RDP 2014-05: The Changing Way We Pay: Trends in Consumer Payments 7. Other Remote Payment Methods

A range of electronic payment methods are used to make remote payments in Australia. In addition to credit and debit card payments, the survey separately identified payments made through:

• PayPal – an electronic wallet and stored-value system
• BPAY – which allows consumers to pay bills using funds from their bank or credit card account by providing a BPAY biller code and customer reference number
• direct debit – where an individual gives prior authorisation to a merchant for payments to be automatically deducted from their bank account
• internet and phone banking – where an individual instructs their bank to transfer funds out of his/her account into another account (commonly referred to as ‘pay anyone’ in online banking).^[18]

7.1 PayPal

In the 2010 and 2013 surveys, respondents were able to separately identify PayPal payments in their diaries. PayPal allows consumers to make a payment over the internet funded by any of a number of payment methods, including debit and credit cards, direct debit and stored-value funds held in the consumer's PayPal account. PayPal advertises itself as a trusted third-party that enables consumers to make online payments without the need to provide account details directly to merchants. PayPal is one of several options that can be used by merchants to outsource the payment function on their online retail website.

While growth rates should be viewed with some caution due to the small sample, PayPal was used for around 3 per cent of consumer purchases in 2013, a notable increase from 1 per cent in 2010. One factor driving growth in the use of PayPal is likely to be the growth in online retail in Australia; ABS data show that the proportion of adults making online purchases increased over the two years to 2012/13 by around 10 percentage points (ABS 2011a, 2014). Additionally, the use of PayPal for online shopping has increased as its use has extended beyond eBay (its original source of transaction growth). PayPal payments accounted for around 17 per cent of all remote payments recorded in the diary in 2013, an increase from 8 per cent in 2010.

While point-of-sale payments using PayPal on smartphones were possible at a limited number of merchants in 2013, the survey suggests that these were not commonplace; 96 per cent of PayPal payments were made using a computer or tablet in the survey, while only 4 per cent were made on a smartphone (accounting for 9 per cent of smartphone payments).

As in 2010, PayPal payments tended to be for values between $10 and $50, towards the lower end of the distribution of payments conducted remotely by card (which had a median value of $79). Respondents reported using PayPal at a range of merchants with an online presence, but use tended to be concentrated at electrical and ‘other’ retailers where PayPal payments made up around half of all remote payments (Figure 11).

PayPal payments were used more frequently by those aged under 40 years, consistent with faster adoption of new technology by younger respondents. However, the share of all PayPal payments recorded in the diary by those aged over 40 years also increased, to 46 per cent in 2013 from 30 per cent in 2010.

7.2 Other Electronic Payment Methods

Unlike PayPal (and debit and credit cards), the other electronic payment methods separately identified in the survey are primarily tailored towards, and used for, bill payments and transfers.^[19] BPAY and direct debit together account for around half of all bill payments; internet and phone banking are used to a lesser degree (Table 10). All three are used only very infrequently for payments other than bill payments. Comparing across the three payment methods, the median value of direct debit payments ($66) tended to be lower than that of BPAY ($100) or internet or phone banking payments ($140), which may indicate that consumers' preferences for automatic payments are limited to lower-value payments.

The survey suggests that transfers between respondents' own accounts were almost entirely made using BPAY, direct debit or internet/phone banking (Table 10).^[20] The median value of transfers between own accounts ($178) was larger than the median payment for bills ($97) or non-bill purchases ($67) using these methods, consistent with transfers being used to repay debt (e.g. credit card or mortgage repayments). Internet/phone banking was relatively more important in making transfers to family and friends, accounting for just over one-third of all such transactions. Its use increased with the value of the transfer; around 60 per cent of transfers between family and friends of over $100 were made using internet/phone banking.

Given the relatively small number of transactions of this nature reported, inferences about the preferences of different demographic groups can only be drawn with caution. Broadly, survey respondents aged 30 years and under made comparatively less use of BPAY and direct debits, which is consistent with these respondents making fewer bill payments. This age group made a larger share of their transfers to others using internet banking, which may reflect that younger respondents have more readily adopted new technologies, such as online and mobile banking applications (‘apps’) that facilitate person-to-person payments.

7.3 Smartphone Payments

Smartphone payments, that is, payments through an app, webpage or by SMS, are a focus area of innovation in the payments system and a goal of the survey was to obtain some baseline data regarding their use.^[21] The 2013 diary data indicate that smartphone payments were not yet a significant share of consumer payments (less than 1 per cent), or even of remote consumer payments (6 per cent), at the time of the survey. Smartphone payments were used more often for transfers, accounting for around 9 per cent of transfers to family and friends and between one's own accounts.

