Bernard Hickey argues EFTPOS is a national champion that saves NZ Inc hundreds of millions of dollars a year. He says it should not be surrendered in the shift to contactless payments and mobile wallets

Bernard Hickey argues EFTPOS is a national champion that saves NZ Inc hundreds of millions of dollars a year. He says it should not be surrendered in the shift to contactless payments and mobile wallets
We need a new modern payments system, as Kiwi as, says Bernard Hickey

By Bernard Hickey

New Zealand's isolation from the rest of the world can be a handicap, but it also means we can evolve our own special species that are perfectly adapted to our environment.

The Kiwi's long beak works perfectly to dig up the insects that infest our damp forest floor in the dead of night. The arrival of predators such as rats and stoats was almost enough to wipe out the Kiwi, but our more recent preservation efforts appear to have saved our national symbol.

New Zealand's business landscape has also evolved its own species of businesses that would not exist anywhere else in the world, again because of our small size and isolation.

Trade Me was allowed to grow and thrive because E-Bay was focused elsewhere.

Air New Zealand has also built its own special culture and profitable business model from a strong local base.

But one of the least-heralded and unusual local adaptations in our business and economic life is New Zealand's EFTPOS (Electronic Funds Transfers at Point of Sale) system, which was launched in 1984 and has grown to handle 75% of all electronic transactions.

New Zealanders now take it for granted that they can walk to the dairy with an EFTPOS card and pay for a bottle of milk without having to pay any surcharge.

It is simple, it works and it's cheap from a consumer point of view.

EFTPOS is admired all around the world for its ubiquity, its low cost and the way it helps keep our economy out of the shadows.

It means shoppers, shopkeepers and banks don't have to hold and shift around huge lumps of money. That means we're all more likely to pay our GST and the cost of doing business isn't weighed down by the costs of handling cash or paying a little clip of the ticket to some overseas payments system network.

Estimates vary, but some think these cost savings could be worth more than NZ$500 million a year to our economy, which helps reduce our current account deficit by that amount.

But this golden era for the great Kiwi version of EFTPOS may be about to end.

It now faces the evolutionary equivalent of the arrival of the rat and stoat as new waves of mobile and so-called 'contactless' technology wash through our shopping centres and payment systems.

Over the last two years, Visa, Mastercard and the big banks have ramped up their rollouts of payWave and Paypass contactless credit and debit cards to bank customers.

At the same time the big retailing and petrol station chains such as Countdown, Pak'n'Save, Four Square and Z Energy have begun rolling out the terminals needed to 'wave and pay'.

By the end of March more than 15,000 or 10% of the nation's 'fleet' of payment terminals had been set up and contactless payment volumes doubled to more than two million that month from a million as recently as August last year.

The biggest retailing chains can afford to both absorb the extra fees of the payments made via Visa and and Mastercard and also negotiate bulk deals on the fees with the banks. The smaller retailers such as dairies and cafes aren't so lucky. Either they absorb the 2% plus fees being charged for using these credit cards, or charge their customers the extra 2% or more.

Hotels and airlines are increasingly imposing that charge, but most smaller businesses have yet to take that step.

For many customers with these 'wave and pay' cards, it makes sense to use them to collect the various 'bonuses' the card schemes offer, particularly when there's no surcharge being imposed.

For now this is not a major issue because the volumes going through the card schemes rather than EFTPOS is still under 30%. But New Zealand is getting closer to that tipping point where credit and debit card use becomes more dominant.

The big drawback of contactless, however, is that the aerial technology used in these cards is owned by Visa and Mastercard and they won't allow it to be used for EFTPOS payments.

Regular visitors to Australia will know what a landscape dominated by those card schemes looks like.

Surcharges are endemic and most people pay for smaller items with cash.

This is a real headache for retailers, shoppers and regulators alike.

Australia is so desperate to emulate New Zealand's much cheaper EFTPOS system that the Reserve Bank of Australia is trying to build one from scratch.

