Innovation Nation
This is the seventh edition in an eight-week series, made possible by MYOB, looking at how technology is changing the way New Zealand businesses operate.
Payments is a hotbed of innovation with connected technology and mobility enabling solutions that few could have imagined just some decades ago.
Thanks to that, payments is a rapidly evolving area that has the potential of making life easier for consumers and businesses alike, MYOB marketing manager Jesse Logan says.
"The payments industry is moving really quickly, and it has evolved quite rapidly, particularly in the last few years.
"We're seeing different types payments emerging, including traditional ones like EFTPOS and credit cards being available in different channels such as online," Logan says.
Banks that have traditionally controlled money flows locally and internationally are now being superseded as technology enables new and creative ways to make payments. You only need to enter a bank branch nowadays to see how empty they are, as we're transitioning towards a cashless society with payments done electronically instead.
"This could be businesses being able to take payments via smartphones, or paying invoices directly from accounting programs that automatically record the details of the transactions, which minimises time spent reconciling account statements", Logan notes.
Startups such as Australia's Airwallex that focuses on making international business payments faster, less expensive and more efficient than slow and expensive traditional transaction networks are attracting billions of investor money as they disrupt banks.
Technology companies that have a direct relationship with their customers are also keen to develop their own payments solutions that will boost brand loyalty - and earn them fees.
Apple, Samsung and Google all offer contactless payments via devices and apps in New Zealand. Paying for a coffee with your Apple Watch seems a bit funny at first, but once you get used to not having to pull out your wallet and find the right EFTPOS or credit/debit card, it becomes second nature.
Using technology means that traditional credit cards can be virtualised and have features that are not possible on physical ones. Apple recently launched the own-branded Card service in conjunction with United States bank Goldman Sachs and MasterCard.
Apple Card is both a virtualised card that is incorporated in the iPhone Wallet app, and a physical one with only your name on it. The physical card has no number or CVV security code, nor does it have expiration dates or a signature.
All those details are from the iPhone Wallet app. Doing it this way means Apple can add a slew of security and privacy boosting features to the Card. Transaction data is not sent to Apple, unlike traditional credit cards where issuers can see how much you spent, and where and when.
The three-digit CVV code changes with each transaction and new card numbers can also be generated. Coupled with biometric security on smartphones, physical and online credit card fraud will be a great deal harder to commit with Apple's payments solution.
However, who knows when Apple Card will arrive in New Zealand and the downside is that it requires an expensive iDevice (although to make up for costly iPhones, no late payment charges and immediate cashback offerings might sweeten the deal).
You don't need expensive smartphones for payments. Messaging apps have become payment channels as well, with Chinese tourists now being able to use AliPay and WeChat Pay in New Zealand, on the same terminals that retailers use for EFTPOS and credit card transactions.
What the above adds up to is shorter processing times, lower fees and better payment terms for invoices, which in turn helps with small businesses cash flow. Customers are attracted to the new solutions because convenience is king, as MYOB's Logan suggests.
Some caution is warranted for retailers keen on keeping their customers happy with new payments technology.
One massive bugbear for New Zealand businesses are the steep merchant fees charged by banks.
Burger King stopped offering Paywave contactless payments last year because of the high charges; small retailers are complaining that accepting contactless payments can cost them tens of thousands of dollars a year in fees.
New Zealand retailers pay 1.2 per cent of the transaction amount for contactless debit payments, and 1.6 per cent for credit card transactions as banks here are not regulated in how much they can charge.
That's twice as much as what Australian retailers pay, and six times more than in the United Kingdom.
Ironically, the high charges was an incentive for Mojo Coffee to develop their own payments app, so that they could offer customers Paywave convenience without having to part with well over a hundred grand a year for the privilege.
Mojo's smartphone app lets customers load credit onto it and scan QR codes at the counter for paying, which minimises fees for them and the business.
Such proprietary custom solutions can work well but nevertheless cause controversy due to customer lock-in. Event goers will be familiar with Another Way To Pay (AWOP) wristbands that enable contact and cashless payments at gigs.
AWOP stored value bands work well and mean there's no need to manage large amounts of cash or worry about the EFTPOS network staying up through the event.
Nevertheless, AWOP as the only option to pay grates with people especially since the money loaded onto the band has to be reclaimed via a website or it's lost for concert goers.
At the big end of town, banks are sensing which way the wind is blowing. They are trying to meet the challenge head on by becoming more like the startups that are disrupting their payments monopolies.
Governance organisation Payments NZ worked with ASB, BNZ and Westpac on an open banking pilot since last year, along with EFTPOS firm Paymark, technology provider Datacom and TradeMe to develop secure and standardised application programming interfaces (APIs) for communicating transactions and account data.
The pilot resulted in two commercially available APIs that app developers can use to come up with new and innovative financial services, with 90 organisations, local and international, coming onboard with the open banking effort.
Card providers too are getting in on the API game. Visa Developer started in February 2016, and offers an extensive set of financial APIs for coders building apps. Likewise, MasterCard has come up with an Open API developer portal to lure coders into using their services.
Payments are moving fast into the digital realm, in other words. Alarm bells are ringing around the world that the haste means we've not thought through security and privacy aspects around digital-only payments properly.
Not doing so could leave us vulnerable to technical glitches, security incidents and crisis situations that can completely disable digital financial systems.
In Sweden, a country close to being a cashless society, the central bank governor last year warned that all payments could be controlled by private sector banks soon and demanded new laws to stop that from happening.
A serious crisis or war, such as Russia invading and taking a large part of the country, could make it impossible for Swedes to pay for fuel, food and other necessities as the digital systems would be switched off, the central bank governor pointed out.
Across the ditch, the Australian Productivity Commission has demanded that banks and credit card providers should not have self-regulation for digital payments and infrastructure, as a fix for what it says is a harmful oligopoly.
Like with most rapidly developing areas of technology, payments promises to be exciting and worrisome in equal measure, requiring thoughtful regulation that protects users while not stifling innovation. Whether we'll strike that balance remains to be seen.
Midday Wednesday, the Herald will run a live panel in which experts will discuss how this technology is changing small business in New Zealand. Tune in to participate in the live chat.
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