Regulation fails consumers in payments debate

The industry responses are playing out in predictable form in response to the RBA’s landmark review of the payments system.

The wonder of regulation is how it is exploited by the powerful at the expense of the consumer, the industrially weak and how industry can distort the regulators’ best intentions.

The industry responses are playing out in predictable form in response to the RBA’s landmark review of the payments system.

The idea of card surcharges was, back in the days when Ian Macfarlane ran the show and Michele Bullock was a junior in the payments section, to make the payments more transparent so consumers could decide what form of payment to use.

This didn’t happen and competition in the unregulated sectors soon distorted the market.

The powerful include the banks, who are hamstrung by some regulation, and the digital platforms like Apple who, pending legislation now before Parliament, operate outside RBA control.

Any attempt to advantage cash soon gave way to the realisation that as cash’s share of the system fell from 62 per cent in 2010 to 13 per cent in 2021 cash was expensive.

This week the RBA released three reports on different parts of the system and in the case of card surcharges after the seventh major report on the beleaguered scheme finally saw the light and banned them.

The headline recommendation which every one agrees with is to ban both debit and credit card surcharges, but while this makes shopping more transparent it was matched by only small changes in the interchange fee which covers the cost of the transaction between the card issuer and the merchant’s bank.

This has left some retailers, unable to exploit the market power of Coles, Woolworths et al, unhappy, but then again they were able to hide behind the surcharge rule to add things like weekend trading fees.

The trick now is to work the banks and fintechs to get the best rates and now regulation is not an option they need to do some work.

The monopoly provider Armaguard says it can’t make any money so maybe the RBA needs to step in to provide the service or by arrangement with the Fox family vehicle.

From there the long-running saga tells you regulators are best to tread carefully before distorting markets.

Aviation fuel

The economics supporting federal backing of Ampol’s push into sustainable aviation fuel are obvious but at a time when political capital is in abundance and the government is searching for growth options the SAF industry is bizarrely on the slow train.

The clear big picture solution is a tax on carbon so big emitters pay for the pleasure but some hard-to-abate sectors like diesel and aviation fuel need specific backing, which serves two roles helping to create a new industry and cutting emissions.

What's not to like about that.

The government is clearly not reluctant to back big business given the Clean Energy Finance Corporation has just handed Mike Schneider at Bunnings $100m to help him roll out of roof top solar, EV battery sites and battery storage.

The funds came via a CEFC loan to Wesfarmers which also included projects for Office Works.

In the first half this year, Schneider reported $23.5bn in revenues, a net profit of $1.5bn, return on capital of 31.2 per cent and over $2bn in free cash flow, suggesting he can pay already the rent without a taxpayer handout.

Sanjeev Gandhi at Orica this month took on the role of the poster boy for green hydrogen, pocketing $115m in state and federal government grants to build a $600m pilot plant on Kooragang Island in Newcastle backed by $432m in production credits.

Better still if Gandhi proceeds with the plan he will also collect on safeguard credits for cutting emissions flowing from the government-financed project.

Nice work if you can get it.

The Clean Energy Finance Corporation among others is urging the federal government to hit the start button on a sustainable aviation fuel industry which will cut 230 million tonnes of emissions and create a $36bn industry.

Matt Halliday at Ampol would be the first to agree given he has a refinery at Lytton in Brisbane which reported $150m of losses in the first nine months of the year, due to some production issues which prevent him from collecting much in support, in a low margin business.

SAF won’t be his saviour but all bosses want growth businesses in their portfolio and this is one which is so obvious you wonder what the folk in Canberra are thinking in their delays.

BP has its proposed Kwinana SAF plant backed by Nufarm’s Carinata seed oil, on ice, which makes Ampol’s site backed by GrainCorp the logical plant to back.

Now uFuederal Ministers have reportedly taken Ezra Klein’s advice in his book Abundance on board that there is a need for a whole of uGovernment decision.

Former Energy Minister Angus Taylor bizarrely agreed to underwrite Australia’s remaining two refineries on national security grounds, and while an SAF plant will need to be built at a cost of around $1bn, once up and running its economics would help support the refinery without the need for more handouts.

Federal backing then would support local resilience, cut emissions, help boost energy security and reduce reliance on imports.

The government has done some work on the supply side looking at production credits but has but has yet to consider in detail demand issues, such as the mandates operating in countries from the EU to the Philippines and Singapore forcing airlines to use “X” per cent of SAF on each flight.

The airlines don’t want a mandate arguing it will simply increase airfares, which is true but then they are well used to dealing with fluctuating fuel prices.

SAF at present is a multiple of regular fuel prices but right now is the only feasible way to reduce emissions and aviation is only one beneficiary when you consider the needs for diesel replacement for big trucks.