More recently, NFC technology has enabled tap-and-go
APCA’s New Payments Platform aims to address
systems to replace the need to swipe cards or plug them this deficiency. APCA is building infrastructure that
into a reader and type in a PIN, slicing a few seconds off can support multiple ‘applications’ for exchanging
the transaction. This has proved hugely convenient for value, the first of which is a traditional payment
both merchants and consumers. The rapid acceptance
process. The new platform will support real-time,
and use of contactless cards has resulted in this method low-value payments, initially between deposit-taking
becoming almost ubiquitous in the Australian payments
institutions, but eventual y between any two ‘suitably system. Visa’s statistics show that in January 2015,
accredited’ institutions (institutions that easily could contactless payments accounted for more than 60 per
include new, alternative payment providers).
cent of all face-to-face Visa transactions in Australia.30
Many pundits envisage end-to-end digitisation of
A new generation of payment solutions is also
the process of exchanging value. Credit cards will
emerging. One example is Square, a payments
be virtualised, with transactions flowing directly
and PoS provider with a solution built on
from a digital wallet hosted on your smartphone
consumer-grade computer tablets and the public
through real-time payments infrastructure into the
internet. This slashes the investment required from
waiting wallet of an individual, or the trading
merchants to accept credit card payments digitally,
account of a firm or institution.
enabling even quite small merchants to move from
cash- and paper-based processes to digital ones.
Ubiquitous digital infrastructure coupled with cheap
Indeed, Square’s early growth stemmed from the
and effective real-time payments processing solutions
craft markets, boutiques and artisan stores that
will enable anyone – individual or institution – to
couldn’t afford a traditional merchant account.
accept or issue payments wherever, and whenever,
needed. Apple’s recent development of Apple Pay
Part of the growth of digital payments is due to
may be a sign that technology, regulation and social
consumers using upgraded PoS systems in stores to pay
mores have developed to the point that the digital
with a wave or via tap-and-go. The growth is also due to wallet may finally be coming of age. Apple Pay, which
this new breed of payment solutions, bringing more
uses NFC and card information stored on an Apple
merchants into the digital payments infrastructure and the device, was developed within the constraints of the
possibility of a cashless society one step closer.
existing payments standards and infrastructure,
making it an impressive example of what is possible
While shiny, new consumer technology may be getting
within established technology and industry norms.
the lion’s share of media attention, the government is quite aware that our ageing inter-institution payments infrastructure is holding back the development of many new real-time solutions. While two individuals may be
able to exchange value instantly if they use the same
bank, peer-to-peer payments between individuals who
use different banks still take days to process and are comparatively expensive.
The Future of Exchanging Value Cryptocurrencies and the trust economy 29
Potential sources of disruption
Apple Pay’s early success in the US was not surprising Clayton Christensen coined the term ‘disruptive
given its slick design and Apple’s commercial weight.
innovation’ in his book Innovator’s Dilemma 31 for The US had poor chip-and-pin penetration and many ideas that help create a new market and value
banks saw Apple Pay as a tool to improve adoption.
network, eventually disrupting an existing market
This triggered intense competition between US banks to and value network (possibly over a few years or
be the first account registered in Apple Pay as the typical decades) and displacing an earlier technology in
user registers only one card with the service.
the process. ‘Sustaining innovations’, in contrast,
Few cardholder details are required beyond basic
do not create new markets or value networks
credit card information in an attempt to streamline the because they focus on improving existing
process for adding new cards to the system, and make
solutions to create more value, allowing
it as ‘frictionless’ as possible. Information such as
established firms to compete against each other.
phone numbers and addresses that might help banks
detect early fraud were left out. The processes for
The Wii and iPhone are both examples of disruptive
dealing with potential fraud via Apple Pay were also
innovations. The Wii disrupted the video game market
flawed, with affected card holders directed to customer by encouraging casual gaming, while the iPhone was
care rather than fraud prevention, where the customer
really a pocket-sized computer that enabled many
representative would help the caller to use their cards, road warriors to set aside their comparatively bulky
leading to more fraudulent cards approved for use.
laptops and cameras, disrupting the mobile phone,
The fraud rate for Apple Pay was estimated at 6
stand-alone camera and laptop markets in the
per cent, which is low compared with traditional
process. In contrast, hybrid cars such as the Toyota
credit card fraud in the US, but higher than
Prius are sustaining innovations; they work within the expected with Apple’s tokenisation technology.32
existing industry structures to sustain them.
We should consider Apple Pay a qualified success,
Will the new low-cost payment solutions work their
with high early adoption rates. But the drivers for
way up through the market to disrupt established
adoption appear to be tightly bound to the US
players? Could Stripe’s solution, based on consumer-
regulatory and commercial environment. The story
grade technology and focused on usability and
might not be the same in Australia or New Zealand
convenience, be a more compelling solution than the
where high chip-and-pin penetration rates mean banks
established payments networks? Or could Bitcoin (or
will not see Apple Pay as a tool to facilitate the
another cryptocurrency) completely replace the
adoption of these technologies. Australia’s regulated
current paradigm, one based on intermediaries to
interchange fees, which are roughly half the level in
manage the transaction flow, with a paradigm based
the US, mean there is less room for Apple’s estimated
on direct and low-cost peer-to-peer transactions?
15¢ on every $100 of transactions.33