The secret vulnerability of low-cost Eftpos and how it affects retailers

  • Opinion
  • November 3, 2015
  • Donald Blair
The secret vulnerability of low-cost Eftpos and how it affects retailers

As speculation mounts over the big four Australian banks’ alleged plan to sell Paymark, the questions become, who should buy it, and why? This is significant because the future of Eftpos, the hallmark payment system behind Paymark that New Zealander retailers and consumers adopted with alacrity when it was first introduced, may be at stake. ANZ, BNZ, Westpac and ASB have a serious decision to make.

Eftpos’ special function is its provision of cashless, swift and low-cost transactions, but depending on which entity acquires Paymark, these simple transactions may become no more than fond memories.

According to 2013 data, the New Zealand payments market is worth an estimated NZ$63 billion, and is growing at 2.8 percent CAGR (compound annual growth rate), with debit cards accounting for a full two thirds (66.5 percent) of all transactions. The market keeps growing, and the number of Eftpos terminals in New Zealand is expected to increase by at least 3 percent over the next few years.

This market is a potentially lucrative one for credit card transaction processing and the growing contactless Paywave/Paypass market. These attract high merchant fees, which are increasingly being passed onto the consumer as transaction surcharges, whereas Eftpos transactions are free. Of course, money talks, and banks have begun to shift away from Eftpos cards to more lucrative credit and contactless transaction processing. So as Paymark is a domestic Eftpos switch, competition from Visa and Mastercard signals a potentially significant loss to consumers.

The prospect of Paymark going on the selling block makes maintaining stability in the payments market essential. This end would be achieved if Paymark were acquired by a party, or parties, capable of and committed to keeping the Eftpos system intact. If Paymark falls into the ‘wrong’ hands, from this standpoint, it risks being cannibalised by the credit card companies and the big banks in favour of more expensive transaction fees for New Zealand consumers. 

A contributing factor is Eftpos’ failure to keep pace with technology, which means it has fallen behind in its consumer usability in the growing online transaction market. Without additional tech investment, the Eftpos system will become more transactionally incapable and less competitive with credit cards. On the bright side, Apple Pay and Samsung Pay, two of the newest payment systems in the world, could have entered this market with their own proprietary payment systems. Instead, both determined that the existing Eftpos infrastructure is so sophisticated that they didn’t need to introduce their own systems but could piggyback on what is already here. A degree of investment is all that’s needed to maintain this status in the Eftpos space in New Zealand.

So who could buy Paymark, and what would it mean? Paymark competitor Verifone, a US-based firm, entered this market via its acquisition of Eftpos New Zealand and now controls roughly 35 percent of the market share in terminals. Through its end-to-end terminal and switching capability Verifone is able to aggregate the transactions in front of Paymark, which allows Verifone to retain a significant share of the network access fees.

Other potential suitors are the two global credit card providers Visa and Mastercard. An acquisition by one of them could cement the demise of Eftpos as we know it. Private equity could certainly have an interest in a business with a local presence and steady cashflows, but is not likely to be in it as a long-term play, and could be expected to turn Paymark in three to five years in order to maximize profits. In the interim, a private equity owner would focus on reducing cost and increasing revenues, which in turn might be achieved by promotion of Visa and Mastercard ahead of Eftpos. The end result of either of these two options could be much the same.

A third candidate is Smartpay, a local terminal deployer that previously swallowed up its competitor Viaduct. Smartpay is a merchant-facing business, while Paymark is one step removed from originating the transaction flow. Therefore Paymark is heavily dependent on third parties such as Smartpay to access the network of merchants, and would be at a serious disadvantage if it attempted to build the terminal component of the value chain. But there are things Paymark does that Smartpay can’t, at least not in its current model, so the best, most synergistic proposition (that preserves Eftpos in its current form) may be a merger of some kind.

What would the Commerce Commission have to say about such an arrangement? Its 2014 Consumer Issues report expressed concern about a transaction fee structure monopoly, which would be a valid worry should Verifone emerge as a potential acquirer of Paymark. On the other hand, with Smartpay and Paymark each having one half of the value chain in payments, a combination of the two would stabilise the payments market and protect Eftpos as we know it. It would also bring critical renewed investment in technology to compete in the ecommerce transactions market. Most importantly, this scenario is the most likely to protect the consumer surplus currently enjoyed by both merchants and consumers.

 Donald Blair is the managing partner of Paradigm Strategy Partners, a New Zealand-based corporate advisory firm. An American-born economist, he has over 28 years of experience in global markets across the public sector and in a diverse portfolio of private sector firms.

