Setting up for success: a strategic future for Australian payments

The payments policy and legislative setting in Australia date back to the recommendations of the Wallis Financial System Inquiry of 1997. But the accelerated pace of technical innovation and proliferation of new entrants has prompted debate about policy and regulatory reform.

“The payments network needs to broadly align across operators, service providers, infrastructure providers, regulators and government to prioritise the core characteristics of resilience, efficiency, accessibility and adaptability and maximise customer benefits.”

With any reform, the likely impact must be well understood in order to draw out the desirable characteristics and mechanics of the effective payments system for which Australia is known.

Competition and innovation

The foundation of a successful payment system is its network. A bluenotes article published last year highlighted the need for a ubiquitous network to ensure payments can be sent and received at scale across the economy.

The Australian payments industry has strived to develop and innovate in a coordinated manner within a competitive environment. However, with finite specialised resources across the industry, along with the risk of stranded assets, payment service providers would benefit from strategic coordination. This would facilitate open access and competition, driving innovation and efficiency.

In an increasingly fast-paced digitised payments ecosystem with competing priorities, a single entity (rather than the three separate entities of BPAY, eftpos and NPPA) could champion a more agile platform to better support the innovation agendas of the competitive institutions that build services across the network.

Last month, the Australian Competition and Consumer Commission (ACCC) published its determination that a combined entity would not significantly lessen competition and would indeed be of public benefit, authorising the merger of BPAY, eftpos and NPPA.

The new entity, named Australian Payments Plus (AP+), will enable information sharing, coordination and alignment of priorities, with plans for a clear and unified roadmap across the domestic schemes.

A strategic plan

The establishment of AP+ is a positive step towards a strategic plan for Australian payments. As a single entity, AP+ will consult directly with end user groups, new market entrants and regulators, incorporating their priorities into its strategy.

In addition to this strategy, the payments network needs to broadly align across operators, service providers, infrastructure providers, regulators and government to prioritise resilience, efficiency, accessibility and adaptability while maximising customer benefits. The Treasury Department has observed this increasing need and in December 2020 asked lawyer and payments expert Scott Farrell to undertake a Review of the Australian Payments System.

The Review found the Australian payments system would benefit from development of a strategic plan with greater coordination between regulators and across the network. These recommendations set a strong foundation for policy reform as the government considers the changes necessary to ensure the Australian payments system remains fit for purpose.

In doing so, Australia has the opportunity set a precedent for other jurisdictions faced with similar challenges.

Leadership and regulation

Farrell argues the Australian payments system will be best served with Treasury at the helm and the Reserve Bank of Australia (RBA) granted additional power to regulate payment services as well as systems.

With a focus on increasing competition and innovation, the sector must achieve the right balance of open access with safety and security. The tendency to prioritise safety and security at the expense of access and innovation is unproductive. But if the pendulum swings too far the other way, the strong protections associated with the payments system today - on which Australians have come to rely - may be compromised.

For the past 22 years, the Payments System Board (PSB) of the RBA has been the primary payments regulator for Australia. The RBA has steered the industry and economy through two decades of change in the payments ecosystem, including the introduction of PIN at point-of-sale and contactless payments, development of the New Payments Platform and most recently support through the COVID-19 pandemic.

The RBA has generally taken a light-touch approach to payments regulation, influencing the industry towards optimal outcomes, rather than imposing hard regulation. Listening to and working with end users and industry participants, the RBA has built deep subject matter expertise and driven engagement with the users of the payment system. As an independent and specialised regulator, the RBA is well positioned to balance desired policy outcomes, technical capability and stakeholder needs.

Farrell highlights the opportunity for government to solve historic problems with coordination. While greater prioritisation and direction from government on payments is welcome, it will be important to build in boundaries to avoid the potential for increased politicisation of payments policy and ensure changes in political leadership do not result in wholesale change to payments strategy.

The significant timeframes associated with network-wide payment developments mean that an ill-considered pivot has the potential to destabilise confidence in the entire system.

Simplifying complexity

The Review recommends a transition to a regulatory framework that is simple in design and operation. It should be easy for consumers and businesses to understand their rights and for payment service providers to understand their regulatory obligations.

However, we cannot underestimate the intricacy of payments. Those who govern the system, who are responsible for protecting customers and ensuring economic stability, must understand its inner workings. A robust and standardised network of varied participants is required to ensure broad availability of payment services and the impacts of operational and technical changes are often several degrees removed from their source.

Ongoing engagement and dialogue across the network is essential. With continued opportunity for debate, challenge and reliance on expert guidance, the proposed strategic coordination and leadership will be a welcome introduction for regulators, banks, payment providers and most importantly, end users.

Jackie Kallman is Head of Payments Industry and Engagement at ANZ