations that can provide transactions to give us the return on our investment," Gaunt said.

Currently, all ATM owners rely on inflexible fees to recoup costs of services through bilateral agreements between banks, some developed 10 years ago. Under these conditions, off-premise ATM owners' profits are limited because they are unable to recoup return on investments in lower transaction areas.

A working party made up of ATM bank and non-bank owners, facilitated by the Reserve Bank, is tabling a model that proposed a direct real-time charge or convenience fee, which involved no interchange fees in their present form. This would allow the market to set new fees based on consumer demand and competition.

Gaunt said this model would allow owners to distribute ATMs in more locations because higher fees could be charged based on levels of convenience. For example, a consumer may be charged a premium for using an ATM in a nightclub in the Outback at 2 a.m., where a nominal fee would be charged in a metropolitan area at midday.

However, Baker, whose company also operates ATMs, said it was hard to assess what impact fee changes and new regimes would have on the off-premise market.

"It's too early to make a call but what we'd be arguing is that any changes should continue to support the provision of convenient services and we would encourage a fee regime that is driven by the market," Baker said.

A decision is believed to be at least another month out while the working group explores ways a direct charging model would operate. Public consultation and other procedures would then need to be activated.