BPAY, eftpos and New Payments Platform deal ‘pressure-tested’

A proposed three-way merger of BPAY, eftpos and the New Payments Platform will boost access to the sector and drive down costs for end users.

BPAY Group CEO John Banfield, NPP Australia CEO Adrian Lovney and eftpos Managing Director Stephen Benton in Sydney.

A proposed three-way merger of BPAY, eftpos and the New Payments Platform has already endured a “pressure test”, and will boost access to the sector and drive down costs for end users.

That’s the view of the stakeholders that will now engage with the Australian Competition and Consumer Commission on the proposal, with a view to having the landmark deal sealed in the second half of 2021.

The parties - whose shareholders include the major banks and retail giants including Coles and Woolworths - will on Tuesday announce the merger and that eftpos, BPAY and the NPP will be preserved as distinct operations under a single board. A formal authorisation application will be filed with the ACCC in March, kicking off public consultation.

Industry committee chairman Robert Milliner has led deliberations over the deal and shrugged off criticism it may weigh on competition, noting there were “more synergies” for consumers than cost savings for shareholders.

“In the draft constitution that is part of the merger arrangement that will be considered by the ACCC is there is a statement of purpose for the Newco (New Company), which really picks up all of the best of the three existing entities and their purposes and adds to it in terms of the benefits that we think should be created by the New Co for public and users,” he said.

Mr Milliner’s comments come after the Reserve Bank stressed the importance of preserving the “public interest” if the merger were to proceed.

Following a speech last week, RBA governor Philip Lowe said: “It’s really up to the industry, and ultimately the competition authorities to come up with something that’s in the public interest. One issue that we’ll be paying close attention to is the terms of reference or the mandate or the constitution of any merged entity. We really want to see that have a strong public interest focus, rather than a private interest.”

Dr Lowe said a marriage of BPAY, eftpos and the NPP could help to solve “coordination problems” between them, although there were concerns about a reduction in competition and innovation.

“It’s really up to the industry and ACCC to balance those two things.”

NPP Australia chief executive Adrian Lovney highlighted the merger proposal had unanimous support and talks over the last four months had assisted in developing a structure that would reduce barriers to entry for payments players and drive down costs for end users.

“The value of the process over the last four months, we’ve been really able to pressure test the proposal and include additional mechanisms in the proposal which ensured it was supported by all of the shareholders and that gives us a great deal of confidence facing into the next three months,” he said.

The proposed deal is being debated against the backdrop of two concurrent reviews into the payments sector, by the RBA and Treasury, the latter which is due to report in April.

Responding to why industry stakeholders had not waited for the report ahead of pressing ahead with the merger, Mr Milliner said the Treasury review had a different focus the RBA had previously canvassed the tie-ups in an issues paper.

“The more recent treasury review terms of reference are really at a higher level and the regulatory architecture that sits over the top of this.”

Under the proposed deal structure, a board of 13 directors will govern the umbrella operation of NewCo. That will include four independent directors and representatives from the major banks, smaller banks, retailers and payment processors.

To curb the power of the major banks, the new structure sees them have four out of 13 votes.

The structure also includes so-called veto rights for stakeholders where changes would fundamentally impact that part of the payments system. One example is retailers having a veto over significant changes to the eftpos network, which would require approval of more than 75 per cent of stakeholders.

Eftpos boss Stephen Benton said a lot of work had been done on the merger’s structure and systems to ensure the public interest test “is met”. “The benefits attached to better coordination and consolidation I think are far outweighed by any kind of cost savings,” he added. The parties also say the deal will aid them in competing with international players and payments platforms, and ensure a quicker speed to market with domestic developments.

Their statement said in Australia, international card schemes such as Visa and Mastercard and multinational technology were dominating the payments sector.

The merger proposal sees the three organisations continue to pursue their existing payments-related work program until at least June 2022. That includes making BPAY fully available through Application Programming Interfaces, extending eftpos acceptance for online purchases and in-app, and rolling out NPP’s mandated real time payments service.

BPAY boss John Banfield highlighted the benefits of the transaction and that the firm had been part of “collaborative innovation” within the financial services sector for decades.

The merger is expected to lead to some operational cost savings.

Payments expert and MWE Consulting director Mike Ebstein last month said it was “not immediately clear” what the benefits of the three-way BPAY, eftpos and NPP merger would be.

“Given Australia is a relatively small market, there may be scale economies and reductions in fixed operating costs,” he added. “However, it would be necessary for the public interests to be safeguarded by ensuring access to the retail payments markets is not hindered.”