Older readers of The New Daily might recall getting their first credit card in the 1970s. It looked like this:
In those days there was only one type of credit card available in the Australian market and it was known as “Bankcard”.
Within a decade of its launch in November 1974, this Australian-owned credit card business was one of the country’s fastest-growing and most trusted brands.
In 1984, Bankcard was introduced to New Zealand and by the end of that year there were more than five million cards on issue.
Bankcard was a local success story, which demonstrated that Australia could build from scratch a large financial services business in only a few years.
The business, which was owned by nine Australian banks – was a consistent profit-spinner for its shareholders and was still profitable when it was shut down in 2006.
Like many great homegrown icons, Bankcard lost its market dominance after international providers such as Visa and Mastercard bulldozed their way into Australia in the 1980s.
Once the big global credit card providers began to increase the fees paid to banks for issuing and accepting payments through their cards, the Aussie banks stopped investing in their own local brand.
In the mid 1990s, the Australian marketing budgets for the two international card schemes exceeded $50 million, while Bankcard was left to compete on its reputation alone.
Despite continuing to turn profits out of a customer base of several million cardholders, Bankcard was officially locked out of the financial services industry in November 2006.
Will EFTPOS get locked out as well?
Bankcard’s demise demonstrates the market power that Visa and Mastercard can exert over national banking systems.
Today, the main domestic competitor to the global card schemes is another locally-owned provider, EFTPOS Australia.
As with Bankcard, the EFTPOS business is owned by the banks.
But unlike Bankcard’s decline after the arrival of global credit card companies in the 1980s, EFTPOS is still winning the war for new customers.
Data collated by the Reserve Bank shows that Australians are now almost twice as likely to pay a retailer through a debit card than a credit card.
This represents a big change in our transacting habits because in 2005 most of us were electing to use a credit card.
The reason for the change is simple: it’s much cheaper to pay with a debit card at a retail outlet.
To keep the banks promoting their products, Visa and Mastercard levy bigger fees on retailers and other merchants for accepting payments from customers using their cards.
So, retailers and service providers then slug customers for the privilege of paying with a credit card.
But many retailers, without justification, are also slugging the same surcharges on customers who pay with a debit card even though their costs are much lower on such transactions.
Will the big credit card firms be told to compete fairly?
The recent Murray Inquiry into the financial system recommended that retailers should be banned from surcharging customers for using low-cost payment methods such as debit cards through the EFTPOS network.
If the Abbott government accepts the recommendation, consumers will be given an even greater incentive to use debit cards instead of credit products marketed by Visa or Mastercard.
EFTPOS Australia supports Murray’s recommendations on surcharging, but is now calling on the government to guarantee that the global credit card providers be prevented from using new payments technologies to lock out competitors.
“All that we want to see is Australian consumers be given a right to choose how they pay for things,” said EFTPOS chief executive Bruce Mansfield.
The recent introduction of contactless card payments systems (otherwise known as ‘tap and go’) by Visa and Mastercard were designed to lock out potentially cheaper services offered by the local providers such as EFTPOS.
If you tap your card at the checkout counter the systems are designed to route transactions to Visa or Mastercard.
The consumer is not given a choice.
While this issue is complex, its importance was highlighted by consumer advocates earlier this year to a Reserve Bank inquiry on cards payments.
Under the existing system for contactless card payments, retailers can decide which payments network customers have to pay through.
Australia’s peak consumer advocate CHOICE has called on the Reserve Bank to prevent Visa and Mastercard from using such strategies to lock out rivals that want to compete in the ‘Tap and Go’ market.
“Consumers should be given increased choice about the way they pay,” CHOICE said in a submission to the RBA inquiry.
“This could be achieved by allowing consumers who have cards with multiple payments options to choose which payment method they prefer when using contactless technology.”
The mobile payments revolution
CHOICE is also worried that the international card schemes might try to block competition in emerging mobile payments technologies.
Australian banks are beginning to roll out new terminals that can accept payment with not only chip-enabled cards but also mobile phones linked to debit accounts.
About 15 per cent of US consumers now pay retailers by waving their mobiles over a terminal at retail checkouts.
The early indications are that this mobile-based payments system is less susceptible to fraud than existing card systems.
If that proves to be the case, most of us might soon be paying for things at the retail counter with our phones.
The big question for consumers, however, will be whether the Reserve Bank can prevent Visa and Mastercard from using proprietary technology to ruin competition.
If it is unable to enhance competition in the local payments system, then another local business and hundreds of domestic jobs will slide down the drain.
Just like Bankcard did a decade ago.