Last editedMar 20235 min read
If you run a business, then there are few things more important than the payment systems your customers use. This review of the Australian payments system provides a summary of the more popular payment methods used in Australia, as well outlining how the Australian payments system operates. According to Statista, the use of cash to make payments in Australia declined over the period between 2010 and 2019, from 69% to 27%, with the use of debit cards rising from 15% to 44% over the same period.
From cash flow and income stream to net profit and having the money to invest, every aspect of your business depends upon the payments you take being as frictionless as possible, and an understanding of the Australian payment systems on offer means that this is far easier to achieve. Here at GoCardless, we partner with businesses to deliver that kind of friction-free experience, making it easy to use the most common online payment methods in Australia as well as the most secure payment methods.
The most popular Australian payment systems
POLi is an online payment system owned by Australia Post. When a customer uses POLi to make a payment, they can do so using internet banking, without having to enter any credit or debit card details. Rather than having to enter card details, the customer enters their internet banking details via the POLi website. Because there is no need to register, POLi represents a payment experience which is seamless and secure, with the added bonus of processing payments instantly. It represents a good choice for anyone who either doesn’t have a credit or debit card, or wants to keep their use of these cards to the minimum. Secure online payments are enhanced when POLi is used, because the transactions take place within the customer’s own internet banking app, without their payment details being forwarded to POLi or to the merchant being paid, and no bank details are stored. This is because POLi acts as a payment proxy, and the technology meets ISO 27001 certification, which indicates that it meets international standards of data protection.
Visa is one of the key players in Australian payment systems, being a card association which plays a key role in facilitating payments between issuing banks and merchants. The issuing bank is the bank, credit union or other financial institution which issues a credit or debit card to a cardholder via the card association. The bodies involved in this aspect of Australian payments systems include the customer (or cardholder), the merchant who accepts card payments, the merchant bank which handles the bank account of the merchant and accepts the payments from debit and credit cards, and the payment processors, such as GoCardless, that connect the various bodies and make card payments of this kind as seamless as possible. The Visa card payment process can be broken down into three steps:
Authorisation – When the cardholder presents their card, using tap and pay, chip and PIN, or by entering the long card number online, the merchant sends a request for payment authorization to their payment processor. The payment processor submits this transaction to the relevant card association – in this case Visa – and on to the issuing bank, which either approves or declines the transaction. This decision then makes its way back to the card association, the merchant bank and the merchant themselves. This process actually takes a matter of seconds.
Settlement – The merchant sends batches of authorised transactions to their card processor. From here, the transaction details are sent to the card association, and the card association communicates with the issuing banks to pass on the debits required. The issuing bank responds by charging the cardholder’s account for the relevant amount and transferring the funds to the merchant bank, minus the interchange fees being charged.
Funding – The merchant bank, having received the funds, deposits them in the merchant account.
In general, the process outlined above – which, in the past, could take days – is now completed overnight, greatly enhancing the cash flow of the merchant in question.
Mastercard is a card association like Visa, and the process of making and accepting payments with a Mastercard card is the same as that above for a Visa card.
There are two overarching types of American Express card – charge card and credit card. A charge card is a type of credit card which requires the holder to pay the balance in full at the end of each month. An American Express credit card, on the other hand, operates in the traditional manner, providing a rolling line of credit with the cardholder required to pay back a minimum amount at the end of each monthly period.
From the point of view of a merchant, a payment made by the customer using an American Express card can sometimes land in their account as quickly as one working day later. There are two ways for a merchant to pay the payment fee charged by American Express:
Gross Pay – Using this method, the merchant receives the full value of each American Express payment they receive, and is then charged the Merchant Service fees charged on a regular monthly date or on each Friday
Net Pay – The merchant opting for an account which uses the net pay method has the relevant Merchant Service fee debited from each transaction before it is paid into their merchant account.
A merchant can also opt to use an American Express Business Card to make necessary purchases. One of the reasons for doing so is that payments made on American Express Business Cards come with a range of perks and rewards, including reward points. Once gathered, these reward points can be used to book flights on the Amex Travel page, shop with a wide range of retailers or spend via PayPal.
GoCardless is a payment processing platform designed to ease the many pain points experienced by merchants and make the payment process as friction free and seamless as possible. Research shows that small retailers often worry about cash flow to such an extent that 69% of them have trouble sleeping at night. This is hardly surprising when you bear in mind the fact that 35% of merchants who don’t partner with GoCardless suffer from 35% of the payments they receive being late or incorrect.
In simple terms, the details of how the Australian payment system operates set out in this article are the everyday bread-and-butter of GoCardless. We enable merchants to accept the widest possible number of payment types from direct bank transfers to payment cards, digital wallets and in-person payments.
The letters EFTPOS stand for Electronic Funds Transfer at Point of Sale, and in Australia there is a slight difference between EFTPOS as it is usually written and the lower-case eftpos.
EFTPOS refers to any machine which accepts payments from cards, enabling customers to tap and pay, swipe, or use chip and PIN. The system is used globally, and in recent years has expanded to also cover taking card payments online. In Australia, however, the eftpos brand is run by eftpos Payments Australia, and enables businesses to receive payments directly from a customer’s Australian bank account via their debit card. Although available via all debit or ATM cards issued by Australian banks, eftpos – unlike Visa, Mastercard or American Express – is accepted in very few places outside Australia.
PayPal is an online payment system which enables a customer to link their bank account, credit or debit card to PayPal, and then make online purchases with participating merchants. The appeal of PayPal to many people is that the merchant in question never finds out what their payment details are, since PayPal acts as a facilitator. This, allied to details such as end-to-end encryption, email confirmation of purchases and the option of two-factor authentication when logging in, helps to provide an extremely secure option.
Australian Payment System Regulations
The Australian payments systems are subject to a range of regulations. Ultimately, the Reserve Bank of Australia (RBA) acts as the central bank responsible for maintaining economic stability. As part of this role it is a member of the Australian Payments Network, usually referred to as Auspaynet. Auspaynet is a self-regulatory body created to develop and maintain the regulations which govern payments and clearing in Australia. In addition, the Australian Payments Council (APC) acts to coordinate the approach to payments systems in Australia, and to encourage collaboration and cooperation between the payments industry and the Payments System Board of the RBA.
In recent years, the Australian government has announced steps to overhaul the regulatory framework which deals with the Australian payments systems, responding to the fact the new players within the system are often non-banking in nature, and therefore not covered by existing regulations.
How can GoCardless help?
The key to the effectiveness of GoCardless as a payment platform for businesses lies in its flexibility. As well as reducing friction across all of the payment methods outlined above, GoCardless can be used to facilitate more complex financial interactions, such as recurring bank payments and international payments. We also work with the PayTo system, a digital innovation which takes the principle of Direct Debit payments directly from a customer’s bank account and turbo-charges it. Using PayTo, a business can receive real-time digital payments from customers, either as a one-off purchase or on a recurring basis.