Small business groups and associations raised concerns and urged a block on a proposed merger after three domestic fintech players — Eftpos, NPP Australia and BPay — decided to unite into a single entity to take on global giants Mastercard and Visa in Australia.

The small business groups raised fears that a proposed merger will result in fewer payment options and higher merchant fees. 

The merger is led by the New Payments Platform (NPP) upon recommendation by an industry committee comprising 13 mutual shareholders and Eftpos members across the three entities. 

In a review letter dated April 20, Ross Lambie, the chief economist at the Australian Competition and Consumer Commission (ACCC), said: “The proposed amalgamation will limit rather than increase user choice. 

“User choice is an essential feature of an effective payment system, and a move to a single payment platform will risk the level of competition and the costs associated with added complexity to the payment system.”

“ACCI recommends a thorough review of Australia’s payments system regulatory framework.. as there is no guarantee that the proposed merger will lower and, in fact, may increase the transaction costs of digital payments across the economy.”

The big picture

Defending the merger proposal, Eftpos said in a statement that international card schemes and global technology providers are dominating the payments sector in Australia.

“Change is needed to ensure that the Australian payments system supports the best interests of consumers and businesses, through increased choice and competition,” it said.

More transaction volumes have been driven towards Visa and Mastercard networks as a result of banks’ support- backed by high-value deals- reducing the market share of domestic fintech companies.

Although Eftpos’ recent position may have stabilised, it has been losing its market share to the international card schemes, Visa and Mastercard as it remains in ‘catch-up mode’ with the international card schemes, said a public response letter dated May 2021 to ACCC.   

Meanwhile, Geoff Edwards, Vice-President in the European and Asia-Pacific Competition Practices of Charles River Associates (CRA), said that the proposed merger is unlikely to lessen competition substantially and is likely to deliver net public benefits.

In the economic expert report to ACCC, he said: “In my view, the proposed amalgamation is not likely to result in a substantial lessening of competition. 

“Moreover, and largely for related reasons, I consider that the proposed amalgamation is likely to result in net public benefits.” 

Troubling precedent

While it is no secret that less competition has often resulted in poor outcomes, it can also lead to an industry-wide market dominance abuse. 

For Instance, the ACCI noted that in the United Kingdom, over 90% of the payments market might be dominated by just two global credit companies in the future, with significant risk to merchants through higher fees. The cost of accepting card payments is five to ten greater than cash. 

The latest payments survey from the British Retail Consortium (BRC) shows card use continuing to rise steadily from 54% of transactions in 2016 to 61% in 2019.

“If an amalgamation of payment platforms were to proceed, merchants risk a governance structure that may result in similar circumstances that have arisen in the UK,” ACCI warned. 

Urging ACCC to block the merger application, the National Retail Association (NRA) argued that the proposal does nothing to encourage access to least cost routing (LCR), which it says has the potential to reduce transaction costs for businesses by as much as 40%.

“We are concerned that this marriage between big banks and large retailers would lock out small business from the table, erode competition between electronic providers and ultimately fail to address the key issue of LCR,” Dominique Lamb, CEO at Australia’s National Retail Association (NRA) said.

Australia’s fintech sector is among the world’s fastest-growing sectors with 730 fintech businesses. According to the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), there are currently 2.3 million businesses with either less than 20 people or a turnover of less than $10 million across Australia.

The three-way merger would bring together Australia’s major payment providers into a single entity that would handle practically all payments in the country, including transfers, point of sale (PoS), and bill payment. 

The ACCC is likely to decide on the proposed amalgamation by July.

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