Meanwhile, New Zealand's still EFTPOS-dominated landscape faces the arrival of mobile phone wallets, which could either hasten the demise of EFTPOS, or prove another one of those moments, like in the late 1980s, when New Zealand chose to go it alone with its own solution.

Banks, credit card schemes, phone companies are all jostling for position at the starting line, awaiting the arrival and adoption of 'virtual' wallets inside mobile phones.

These would be phones with apps that contain all the details of payment and loyalty cards and that could be simply 'waved' at a terminal.

No one is quite sure yet which type of wireless technology could be the payments system equivalent of the 'one ring to rule them all'. Many android phones now have NFC or near field communications chips that would allow the 'wave and pay' facility. Many had hoped Apple would adopt the NFC standard as well, but so far it has focused more on its own iBeacon system that uses the Bluetooth Low Energy standard.

Amid the uncertainty and the jostling, there is one body that could effectively repeat the history of EFTPOS and create an industry standard that allows New Zealand to go it alone again.

Up until now, few have heard of TSM. It's a combination of Paymark, which is the group owned by the big four banks that already runs the EFTPOS system, and the three mobile phone companies -- Telecom, Vodafone and 2Degrees.

TSM is building a mobile wallet system that could include apps for payment systems such as EFTPOS, Visa and Mastercard, and for stored value transport cards such as Snapper or Hop cards. It could even include loyalty schemes such as FlyBuys or cafe cards.

They hope to launch later this year.

This is a key moment for EFTPOS. If the TSM alliance can include EFTPOS in its mobile wallet and get collective action from the banks and mobile phone companies to adopt the standard and market it to customers than EFTPOS has a chance to survive and thrive.

New Zealand's shopping landscape and our wallets looked very different 30 years ago just before the adoption of EFTPOS.

Will we have a similarly brilliant, low cost and local version of this payments system in our mobile phone wallets in 2044?

The decisions made in the boardrooms of the big four banks and the big three mobile phone companies in the next couple of years will decide that future.

The end result matters an awful lot for NZ Inc.

A landscape dominated by Visa and Mastercard payments could add a regular 2% to every electronic transaction and collectively cost our economy hundreds of millions dollars extra each year.

It would revive the incentives for a more cash-driven and shadowy economy that made it harder for our Government to collect GST.

A landscape without EFTPOS would also encourage the use of credit.

It's no accident that those economies without EFTPOS have much heavier use of credit cards and a bigger build up of consumer debt.

For the sake of New Zealand Inc, somehow we need to keep our mobile wallets as 'Kiwi as'.

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A version of this article has also appeared in the Herald on Sunday. It is here with permission.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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23 Comments

Australia is quite backward with electronic money handling.
The convenience stores & small supermarkets & small shops have notices up "No credit card payment" and "no Debit/EFTPOS transaction under $10 or $20".  
Some cafes are effectively cash only.
Bit like America   -  still on Cash.
Mind you  -  Cash is the last bastion of our privacy.

My view of small cafes etc here in Wgtn is they more and more dont do CC, seems quite common, it would be a pain in the A to not use eftpos, ie have to carry cash.
regards

credit card use should come with a fee - otherwise all the rest of us using cash or eftpos are subsidising their use.

The cost of doing business is the business's problem.
Customers hould be able to choose whatever form of payment mechanism they choose -  barrows of 10 cent peices, paper cash, cheques, eftpos, credit card etc.
As to how the vendor has to take care of the money or transaction process is not the customers problem.   Anyway, there is a cost to having cash on premises and cost of physical banking, etc etc.  Every payment type has a cost associated.
That is why Air NZ and Ticketek are not fair dealing with additional charges forced on customers just to perform the payment.    And cafes and stores not accepting credit cards or Eftpos below $10 will be missing out on business.

really?   that's a really ignorant statement.  Have you ever actually launched a small business from the ground?  cost of business is the biggest steamroller to dodge!

You have to be willing to accept gold, silver, legal tender. that's it.
anything more than that is a service, one which comes at a cost, the higher the cost the more it has to be passed on to customers, and for the company (and therefore employers and bosses) to wear until critical mass is achieved.  And if the business is leveraged, as it shoud be, then every cent wasted in "cost-of-business" BS is a tax-paid cent that could have either come off capital or been re-invested.