​ ​

This is a community discussion forum. Comment is free but please respect our rules:

  1. Don’t be abusive or use sweary type words
  2. Don’t break the law: libel, slander and defamatory comments are forbidden
  3. Don’t resort to name-calling, mean-spiritedness, or slagging off
  4. Don’t pretend to be someone else.

If we find you doing these things, your comments will be edited without recourse and you may be asked to go away and reconsider your actions.
We respect the right to free speech and anonymous comments. Don’t abuse the privilege.


Mergers: Making it work

  • News
  • August 17, 2019
  • Jai Breitnauer
Mergers: Making it work

We took an in-depth look at recent retail mergers. Jai Breitnauer compiled all the advice from the feature into this handy guide on how to get one right.

Read more

Mergers: What about the staff?

  • News
  • August 16, 2019
  • Jai Breitnauer
Mergers: What about the staff?

As part of a recent look at retail mergers, Jai Breitnauer considers their effect on staff.

Read more

Walk Ethical: The new way to commit to providing a better workplace

  • Sponsored content
  • August 15, 2019
  • Sponsored content
Walk Ethical: The new way to commit to providing a better workplace

Colmar Brunton recently reported that over 90 percent of Kiwi consumers would stop buying goods and services from businesses found to be unethical. Walk Ethical is the new accreditation available for business to show they’re dedicated to ethical standards in the workplace.

Read more

Social scoreboard

Zavy and The Register have worked together to create a scoreboard that compares how the top 25 traditional media advertising spenders in New Zealand have performed on social media over the past 30 days, updated in real time.

Concept to closet
Business coverage of New Zealand Fashion Week.
Regional rollercoaster
What does retail look like in 2019 for ...
Town centres
A positive retail environment over the past 12 ...
Amazon Arrival
Keeping up with all things Amazon as it ...
The Retail Yearbook 2017
As we battle our way through the busiest ...
The future is bright
We spoke with four retailers in their twenties ...
Hospitality enhancing retail
Some think food and integrated hospitality offerings will ...
Spotlight on signage
At first glance, the humble in-store sign might ...
Red Awards 2016
The Red Awards for retail interior design celebrate ...
Auckland Unitary Plan
Auckland is changing. The Unitary Plan will decide ...
How to open a store
Sarah Dunn considers what it would take to ...
All things to all people
Kiwi retailers share their omnichannel strategies.
Rising stars
Retail's top young achievers.
Delivering on your promises
The sale isn't over until your item is ...
Retail in heartland New Zealand
Retailers keep the regions pumping, but how strong ...
Women in retail help one another. We spoke ...
The changing face of retail
Shifting demographics are creating big changes in New ...
The retail yearbook
With the help of experts in the retail ...
Retail rogues
We put the spotlight on staff training. Jai ...
Here come the giants
Topshop has arrived in Auckland’s CBD, David Jones ...
From retail to e-tail
Ecommerce has become part of the way mainstream ...
Loyalty in the digital age
How are retailers maintaining loyalty? Sarah Dunn, Elly ...
Window shopping: A spotlight on social media
Sarah Dunn and Elly Strang look at how ...
The Innovators | In partnership with Spark Business
Technology is rapidly changing the retail industry as ...

Are you on The Retail Hotlist 2019?

Join us in celebrating the vitality and innovation of New Zealand’s retail sector by voting for The Retail Hotlist. The NZ Retail team and Gem, ...


A Kiwi working abroad at Amazon and Microsoft talks Amazon Go

  • Technology
  • August 15, 2019
  • Idealog
A Kiwi working abroad at Amazon and Microsoft talks Amazon Go

Businesses across the board are now laser focused on how to create the best possible customer experience, but how do companies big and small ensure they’re placing people first? At the CX Conference 2019, Microsoft global industry marketing director of retail and consumer goods Catherine Brands shared her unique New Zealand insights from working at Amazon and Microsoft, including what it was like to be one of the founding team members to launch Amazon Go.

Read more

Inside Allbirds' first New Zealand store

  • Design
  • August 15, 2019
  • Lara Wyatt
Inside Allbirds' first New Zealand store

Founded by New Zealander Tim Brown, sustainable sneaker company Allbirds went ahead and conquered the US market before opening on home territory. The first Kiwi Allbirds store launched in Auckland's Britomart today. The Register's sister publication Good was there to check it out.

Read more
Next page
Results for
About us.

The Register provides essential industry news and intelligence, updated daily. And the digital newsletter delivers the latest news to your inbox twice a week — for free!

©2009–2015 Tangible Media. All rights reserved.
Use of this site constitutes acceptance of our Privacy policy.

The Register

Content marketing/advertising? Email or call 022 639 3004

View Media Kit