Prepare to engage early in 2023 5 min read
Treasury has released a consultation paper on its Strategic Plan for the Australian payments system. The Commonwealth Government is seeking feedback on the proposed contents of the Strategic Plan, with submissions due by 6 February 2023. It is intended that the inaugural Strategic Plan will be released in the first quarter of 2023.
Development of the Strategic Plan is the first step of the Government's payments system reform agenda. The Strategic Plan will outline the key principles and priorities for the payments system, as well as the specific initiatives that support these priorities.
Some of the significant initiatives proposed in the consultation paper include:
- implementing changes to the Payments Systems (Regulation) Act 1998, which could potentially broaden its application to payment service providers not currently captured;
- introducing a new tiered payments licensing framework for payment service providers;
- further facilitating access to Australia's payment systems to payment service providers that do not hold an ADI licence;
- reducing small business transaction costs by supporting the broader availability of least-cost routing;
- further work on reducing the prevalence of scams and fraud;
- ensuring the payments system is aligned with developments under the Consumer Data Right framework; and
- exploring the policy rationale for an Australian central digital bank currency.
We've set out some further detail on the proposed initiatives below.
The Government proposes that the Strategic Plan will outline key principles that would be used to guide the future direction of the payments system.
The proposed key principles are:
- Efficiency: An efficient payments system is framed as one which enables fast transfer of funds, with minimal friction, which promotes competition between payment service providers and interoperability through increased use of common standards and infrastructure
- Innovation: An innovative payments system is framed as one which is agile, forward-looking and adds value to the user’s payment experience, is proactive and can quickly reposition itself to realise new opportunities and respond to challenges.
- Accessibility: An accessible payments system is framed as one that is simple, inclusive, where payment services are readily available at low cost and provides consumers and businesses with choices, avoids unnecessary restrictions on access to payment networks for service providers.
- Trustworthiness: Finally a trustworthy payments system is framed as one that is safe, secure, reliable, and resilient, ensures transactions are processed to intended parties as expected and provides robust protections against fraudulent transactions and scams, and one that on a system level supports stability and operational resilience in the broader system.
The consultation paper proposes four key priorities for the payments system to be included in the Strategic Plan, and sets out initiatives that would support these priorities to improve outcomes in the payments system. Many of the initiatives are not new or have been previously flagged, but the Government is now thinking about them overall and considering the objectives they are intended to further, which we think is a welcome development.
- Promote a safe and resilient payment system
The consultation paper proposes three initiatives to ensure safe and secure operation of the payments system:
- Reduce the prevalence of scams and fraud in the retail payments system – The Government is committed to a long-term, whole-of-government approach to reduce scam losses for Australians. The Australian Competition and Consumer Commission has taken initial steps to establish a National Anti-Scam Centre. The Government proposes that the Strategic Plan would support and monitor government and industry initiatives that share intelligence to disrupt scams and coordinate scam responses. In addition, it is proposed that the Strategic Plan could provide a roadmap for mandating payment providers to subscribe to the ePayments Code (which is currently voluntary) as part of the new licensing framework.
- Strengthen defences against cyber-attacks – The payments system is a critical infrastructure system that is essential for the Australian economy to function effectively. The Government considers that operators of certain critical payments system assets will need to comply with certain risk management and other obligations to safeguard the payments systems, such as the requirements under the Security of Critical Infrastructure Act 2018.
- Supervision of systemically important payment systems – The intention is that the RBA will act as the regulator of payments systems that are critical infrastructure assets under the risk management program obligation of the Security of Critical Infrastructure Act 2018. In 2023, the RBA is planning to broaden its work on safety and resilience to include additional payment systems including the NPP.
- Ensure the regulatory framework is fit-for-purpose and promotes competition
The following initiatives are proposed to ensure that the regulatory architecture remains fit-for-purpose:
- Implement changes to the Payments Systems (Regulation) Act 1998 (PSRA) – The Government proposes to update the PSRA to ensure that it appropriately covers all entities that play a material role in Australia's payments system. It also proposes to provide the Treasurer with ministerial powers to address payment issues outside the scope of the RBA's public interest power and intervene where it is in the national interest to do so. It is proposed that the Strategic Plan could provide a roadmap for implementing reforms to the PSRA, including proposed timing for consultation and legislation.
- Introduce a payments licensing regime – The consultation paper proposes a new functions-based licensing framework for payment service providers. The Government considers that a functions-based framework that describes the role that a service provider plays in the payments system is required. It is proposed that the Strategic Plan could provide a roadmap for the implementation of the new licensing framework, including proposed timing for consultation and legislation.
- Enable greater collaboration between payment system regulators – The Government has established an inter-agency payments forum to strengthen collaboration and information-sharing among payment regulators. It is proposed that the Strategic Plan could continue to support and endorse the inter-agency payments forum.
