The Reserve Bank of Australia has thrown open the gate for technology companies to enter the payments space and challenge the big four banks’ oligopoly.

On Friday, the RBA updated its policy to make it easy for non-bank companies to join its Exchange Settlement Account (ESA) arrangements. ESA arrangements commit the RBA to step in and cover any shortfalls in payments between members, allowing the payments system to function at all times.

The rules are intended to create more competition by paving the way for new entrants to the market, including finance technology companies (or fintechs), to take a swipe at the banks’ crown.

However, expert legal opinion confirms that there is nothing in the policy that would prevent international technology leviathans from joining the ESA.

“This could give the tech giants like Amazon direct access to the payments system,” Canstar financial services chief Steve Mickenbecker told The New Daily.

Big tech bank bypass

Were a big tech group like Apple of Google to join, they could settle their own transactions with their customers’ banks without using the services of a bank themselves.

“They could bypass the banking system and go direct to the exchange settlement system,” Mr Mickenbecker said.

That would cut out a major part of the banks’ business model and squeeze the big banks out of major parts of their business – and the big tech firms are well placed to do exactly that, according to Digital Financial Analytics research group principle Martin North.

“They have a huge customer base, lots of digital devices and payment facilities, although to date they are not bypassing the banking system but that is starting to change,” he said.

“Facebook has announced it will launch its own cryptocurrency, Libra, in 2020,” Mr North said. Libra could allow Facebook’s customers to deal directly with retailers who sign up to it and bypass the banks. Facebook has 2.4 billion customers, 15 million of which are in Australia.

The evolution of fintech companies as well as the emergence of big tech outfits in the payments system means the incumbent financial organisations will face challenges on two fronts.

“If other big tech firms act like that it could have an impact on the big banks. They have the retail customers and the platforms to do it,” Mr North said.

Small fry can eat at the edges

The RBA’s new rules will also make it easier for the many small fintech firms  launched in recent times to join the payments system without getting regulatory licences to actually become banks.

Already some firms such as Eftex and Cuscal (which owns digital bank 86 400) provide ESA services like operating payments for smaller building societies and credit unions on contract.

“Payments services have been a leading area for fintechs,” said Daniel Teper, head of fintech for consultants KPMG.

“Of the 629 fintech groups, about one quarter are in the payments sphere,” he said.

These smaller challengers have an advantage in setting up new payments arrangements over their larger incumbent rivals because they’re not constrained by legacy technology arrangements which often prove difficult to change.

“[Small fintechs] are quick on their feet while the cost for big operators in upscaling is large and its quite difficult,” Mr Teper said.