Fair reaction from a small business owner. But one could argue the overall cost structure should be worked into the price - bearing in mind what the market can bear.
Following your argument  -  why not add on cost of delivery of products to your store/cafe,  cost of wages, cost of rent, cost of electricity, cost of wifi?, -  customers don't need to see transparently every cost that brought your product/service to the customer.    
One price  =   then let the customer pay the price in whatever transactional means they choose.

Customer doesn't say, can i have a Late made by a more expensive worker.  Wages are the employeers concern.  Customer may say, can i have Soy Late, and the extra cost of stocking Soy Milk is usually passed on to the customer.  Likewise if I as a customer say, i woudl like to pay with credit, i have no problem with the reasonable costs of that decision being paid by me, and not other customers.  My favourite is Ikea where they charged 70p to pay by credit card.
Problem is when the business uses payment to hide costs, like budget airlines that charge $10 per person, per leg to pay by card, when there is no other option but paying by card.

sometimes the customer does get to say.

If I get the flashest coffee machine with the bells and whistles.   Or my hairdressing shop goes all out with the latest tanning beds, and decor that is beautiful and relaxing...and my prices reflect that... then customers will vote with their feet.    And that is a very common cause of business failure.   I won't buy that second hand ute, I'll get the flash one (and be upsold all the trimmings, because I'm not going to be rebuying soon) and the laptop (because it's more portable than a desktop half the price), and a cell phone, the latest of course on the megaplan.  All cost of doing business.
  And that's the massive danger from Keynesian/government economic spending.  For their theories to be true, it means the money just has to be spend "as a cost of doing business" because it'll come back again.

But the _investor_ knows.  The first and biggest question.  How soon am I going to get my investment money back.

Inflating cost of doing business reduces that.  overspending or spending in the less efficient places, in the economy of business, is cutting your own throat.  In any endeavour.  business, finance, relationships... we even see steven quoting in his energy stuff EROI...how fast do I get that expenditure back!

Even in fx trade, which is quiute a "pure" transaction.  The lower the commission, the more profitable the trades. the more profitable the trading the higher the volume of trade.... which means for the service provider, lowering the cost of business in order to maximise profit is THE economic activity of being in business.   You lower the cost as much as possible in order to pay yourself and your peoples' wages as much as possible.   Increase C-o-B, and you running into the "farmer problem" of having difficulty paying decent wage because c-ob is too high. And in farming it's often the customer which is picking the price level, making it tougher.

The business has the right to say how they want the good paid for, simple.
If customers dont like it they can shop elsewhere.
regards

Not in some businesses, where one player is monopoly/duopoly/cartel or where one group has been invested in legal power (and thus can use force to get their way without paying for their demands)

Pay wave or Tap-N-Go is a very risky technology, being shoved down the throats of consumers by the card companies/retailers and the Banks have complicitly adopted this without any thoughts to the security of their customers. Not ethical at all.

Exactly, contactless cards seem to me to be a pickpocket's dream. As it stands lifting my wallet will only net you <$20 cash and a bunch of cards you need a PIN for. If my bank insists on pushing one of these new things on me I'll go looking for one that doesn't thank you very much.

We cancelled our cc becasue our bank 'killed' our current non wave and pay one (which had a year still to run on it) and sent us the new type. Chatting to the teller, we apparently aren't the only customers to have done this - got rid of credit card - because of the new technology. I'd love to see the numbers of people who have cancelled, rather than be forced to adopt tech we don't want.
The only ones that seem to want it are the young kids who don't realise the trap they are being directed into - I've seen teens at university use a credit card to pay for a coffee for christ's sake! Had a good discussion with one as to how much interest they thought that coffee was costing them as they don't pay the card off each month - their argument was that they didn't have the funds to do that.....and yet a bank gave them a credit card! Madness, just pure madness.

