Saturday, October 16, 2010

Submission to the RBA's Strategic Review of Innovation in Australia's Payments System

Back in April we decided to have a rant about how much multi-currency credit card processing in Australia sucks.

It looks like some people at the RBA agree and they're doing a "Strategic Review of Innovation in Australia's Payments System". (Thanks to @miakgarlic for passing this link to me).

Yesterday I submitted our thoughts on the issue to the RBA and I thought I'd copy our letter here.

L6, 150 William Street
NSW 2010
02 8006 1506

Attention: Jennifer Ross, Payments Policy Department Reserve Bank of Australia

Regarding: Submission for the Strategic Review of Innovation in Australia’s Payments System

Australian online retailers looking to export into overseas markets are being let down by a lack of innovation in payment processing options offered by Australian banks.

Shoes of Prey offers customers the opportunity for women to design their own shoes online, which we then hand make and ship to customers all over the world. Currently 40% of our sales are to customers outside Australia and despite having our shoes made overseas, we’re a net exporter from Australia. To help grow our sales overseas we need to offer customers overseas the ability to pay in their local currency. At the moment NAB is the only Australian bank that can provide this as a service to us but their offering is severely lacking. Their fees are complicated, setting up to work with them takes months (an eternity in the online retail world) and the software we need to use for their multi-currency product is archaic and is literally from the 1990's.

Because of the lack of options provided by Australian banks Shoes of Prey use PayPal for credit card processing. PayPal provide a fantastic service, however there are two issues for Australian retailers using PayPal for payment processing:

1. Repatriating our foreign sales revenue to Australia is expensive. PayPal only have NAB to compete with and this lack of competition means we pay high fees.

2. PayPal don’t offer their most up to date products in Australia so we’re forced to use an inferior version of PayPal’s product which results in lower sales for us and reduces our competitiveness against overseas competitors. Specifically, PayPal have a product available to US and some European customers called Website Payments Pro which allows for credit card processing to happen on the online retailers own website. This product isn’t currently offered in Australia so we’re forced to send customers to the PayPal website to process their payment resulting in lost sales. Greater competition from local Australian payment processors would encourage foreign companies like PayPal to offer their most up to date products to the Australian market.

The rate of innovation in payment processing in overseas markets is only accelerating. US companies like Square and Verifone are launching credit card scanning devices that attach to the iPhone and iPad so small businesses can accept credit card payment using these devices. Innovations like this aren’t available to Australian businesses. As innovation in the payment processing space picks up in overseas markets Australian businesses are only going to be left further and further behind.

If we want Australian business and particularly online retailers to be competitive in overseas markets we need more innovation in the payment processing space. The regulation in the Australian financial services industry arguably helped us through the Global Financial Crisis, but it’s letting us down in other areas. The lack of competition and high levels of regulation in the Australian banking industry are stifling innovation, particularly in the area of payments processing.

Following on from my discussion with Jennifer Ross, if you would like to meet in person to discuss these issues please don't hesitate to get in touch.


Michael Fox
Co-founder - Shoes of Prey

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