Imagine logging into Facebook to pay your bills. Or having free Internet, on the condition that you always wheel your virtual shopping cart past the Telstra checkout.
For now, the big banks rule the digital payments industry, raking in fees from the many ways we exchange money without using cash.
PayPal is of course a big competitor, but there a host of other potential “pretenders to the crown”. That’s according to futurist and inventor Morris Miselowksi, who has advised two of the Australian big banks on this issue.
“They know that [competition is] going to come,” he says. “You’ve just got to wonder who’s going to crack it.”
The latest fears have been prompted by the news, reported first in the Financial Times, that Facebook is gearing up to offer a variety of financial services.
In early April, the social media company was widely reported as being “weeks away” from getting approval from the Irish Central Bank for users to store and spend money on its website.
The payments industry is especially lucrative in Australia because we are a tech savvy nation.
Back in 2011, the Reserve Bank found that we use cash for less than 25 per cent of transactions valued between $51 and $100, and that rate drops further as the transaction value gets higher. Banks and others make their money by charging small fees, usually from sellers, for each digital purchase, adding up to huge profits.
Given the money at stake, it seems unlikely that the banks will keep their stranglehold on payments forever.
“Absolutely, banks are going to have to give up some of their market share to these sorts of non-traditional players,” Mr Miselowski says.
“The reality is, we don’t need the banks anymore to [administer payments] because all they offer is the conduit. They’re a pipeline between the buyer and the seller.”
Aside from the tech giants, Mr Miselowski sees the telcos as another potential rival.
“Why doesn’t a telco, like Telstra, that currently offers broadband, why not just say, blow it: here’s your Internet for free, but you’re going to pay a quid for every transaction that you do.
“I can’t understand why it hasn’t happened already.”
What will this mean for consumers?
Orren Prunckun, a tech entrepreneur and marketing manager at the New Venture Institute at Flinders University, points out that the big tech companies are already involved in payments, so it shouldn’t come as too much of a shock.
“Given that Facebook, Google and Apple already take payments through the Facebook ad and game platform, Google Play and Wallet and iTunes and the App Store, I think we can expect that there will be further progress with higher volumes and more incorporation of payments for their core offerings,” he predicts.
If payments do migrate to social platforms like Facebook, consumers could benefit from greater convenience and competition.
“The impact for consumers is choice, which is a good thing for the market,” Mr Prunckun says.
What will happen to the banks?
Despite the possible intrusions, Mr Miselowski thinks the banks will manage to stick around in payments.
“I don’t think the banks will totally disappear from this space. I don’t think this is a black and white argument,” he says.
Orren Prunckun is sceptical that tech companies will actually intrude into the payments space at all. He thinks Bitcoin and other cryptocurrencies are much more likely to cause headaches for the banks.
“[T]he biggest threat from technology to the traditional banking system and the big four banks could come from the core ideas of cryptocurrencies,” Mr Prunckun says.