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Australia’s payments system has three strategic areas for improvement, according to a landmark review that the country’s government has commissioned.
The future is set to reshape the way people make payments and the way organisations provide payment services fundamentally, Australia’s newly published report about the payments system has stated.
The Australian Treasury department, which handles the country's finances at a federal level, commissioned the report and named it “Payment Systems Review: From System To Ecosystem.”
It makes 15 recommendations, which fall into three larger calls to action: enhancement; simplification; and alignment.
Scott Farrell, a senior partner at the law firm of King & Wood Mallesons compiled the report and Josh Frydenberg, Australia's Treasurer, released it on August 30.
Prior to this review of payments systems, Farrell had also been a member of the government’s fintech advisory group in 2016, had led the Open Banking Review in 2017 and had led the Australian Government’s Inquiry into Future Directions for the Consumer Data Right in 2020.
Now that it has published the report, the Treasury will consult interested parties on the matter before the government finalises a response.
In the paper, key themes include the following.
A new payments regulation
One of the recommendations that Farrell makes is a call for better legal definitions for the payments industry.
“A defined list of payment functions that require regulation should be developed,” the report says.
The idea is that people can then use this list throughout all payments regulation and it should remain open to change so that it remains fit for purpose.
Meanwhile, the report recommends a simplification of Australia’s licensing system for payments.
Within this framework, regulators should authorise people to provide payments facilitation services and should authorise people to provide stored-value facilities separately from one another, with two tiers of authorisations based on the scale of the activities that the payment service providers perform. The Australian Securities and Investments Commission should issue the relevant licences while facilitating transparent access to the payments system.
“The common access requirements for payment systems should form part of the payments licence to facilitate access for licensees to those systems,” the report recommends, adding that Australia’s central bank, the Reserve Bank of Australia (RBA), should develop common access requirements in consultation with payment system operators.
More from the government
“The government’s role in providing overarching strategic direction, vision and oversight should be enhanced with new obligations and powers to protect the payments system and to establish an inclusive, specific, and dynamic strategic plan for its development,” Farrell said in the foreword to the review.
It should be the Treasurer that takes the lead in this, the paper recommends.
In addition, the Treasury department’s policy function should be enhanced to support the Treasurer’s leadership role, the report says. This should include a strengthening of the department’s resources and capabilities.
Another recommendation is that the department should establish a payments industry convenor. This convenor should collaborate with regulators and the financial sector to develop the strategic plan, spot important issues, coordinate responses and provide strategic advice to the Treasurer on payments-related matters.
The Treasurer should also have the power to “designate payment systems and participants of designated payment systems where it is in the national interest to do so,” the report suggests.
This ought to entail powers for them to order regulators to develop rules and further powers for them to give binding directions to operators of, or participants in, payment systems.
The report also calls on the Treasury to take steps to improve coordination between payment regulators, while influencing anti-money laundering (AML) and other rules.
A consumer-first approach
Better payments should be a goal of Australia's refreshed National Financial Capability Strategy, according to the report, which recommends that regulators should work with the financial sector to coordinate an educational programme in relation to payments. This could ensure that both consumers and businesses understand their options and feel empowered to make choices.
The report also notes that “consumer exclusion risks” are becoming an issue for Australia, with certain parts of the population relying on old payment systems and potentially finding it hard to deal in payments as digitisation increases.
"The regulatory architecture will need to ensure that innovation in the payments ecosystem does not inadvertently exclude vulnerable communities from access to critical payment services," the report says.
Meanwhile, the use of cash is falling in the country. The report suggests that regulators ought to solve this problem, noting that companies that distribute cash throughout the country could begin to become less profitable and, in some instances, go out of business.
"With relatively high fixed costs and scale required to undertake this business, there are a relatively few companies that form part of this ‘Cash In Transit’ (CIT) sector," the report points out.
Any strategic plans for payments must therefore address cash access, the report concluded.
