Consultation on strategic plan for Australia’s payments system

By John Bassilios 

Last week, we flagged in an article that the Federal Government released a consultation paper for reforms to the Australian payments system. In this article, we provide further details of the consultation paper and review of the payments system more generally.

Why do we need a payments system review?

Australia’s payments system is crucial for our nation’s economy to run smoothly. Our payments system has rapidly expanded in size and complexity due to trends such as:

• changing payment methods – including a significant increase in electronic payments over cash;
• new technology – Australians are fast adopters of new payment methods, demonstrated by the fact that the New Payments Platform (launched in 2018) now processes more than 25% of total account-to-account payments;
• new providers and business models – innovative payments solutions are being driven by new entrants such as fintechs and big techs, along with the introduction of new business models such as buy now, pay later; and
• new risks – the introduction of new players and technology has generated new risks.

Our regulatory settings for payments have not been updated for more than 20 years. They require modernisation to keep pace with ongoing developments to the payments ecosystem.

A review of the regulatory architecture of the Australian payments system commenced in 2020 as part of a suite of measures designed to accelerate the nation’s recovery from the economic impacts of the COVID-19 pandemic.

The payments system review resulted in a June 2021 final report which provided findings and recommendations to modernise the payments ecosystem to ensure that it can continue meeting the needs of consumers and businesses.

The report’s findings included a recommendation to develop a strategic plan.

Why do we need a strategic plan?

The purpose of a strategic plan is to provide certainty on policy priorities and strategic directions for the payments ecosystem while allowing for adaptability to change.

The payments system review final report indicated that the absence of a strategic plan has had a negative impact on investment decisions, leading to inertia and continued reliance on legacy systems.

What will the strategic plan cover?

The proposed contents of the strategic plan will include the key principles, key priorities, key initiatives for the payments system and a roadmap for implementing these initiatives.

Key principles

• Efficiency – an efficient system enables the fast transfer of funds, promotes competition between payment service providers and promotes interoperability.
• Innovation – an innovative system is agile, forward-looking and adds value to the user’s payment experience.
• Accessibility – an accessible system is simple and inclusive with low-cost readily available payment services which provides consumers and businesses with choices.
• Trustworthiness – a trustworthy system is safe, secure, reliable and resilient.

These principles are intended to outline key objectives for the payments system and guide the Federal Government’s decision-making and policy work. The consultation paper seeks feedback on the proposed key principles and whether any other principles should be included.

Key priorities

The key priorities will support the key principles and are intended to be adjustable over time to reflect progress or changing circumstances.

The following proposed key priorities reflect matters considered in the payments system review and feedback from stakeholders.

• Promoting a safe and resilient payments system.
• Ensuring the regulatory framework is fit for purpose and promotes competition.
• Ensuring alignment with the broader digital economy transformation.
• Modernising payments infrastructure.

The consultation paper seeks feedback on the proposed key priorities, whether they provide enough certainty on the key priorities for the Government and if any other matters should be included.

Key initiatives

The strategic plan will outline specific initiatives that correspond to key priorities, including the roles and responsibilities of Government, industry and regulators for each initiative, along with a roadmap for their implementation.

The strategic plan will be reviewed on an annual basis, with the review assessing the progress made in implementing each initiative. The consultation paper provides the following summary of key initiatives.

Key priorities	Supporting initiatives
Promote a safe and resilient payments system	Reduce the prevalence of scams and fraud. Strengthen defences against cyber-attacks. Supervision of systematically important payment systems.
Ensure the regulatory framework is fit for purpose and promotes competition	Implement changes to the Payment Systems (Regulation) Act 1998 (Cth), including a Ministerial delegation power. Introduce a tiered payments licensing framework for payment service providers. Enable greater collaboration between payments regulators. Promote competition by facilitating proportionate, objective and transparent access to payment systems. Reduce small business transaction costs, by supporting the availability of least-cost routing.
Alignment with the broader digital economy transformation	Ensure the payments system is aligned with developments in the broader data ecosystem such as the Consumer Data Right. Explore the policy rationale for an Australian Central Bank Digital Currency (CBDC), including investigating the economic, legal, regulatory and technological considerations associated with an Australian CBDC.
Modernise payments infrastructure	Support the transition to more modern payments infrastructure. Maintain adequate access to cash for those who rely on it. Promote interoperability with international standards and arrangements for cross-border payments.

The consultation paper seeks feedback on the proposed key supporting initiatives, the proposed approach for any of the initiatives and whether any other initiatives could be included in the plan. It also provides an example draft roadmap and requests feedback from industry on the key milestones in delivering key initiatives.

Consultation period

Consultation on the strategic plan began on 14 December 2022 and is open until 6 February 2023. Feedback received on the consultation paper will be used to inform the strategic plan. Please contact us if you require assistance with your submission.

Our Fintech and Blockchain Lead, Partner John Bassilios (and Blockchain Australia Director) has written the Australian chapter of the Lexology Getting The Deal Through Fintech 2023 publication.