Tried they all do it I think.  I asked for a non-wave one and was told no.
Im curious on the legal ramifications of a stolen pay wave, I'd assume its my fault until I can ring the bank.
http://www.stuff.co.nz/national/crime/9435792/Crime-wave-causes-bank-ret...
 
regards

The reason New Zealand is "so far ahead" with EFTPOS is that New Zealand was the test site for the technology.

We had a small enough population that it could be rolled out.
We had a big enough population that theories and loading could be tested (economically).
We spoke English.
We had most of our population in a few main centers, which were already well connected telecommunications wise.
There were only a few banks, so a shared network wasn't going to be too much of a problem - yet the population wasn't important enough that one bank would make a strategic play for the network.
Our population was moderately wealthy (we could spend to test the system, we generated transactions unlike some countries which much of the trade is out of sight of revenue clippers,)
We weren't complete tech hogs moving instantly to the next upgrade creating stability, yet we had the fastest uptake of technology in the world.
Companies and infrstructure were still relatively recent/modern so ideas and modes of operation would like to only be entrenched for decades not centuries.

All excellent points for a test bed.

One of the downsides, is we're not growing richer per person any more.
And as mentioned in the article, our uptake and invention rate gave us a serious headstart on the rest of the world... if only we'd had wealth, income and economic resistance (against RBNZ inflation targets) to capitalise on our lead...

No one is getting richer, energy now costs "too much" it and the parasites are sucking the $s out of the economy.
regards

hence my ranting about on-farm and in-business costs.  If we want to stick to a currency based system then those sources of human activity must have the liquidity available to impliment better energy sources and better environmental practices.

At the moment government and banks weem to milking the process for maximum gain - perhaps a side effect of the types of people that gravitate to such areas of human "endeavour".
Fortunately mass communication is lifting the humanity, and the people are finally reaching out to build something for themselves, teaching each other economic and business development, not just leaving it to the "old boys" and their empires.

It's taken a long time for people to spot what is quite obvious.  The banks, Visa and MC have had three objectives with the conversion to credit card.  It's fees, fees and fees.
If we allow them to use their market dominant position much longer they will clip the ticket on every transaction.  Dealing with these outfits, and with New Zealander naiveity, it's no wonder we aren't getting richer as a nation.
Look forward to the elimination of EFTPOS.  And if they have their way cash will be squeezed out as well.  Look for it.
Cash using nations like the USA and the Asians, know a thing or two.

Na, If the small eating places I frequent are anything to go by, I think not, ie they dont do CCs etc due to the cost.
So I /we go back to cash? no biggee.
regards

Cash is great.  A hugely user friendly tool.
I always like to have a hundred or so in the wallet.  And using it is fast and easy at the counter.  I have cards, and do use them when it's useful.  But that does not have to be often.
Off to the US of A for a while shortly.  It won't be the card endlessly endlessly bashed.  I'll take a few thou of Uncle Sam dollars.

USA is experimenting with RFIDs under your skin  -  that makes it truly "contactless" and it's hard to steal someone's hand or head!
http://nodisinfo.com/fda-approved-rfid-tags-human-use/
This was predicted 2000 years ago!: "And he causes all, .., to be given a mark on their right hand or on their forehead, and he provides that no one will be able to buy or to sell, except the one who has the mark, either the name of the beast or the number of his name.…"

This is a really good example of how we structure a market influences the wealth and income of 'NZ Inc'. I think there is probably hundreds of opportunities like this a local and national level. Opportunities for businesses or government to alter various markets for the betterment of us all.
 
NZ went through a period in the last few decades where government was seen as the problem not the solution. Because of that opportunities such as this EFTPOS modernisation were missed. NZ ended getting a whole lot of ticket clipping industries and in fact we were so naive at a government level that expensive disasters like the 'leaky homes' building regulations were allowed.
 
Hopefully we have learnt from those costly mistakes and missed opportunities....

What i have never understood is why EFTPOS have not introduced an internet payments extension to the eftpos network 15 years ago?  And now that conactless cards are cheap and easy, why has eftpos not introduced contactless EFTPOS cards.
 
It's as if EFTPOS is run by a group who have no interest in it's continued success.