License to thrive

The Australian government’s Strategic Plan for Payments has been much anticipated since its consultation late last year.

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Similarly, it was excellent to see the announcements of the consultations on the Payment Systems (Regulation) Act and on the new payments licensing regime.

"Simply put, ‘same risk, same rules’. This will protect end-users and it will support innovation."

Why? Well, collectively they will, in two ways, ensure Australia’s payments system is fit for the future, by enabling the prioritisation of payments initiatives and investments, while modernising payments regulation to ensure a “same risk, same rules” approach.

Together, that will protect and benefit end-users and support innovation. The future of payments starts here and it’s an exciting one.

The Strategic Plan for Payments

A comprehensive plan for the future of payments has been attempted before: by the Reserve Bank of Australia(RBA) in 2012 and more recently by the organisation I represent AusPayNet, the Australian payments industry self-regulatory body.  

The government’s approach adds to those prior attempts by basing the prioritisation of payments initiatives and investments on government’s policy objectives and by pledging to review that prioritisation every 18 months.

The plan also helpfully sets out a path for the future of cheques, on which the plan is helpful in two respects.

Firstly, it specifies sunset dates for the Federal Government’s own use of cheques and for the cheque system itself. End-dates of 2028 for the former and 2030 for the latter may seem like long timeframes but AusPayNet will work with the Federal Government on this, as well as with State Governments and other users.

The proposed consultation paper on the future of cheque use in Australia and the support required to retire the cheques system – together with the regular review of the plan – will be important in understanding whether this date can be brought forward.

In considering this question, it is worth noting both New Zealand and South Africa closed their cheque systems within a year.

Secondly, the plan proposes reviewing the ongoing role of the Cheques Act. That legislation dates back to 1986 and is unique in legislating requirements around a specific payment type. No other payment method – cash, card, account-to-account – has specific legislation. 

Changing the Cheques Act would facilitate participants in the payments system – including end-users – proactively moving away from cheques where digital alternatives exist.

The Payment Systems (Regulation) Act

Much like the Cheques Act, the Payment Systems (Regulation) Act (PSRA) is a product of its time (1998). The regulation of payment systems and their participants was simpler in the 1990s for two reasons:

  1. by regulating deposits (money-at-rest), payments (money-at-movement) were also regulated - because only Authorised Deposit-taking Institutions (ADIs) processed payments
  2. payment systems provided all payments services. 

Fast forward to 2023 and many payments are processed by non-ADI participants. Payments services are also often provided using, rather than by, payment systems (think buy now, pay later, for example, which uses the card or account-to-account payments).

So, the review of the PSRA is important in enabling the RBA to regulate new forms of payment systems and services, as well as all their participants. The backstop will be a ministerial designation power to be used in a situation of national interest. Together with a modern approach on payments licensing, these measures will create a level playing field which will protect consumers and support innovation.

Payments Licensing

The Federal Treasury’s proposed approach on payments licensing equates to best practice globally. Regulation is now increasingly activity/function based. It is therefore eminently sensible for Treasury’s first consultation to focus on ascertaining the functions that should be subject to a payments license.

Essentially, if you are adding risk to the ecosystem by providing a payments function, you should be licensed and subject to the same regulation and standards as any other participant providing the same function. Simply put, “same risk, same rules”. This will protect end-users and it will support innovation.

It will also promote competition. Evidence from other jurisdictions such as the UK, Europe and Singapore that have payments (or ‘e-money’) licenses shows innovators are supported by the wider ecosystem because they are licensed, in a way they would not be supported if they were unregulated.

The first consultation on licensing is exactly that. As it suggests, further consultation will be required on the licensing regime itself once the functions that are being regulated have been established. And as part of that further work, payments standards-setting bodies will need to be authorised with their standards then applying to all licensees to ensure interoperability, consumer protection, security, and accessibility of and to the payments system.

To support that aspect of the licensing regime – which will be covered in a future consultation – AusPayNet is currently undertaking a program of work to become an authorised standards-setting body, building on 30 years’ experience and expertise in developing industry standards to respond to emerging trends comprehensively and with agility. 

We look forward to working with the Treasurer, Treasury, the RBA and other regulators on fleshing out the future regulatory regime for payments.

Andy White is CEO of AusPayNet

This is an edited extract of a piece that first appeared on the AusPayNet website on June 7, 2023.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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