- Promote competition by facilitating transparent access to payment systems – The Government supports opening access to Australia's payment systems to payment service providers that do not hold an ADI licence, provided these participants are subject to requirements that can mitigate operational, financial and systemic risks. It is proposed that the Strategic Plan could support the RBA's work to develop common access requirements, which it envisages will form part of the new payments licensing framework, and facilitate access for licensees to these payment systems.
- Reduce small business transaction costs – The Government recognises that least-cost routing (LCR) is currently broadly available for in-person debit card transactions, but has only recently become available for some online debit transactions, and is not yet available for mobile wallet debit transactions. The Government expects LCR to be widely available and enabled by mid-2023 for in person 'tap and go' debit card and online debit card payments and supports the expectation set by the RBA that LCR for mobile wallet debit transactions be made available by the end of 2024. It is proposed that the Strategic Plan could support the RBA's approach in improving the availability and enablement of LCR, with stronger Government intervention possible if the RBA's expectations are not met. In addition, the PSRA's expanded regulatory perimeter could enable the RBA to mandate LCR for digital wallets.
- Ensure alignment with the broader digital economy transformation
The consultation paper outlines two initiatives relating to how developments in the broader digital economy affect the payments system:
- Ensure the payments system is aligned with developments under the Consumer Data Right (CDR) framework – The Inquiry into the Future Directions for the Consumer Data Right recommended strengthening and deepening the CDR's functionality and use through the implementation of third party action initiation. The Inquiry proposed payments to be the first action to be introduced in the CDR. CDR payment initiation would create a new channel for a consumer to instruct their financial provider (via a third party) to make a payment. This would enable flexibility to utilise and build on existing developments in the payments landscape, such as PayTo. To enable this to work effectively, the interaction between the CDR framework and payment systems should be considered to optimise efficiency and interoperability.
- Explore the policy rationale for a central digital bank currency (CBDC) in Australia – The Government supports work to explore the policy rationale for a CBDC in Australia and has tasked Treasury to work with the RBA on this policy question. Currently, the RBA has partnered with the Digital Finance Cooperative Research Centre on a limited-scale CBDC pilot that will explore potential use cases and economic benefits of an Australian CBDC, whether retail or wholesale. The findings of the pilot is scheduled to conclude around mid-2023. It is proposed that the Strategic Plan could provide an update on proposed work to explore the public policy of issuing a retail or wholesale CBDC in Australia.
- Modernise payments infrastructure
The following initiatives are proposed to support the transition to more modern and efficient payment systems:
- Support the transition to more modern payments infrastructure – Two key legacy systems in Australia are the cheques system and the Bulk Electronic Clearing System (BECS). It is proposed that the Strategic Plan could support industry-led efforts to transition away from these legacy systems where appropriate and provide details about the steps the Government can take, as a large user of these payment systems, to drive migration of payments it sends and receives from legacy systems to alternatives.
- Maintain adequate access to cash – Cash continues to be an important method of payment. The Government notes the findings of the RBA's Review of Banknote Distribution Arrangements that the declining volume of banknotes being transported is putting pressure on the wholesale distribution network. In addition, recommendations from the Regional Banking Taskforce have highlighted the importance of regional access to cash. It is proposed that the Strategic Plan could articulate the principles that will inform the Government's response to providing consumers with adequate access to cash.
- Support international efforts to enhance cross-border payments – The Government supports the G20 Cross-Border Payments Roadmap, the final measures of which are expected to be implemented in 2027. The Government considers that effective implementation of priority aspects of the G20 Roadmap could assist Australia with replacing existing systems that are expensive, slow and opaque with more modern infrastructure for facilitating cross-border payments. In addition, ensuring that the NPP and other payment systems are interoperable with major payment systems in other countries could yield efficiency gains. It is proposed that the Strategic Plan could discuss Government priorities and industry efforts to implement the G20 Roadmap.
The consultation paper includes a list of questions for stakeholders to provide feedback on regarding the key principles, priorities and initiatives proposed in the Strategic Paper. Comments are due by 6 February 2023.
The Government proposes to use the feedback from this consultation process to finalise the inaugural Strategic Plan to be released in the first quarter of 2023. Following its release, the Government then proposes to review the Strategic Plan annually to ensure the priorities and initiatives remain relevant.
Also on the regulatory change 'roadmap' for next year is the release by Treasury of consultation papers on a number of the flagged reforms :
- in the first quarter of 2023 – it proposes to release consultation papers on changes to the Payment Systems (Regulation) Act and defining a list of regulated payment functions; and
- in the second half of 2023 – a consultation paper on the regulatory obligations underpinning the payments licensing regime.
We think industry participants should:
- Consider making a submission on the proposed content of the Strategic Plan. This is an opportunity for industry to shape both the direction in which regulation develops as well as prioritisation of initiatives on the Government's 'roadmap'.
- Revisit some of the key initiatives flagged by the Government as priority areas for next year and consider how they might affect business models and regulatory obligations, including whether they create opportunities or could impose additional burdens, and prepare to engage early in 2023 on consultations that have been flagged.