In this article, we analyze the payment ecosystem in Australia, one of the most important markets worldwide. A country with a powerful e-commerce, and a great diversity of payment methods, especially cards.
The e-commerce market Australia has experienced significant growth in recent years, mainly supported by high internet penetration, wide availability of secure online payment systems and a growing number of online shoppers. The COVID-19 pandemic only accelerated a process of changing consumption habits, which turned from offline to online stores.
The Australian ecommerce market shows strong data, growing 16.8% in 2020, and 13.4% in 2021 to reach US$46.7 billionaccording to the data of the report GlobalData E-Commerce Analytics, company specialized in analysis and data. The forecasts, moreover, could not be more optimistic. According to these data, the online sales market is expected to reach 91.5 billion Australian dollars ($70 billion) in 2025.
Regarding payment methods, according to the study data JP Morgan Payment Trendsthe cards are the most used online payment method by buyers, who used it in 52% of transactions. They are in second place as the most used payment method digital wallets, with 22% of the total. They follow with a 13% bank transfer, a method driven by several factors, such as the fact that more and more young people take advantage of buy now pay later systems to buy products that they receive immediately but pay comfortably in installments later. Card providers can also benefit from this trend, as these systems often accept payment through the user’s bank account or through a designated card. The risk to the trader is perceived as low, as the provider of `buy now, pay later is the one who generally bears the risk of payment default on behalf of the merchant. As for the cash payments, these represent 7% of total online sales according to JP Morgan data.
The five big trends in payments, according to the Reserve Bank of Australia
Regarding the payment ecosystem in Australia, Philip Lowe, Governor of the Reserve Bank of Australia (Reserve Bank of Australia), released in a speech at the end of 2021 “The five big trends in payments” in which it describes the five ways in which payment methods are going to change compared to today:
1) The use of cash continues to decline
“The abandonment of the use of banknotes already existed before the pandemic, but it has accelerated in the last two years and is likely to continue”, he claimed Lowe.
Looking at the total value of ATM withdrawals, the percentage of cash used in Australia has been reduced by 30% in the last 3 years. Measured by looking at the total value of ATM withdrawals, the use of cash has dropped by 30 percent in the last three years.
And in line with this trend, the use of debit cards is growing over credit cards and the number of account-to-account transactions is also increasing.
2) Digital wallets
Digital wallet is the general name for solutions like Apple Pay and Google Pay, where users’ payment details are stored on a device or in the cloud to be used instead of physical payments. Lowe noted that this payment method is becoming increasingly popular and is just getting started.
In addition to accessing bank account holdings, these wallets could also hold “digital tokens,” essentially digital representations of RBA-backed banknotes. “Digital wallets are likely to become more and more important” affirmed the director of the Australian bank.
3) Great technology
As indicated in the previous point, large technology companies such as Apple and Google are already fully involved in the payment sector through their wallets. “The platforms used by these companies provide large networks that they can leverage to quickly build a payments business. They can also combine payment data with other data from their platforms, often using cutting-edge technology.“, said Lowe.
As payments become more digitally based, the share of these types of businesses is expected to increase.
4) New business models
“Another trend to watch out for is smaller players coming to market, focusing on specific elements of the payments value chain. This is bringing more competition and making new business models possible.” Lowe commented on the flip side of big tech’s role in the digital payments ecosystem. Initiatives such as Buy now pay later is an example of this.
5) Community and political interest
Lastly, from the Reserve Bank of Australia they claim that the population’s interest in payments will continue to “intensify” as the pace changes.
They point to several issues that need to be taken into account, such as the continued availability of banknotes, keeping the costs of electronic payments under control, problems with competition and access to devices as the participation of large technology companies grows, and ensure the cyber security and recoverability of any digital payment system.