The Eftpos-BPAY-NPPA Merger: What Could it Mean for Australian Merchants?

The move aims to reduce costs, boost innovation and efficiency, and improve competition with international platforms. However, with some merchant groups calling these plans a ‘smokescreen for a monopoly’, we ask what is needed to make NewCo work for merchants.

The Proposal

Eftpos, BPAY, and NPPA have historically performed distinct roles within Australia’s payments infrastructure:

Eftpos: Established in 1983, Eftpos is Australia’s domestic debit scheme for card transactions, similar to Girocard in Germany or Interac in Canada. Eftpos accounted for 18% of all transaction value in 2019 – making up 37% of debit transactions (CMSPI estimates based on Euromonitor (2021) data).

BPAY: Unlike Eftpos, BPAY focuses on the direct debit market; the company was responsible for 3.4% of non-cash transaction value in 2019/20 and is Australia’s leading bill payment method.

NPPA: Finally, NPP Australia’s remit is real-time payments. NPPA went live in November 2017 and was developed in response to the RBA’s 2012 review of the Australian payments system.

The three entities lodged their merger application with the Australian Competition and Consumer Commission in March 2021. Under the plans, each would retain distinct operations but come under a single Board of 13 Directors. The ACCC have until 30^th July 2021 to make their final decision.

Why a merger, and why now?

According to its creators, NewCo is needed to provide sustainable competition to global players within the Australian market. In particular, this affects the domestic Eftpos scheme whose rails are often a cost-effective option for merchants. An independent report submitted alongside the merger application warns that, given its sliding market share, Eftpos could cease to exist within 10 years. Figure 1 illustrates this trend, with the market shares of international card networks Visa and Mastercard increasing consistently over the period 2015-2019. Figure 2 shows that Eftpos is declining even within the debit space, where its market share fell from 57% in 2015 to 37% in 2019.

Given these trends, it is hoped that the merger will capitalise on the innovation of BPAY, the low cost of Eftpos, and NPPA’s real-time infrastructure capability to strengthen the local network’s reach (source). The proposal also includes the continued rollout of Eftpos’ online capability, and points to additional benefits such as streamlined decision-making over projects that would otherwise compete for funding.

Merchant Concerns

Why, then, are not all merchants supporting the plans? For the Council of Small Business Operations, the deal is more about the protection of profits than the development of competition. In fact, the COSBOA reportedly described NewCo’s proposed structure as ‘a smokescreen for a monopoly’ Similarly, in their submission to the Treasury, Master Grocers Australia outlined their ‘grave concerns’ that a single payments entity could ‘destroy competition in card related payments, handing the advantage to the two large international card schemes’.

Whether this concerning vision is realised depends, at least in part, on NewCo’s governance structure. This is because issuing banks are the recipients of interchange fees paid by a merchant to accept every card transaction. The Figure below illustrates each company’s current shareholders – a combination of issuing banks, payment service providers, and merchants. Under their proposal, NewCo will continue to be owned by the current shareholders (excluding the RBA). Its Board will comprise 4 independent Directors, and 9 representatives from banks, retailers and payment processors. Each participant is expected to have a single vote regardless of the numbers of the shares they hold. In the joint press release, it was suggested that merchants would have specific veto rights over changes regarding the Eftpos scheme. However, the application summary submitted to the ACCC instead specifies that a majority of 75% of stakeholders who use a service are required for any ‘fundamental’ changes.

Figure 3. Common shareholders of NPPA, Eftpos, and BPAY

The Verdict

FNewCo’s proponents, its creation promises streamlined decision-making, a boost to innovation, and stronger competition in the Australian market. In their application, the three companies claim that their services are complements rather than substitutes, meaning that the global card schemes – rather than each other – constitute their closest competitors. The deal could therefore strengthen Australian institutions’ ability to compete domestically on both price and product offering.

However, for some merchants, the amalgamation of the three payment schemes means risking this competition altogether. In the past, the COSBOA have highlighted the key role that Eftpos has played in challenging major schemes on their merchant fees. Without guaranteed merchant representation on NewCo’s board, and in the absence of clear veto rights, the merger could create an institution whose owners only benefit from a status quo that merchants cannot afford.