Australia’s tipping point from China

Compared with Australia, the development and diffusion of payments innovation in China, based on new forms of financial technology, has come from a very different starting points. In China, low cost in-app mobile instruments have been rapidly displacing the use of cash for transaction purposes. While ‘cashlessness’ is increasingly evident in Australia, the shift to digital payments methods has largely followed bank and card-payments providers’ investment in legacy infrastructure. 

"Despite vastly differing starting points for payments innovation in China and Australia, these differences entail complementary dynamics.”

Australia’s retail payments system is not going to replicate the transformation we have seen in China. However, the way in which digitalisation, and mobile-centric technology innovation in particular, has enabled the emergence of major new multi-sided payments platforms in China does provide vision of a possible future for Australia’s retail payments landscape. 

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Regulatory supply-side changes to Australia’s retail payments system, such as the development and launch of the New Payments Platform (NPP) in February 2018, are likely to accelerate the use of mobile-centric technology at the expense of card payments in Australia and to open-up new consumer payments services in Australia.

Despite vastly differing starting points for payments innovation in China and Australia, from the point of view of payments innovation in Australia, these differences entail complementary dynamics.

And because Australia is increasingly integrated with China via geography, trade and people-to-people links, we are seeing direct spill-overs from the transformation of China’s retail payment system into the Australian payments landscape. 

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Tipping point

China’s most successful fintech payments platforms are also internationalising their existing payments businesses by targeting expatriates as well as investing in new payments platforms in the region, such as Paytm in India. China's payments internationalisation is opening new trade and investment channels between Australia and China.

The global availability of China’s retail payments networks is the primary channel by which Chinese consumers in Australia, whether tourists, international students or residents with Chinese bank accounts, are making retail payments for goods and services in Australia. China’s payments internationalisation has also been critical to cross-border payments for daigou shoppers in Australia selling to consumers in China.

New online payments providers, who are currently serving the mainland Chinese expat market or China-focused small and medium enterprise (SME) market in Australia, are well positioned to move from payments into offering local banking services in Australia under the new tiered bank licensing regime.

China’s global fintech payments players may also seek to acquire or invest in new payments providers in the Australian market in direct competition with local banks and card-providers.

High-volume, low-value

The emergence of new fintech payments models in China developed from outside the existing payments system along initially completely independent and parallel payments rails.

The development of new mobile payments technologies coupled with deployment through low cost technologies like QR codes – at heart a decades old technology - was possible in the context of major gaps and frictions in the existing retail payments system. The regulatory environment has been largely favourable to third-party payments innovation in China, which dominates high-volume, low-value, non-cash payments by its Chinese consumers.

In contrast, retail payments innovation in Australia over the past decade has tended to be dominated by investment along legacy infrastructure lines, such as card-based payments infrastructure. System-wide innovation has emerged from two sources, the growth of mobile in consumer payments and regulatory pressure to modernise retail payments system infrastructure.

The opening of China’s payments channels and their integration with local payments systems could actually contribute to a tipping point in the emergence of new retail payments models in Australia.

Dr Luke Deer is an independent researcher and finance tutor at the University of Sydney Business School.

This article was originally published by the Australia-China Relations Institute.