The survey results indicate strong growth in smartphone payments between 2010 and 2013, albeit from a low base. In 2013, 28 per cent of respondents had made a payment or transfer with their mobile phone, up from around 10 per cent in 2010.^[22] People who had adopted the practice of making smartphone payments or transfers appeared to do so relatively frequently, with around one-third of people who made smartphone payments making at least one during the week of the survey. Around half of smartphone payments were made by respondents aged under 30 years, 40 per cent by respondents in the top household income quartile, and 80 per cent were made by respondents living in capital cities.

There has been a relative shift toward using smartphones to conduct banking tasks, which is likely to be associated with the increased availability of smartphone-specific banking apps. In 2013, the main uses of mobile payments were to make an online transfer to another person or pay a bill (Figure 12), whereas the primary reason in 2010 was to make a purchase from a mobile app store.^[23] Linked to their use for transfers and bills, smartphone payments recorded in the diary tended to be larger than other consumer payments. Together, internet banking and BPAY accounted for half of all smartphone payments in the diary, with card payments accounting for a further 40 per cent.

The growth in the use of smartphones raises the question as to which types of payments have been replaced by smartphone payments. Reflecting the fact that innovation allowing point-of-sale payments using smartphones is still at an early stage in Australia at this time, respondents' answers to an end-of-survey questionnaire indicate that most smartphone payments they had made had substituted for a payment being made over the internet (Figure 13). Further, the distribution of the value of payments made using smartphones was more similar to the distribution of payments made over the internet using a computer than payments made in person (Figure 14). At this time, smartphone payments appear to be a convenient alternative method of internet access for bill payment and other internet banking tasks, but not yet widely used for point-of-sale payments.

Another area of interest – particularly given the focus on innovation in the person-to-person transfer market over recent years and ongoing initiatives to improve the addressing of such transfers – is the potential for smartphone transfers to take the place of cash transfers to family and friends. The diary data show that smartphones are already an important channel for transfers between family and friends, accounting for one in ten transfers. However, the data also suggest that cash and smartphones were used for different types of transfers at the time of the survey. Smartphone transfers were used more often for larger values, similar to the distribution of the value of transfers made over the internet using a computer, while cash was overwhelmingly used for smaller payments (Figure 15). In part, this may reflect that a portion of the transfers captured by the survey appeared to be from parents to children, who are unlikely to have bank accounts. Not surprisingly, smartphone transfers to family and friends were disproportionately used by those aged under 30 years.

Footnotes

Payments made using less common electronic payment methods were likely to be captured in the survey as ‘other’ payment methods. However, given the small sample of all ‘other’ payments (2 per cent of all payments), it is difficult to draw conclusions about particular trends in their use. [18]

The growth in ‘other’ electronic payments – BPAY, direct debit and direct credit – suggested by the survey over 2007 to 2013 is somewhat slower than growth rates recorded by the RPS data. While the coverage of the two sources is not directly comparable for electronic payment methods due to the inclusion of some business payments in the RPS data, the survey appears to under-report growth in these payment methods. This may in part reflect that bill payments, which are low frequency, are difficult to collect in a seven-day survey. [19]

BPAY transfers are likely to represent the repayment of credit card debt where the consumer holds a credit card issued by one financial institution and a transactional bank account with a different institution. [20]

In the Australian context, smartphone payments are generally traditional card payments or electronic transfers that are initiated over the internet or by SMS using a smartphone. This should be distinguished from the use of ‘mobile money’ (phone-based stored-value payment systems prominent in developing economies), which is not a significant feature of the Australian payments system where bank account use is almost universal (Flood, West and Wheadon 2013). Further, at the time of the 2013 survey, the technology to make point-of-sale payments through near field communication by a smartphone with a contactless terminal was in the early stages of development and it is highly unlikely that such payments were captured. [21]

Mobile penetration is high in Australia; 95 per cent of survey respondents reported owning a mobile phone (75 per cent owned a smartphone) compared with 91 per cent in 2010. [22]

These results from the end-of-survey question line up well with the results from the 2013 diary itself, where the top reasons for making a smartphone payment were to pay a bill (32 per cent of respondents), to transfer money to another person (19 per cent), to purchase goods from ‘other’ ( 16 per cent) or to transfer funds between one's own accounts (13 per cent). [23]