Published on the 15/06/2023 | Written by Heather Wright

New payments platform, fintech, digital ID and smartwatches…

Australia’s payments processing ecosystem is being overhauled in moves which put digital – and increased competition – firmly at the forefront.

The Strategic Plan for Australia’s Payments System, released this month, outlines the government’s ‘vision for the sector’ and is built around five key pillars, including improving resilience against scams and cyber attacks and updating payments regulation to enable more competition and transparency across systems and steps to reduce small business transaction costs.

Modernising payments infrastructure, including phasing out cheques by 2030 as the industry moves to the New Payments Platform, and aligning the payments system with other reforms including the Consumer Data Right framework and Digital ID, also feature, as does piloting a central bank digital currency.

“The opportunities that exist represent a gateway towards the more efficient, competitive, productive and innovative economy.”

Australian treasurer Jim Chalmers admits regulatory frameworks and infrastructure have not kept up with the big trends and transitions happening in finance, especially when it comes to the digital economy and payments.

“New digital products are changing the way we make payments and the way businesses provide payments services,” he said in announcing the Strategic Plan’s release.

“The Government is acting to ensure Australia’s payments system remains fit-for-purpose now and into the future.”

He says the plan isn’t just about addressing and resolving issues – including the ‘clunky, inefficient and cumbersome to maintain’ Bulk Electronic Clearing Systems used by many businesses and governments for payroll, and phasing out cheques – but to ensure the country is future-proofed.

“It’s about setting us up for the future, recognising that the opportunities that exist at the intersection of the digital economy, payments and your sector represent a gateway towards the more efficient, competitive, productive and innovative economy we can build together,” he said in an address to the Australian Banking Association (ABA).

The plan is based around four ‘core principals’ of trustworthiness, accessibility, innovation and efficiency.

Chalmers noted Budget announcements around digital, including efforts to drive technology adoption by small businesses, but says without getting the policy and regulatory settings right in finance – especially in payments – it is all ‘incomplete’.

“That’s because payments are the tracks on which our economy runs. Which means that improvements here make everything move more efficiently.

The plan includes a move away from the old BECS clearing system to the New Payments Platform (NPP), an open access infrastructure launched in 2018 and enabling service providers to connect to banks via the common platform and which cuts settlement times from hours or days to near real-time.

Around 25 percent of all account-to-account transfers are currently made via NPP, which includes services such as PayID and PayTo, with more than a billion transactions made in the past year. NPP is offered by more than 100 payment providers and allows a more data rich form for payments, providing security and flexibility.

In a panel discussion at the ABA annual conference, Michele Bullock, deputy governor of the Reserve Bank of Australia, noted the dated nature of the current payments system framework, saying today’s system includes multiple players doing chunks of the payment chain.

“The payments system used to be the plumbing; no one was interested in it and it was just there. It’s risen to prominence now and it is a really important part of the economic ecosystem… We’re after competition to lower the cost of payments; that’s what we want. But what has increasingly become obvious is that the safety and resilience of payments is really important as well, so we’ve got this dual issue now,” she says.

The strategic plan, which was developed in collaboration with regulators, industry, business and consumers, has been welcomed by the ABA. Anna Bligh, chief executive of the industry body, says it is a ‘long overdue overhaul of the payment arteries that drive the Australian economy’.

She says the strategic plan provides direction for investment in future technology for both banks and the wider payments industry.

“Payments are the lifeblood of our economy, but Australia is currently using a 60-year-old system for many everyday consumer and business payments,” Bligh says.

“The Federal Government and the RBA have recognised Australia’s payments ecosystem has become more complex in recent years, with payments being increasingly integrated with online and digital commerce, along with entry of large foreign tech firms.

“Proposed regulatory reforms will help to ensure Australia’s payments regulation is well equipped to respond to these changes.”

Bligh says the changes will also ensure clear consumer protections apply, no matter who is processing a payment, and that the security of personal and financial information is maintained.

“By giving the RBA greater oversight and standard making powers over digital wallets and other forms of payments infrastructure, these regulatory changes can also help to maintain the security and efficiency of our payments system,” she says.

Also welcoming the move was Fintech Australia, with general manager Rehan D’Almeida saying the organisation was ‘delighted’ to see the finalisation of the plan and the commencement of the long-awaited consultation processes on payments licensing.

Two consultation documents have been released.

The first is on proposed updates to the Payments Systems (Regulation) Act to address risks posed by new payments technologies and how emerging systems such as digital wallet providers can ben regulated. It includes a proposal to introduce a new Ministerial designation power which would see certain payments services or platforms presenting risks of national significance to be subject to additional oversight by regulators.

The second seeks feedback on the list of payments functions that would be regulated under the new licensing framework.

The strategic plan  will be reviewed and updated every 18 months to keep up with changes.

Payments technology provider Worldline declined to comment on how the new strategy aligns with the company’s plans for Australia.

Robert O’Grady and Peter Reeves of Australian law firm Gilbert + Tobin note in a piece for Lexology that many of the proposals in the plan are not new, instead reaffirming previous Government commitments from various payments reviews over the years.

“However, some proposals have the potential to radically impact the regulatory touchpoints for payment and payment technology providers in the longer term.

“While these areas are subject to further consultation, payments providers should consider the potential impact for their business and whether participation in Treasury consultations would assist in shaping any future reform,” they caution.