The Commonwealth's A Strategic Plan for Australia’s payments system: Building a modern and resilient payments system in June this year offers a 'Vision for the payments system':
A modern, world class and efficient payments system that is safe, trusted and accessible, and enables greater competition, innovation and productivity across the economy.
Principles to guide the future direction of the payments system: Trustworthiness, Accessibility, Innovation, and Efficiency
Key priorities and supporting initiatives:
1) Promoting a safe and resilient system • Reducing the prevalence of scams and fraud • Strengthening defences against cyber attacks • Supervising systematically important payment systems
2) Updating the payments regulatory framework • Implementing changes to the Payment Systems (Regulation) Act 1998 (PSRA) • Establishing a new payments licensing framework • Promoting competition by facilitating transparent access to payment systems • Enabling greater collaboration between payment system regulators • Reducing small business transaction costs
3) Modernising payments infrastructure • Phasing out cheques • Upgrading systems • Maintaining access to cash
4) Uplifting competition, productivity and innovation across the economy • Aligning payments system objectives and the Consumer Data Right (CDR) framework • Supporting the broader use of Digital ID • Uplifting digital and technological skills • Building public trust and confidence and supporting adoption of artificial intelligence (AI)
5) Australia as a leader in the global payments landscape • Creating a regulatory environment that attracts and enables innovation • Facilitating cross border payments • Exploring the policy rationale for a Central Bank Digital Currency (CBDC) in Australia
The Plan notes
The Australian payments system is increasingly digitised due to consumer preferences for frictionless transactions and evolving technology. Card based payments make up about 75 per cent of non cash retail payments, with 25 per cent of that volume coming via mobile wallets. ...
As the Australian payments system continues to evolve and consumers’ needs change, there has been a shift away from traditional payment methods. There has been an almost 90 per cent decline in cheque volumes in the last 10 years, with cheques now comprising only 0.2 per cent of non cash retail payments in Australia. Cash use has also reduced significantly, with the share of retail payments made in cash falling from 27 per cent in 2019 to 17 per cent in 2022. However, cash in circulation is rising, indicating Australians’ demand for cash for the purposes of storing value, potentially for uncertain circumstances, remains high. ...
The Government intends to enable greater choice for Australians in the way they transact for goods and services. The Government will focus on removing legislative and other barriers that entrench payment by cheques as well as phasing out government cheque usage by the end of 2028, with the eventual wind down of the cheques system in Australia by no later than 2030. This will be subject to further consultation with industry and stakeholders to determine the feasibility of this end date and an appropriate transition plan.
There has been a rapid decline in the use of cheques in the past 10 years, which now comprise only 0.2 per cent of non cash payments in Australia. This has been driven by growing availability of card and electronic payments and consumer preferences for more efficient and low cost digital payments. This consumer led migration is consistent with the global trend towards digitisation, with some countries successfully managing the complete closure of their cheque systems.
As cheque use declines, the per transaction cost of supporting the cheque system will continue to increase. Banks and financial institutions are taking steps to withdraw from the cheque system, such as ceasing issuance of cheque books for new customers. At the same time, many merchants are ceasing to accept cheques as a means of payment.
Although cheques represent a narrow segment of our payments system today, they continue to be issued in relatively large numbers by some corporates and Government entities. They also continue to be used by certain cohorts of the population, particularly older Australians and those living in regional or rural areas or with limited digital proficiency or connectivity. Some types of businesses also rely more heavily on cheques (for example, charities and other not for profit organisations who take a large proportion of donations through cheques from their donors). As an advanced economy with well developed digital insfrastructure, Australia is well placed for an eventual withdrawal from the cheque system. Many stakeholders have indicated a strong desire to end the cheque system, with habit and legislative barriers being the most cited reasons for its continued use. However, with the increased adoption of faster, safer, and more seamless technology, there are now strong and readily accessible payment alternatives to cheques. These alternatives will also help deliver greater financial inclusion outcomes such as more clear and targeted customer communication and real time access to information to assist those cohorts of the community that are more susceptible to vulnerability. Transitioning away from cheques will help achieve greater efficiency, productivity and security in Australia’s payments system. It will remove barriers that entrench specific payment methods and promote payment neutrality, giving Australians greater choice in choosing how they pay.
However, the Government is committed to ensuring that all Australians are supported in a transition away from cheque use. As banks and financial institutions continue to reduce cheque related services and parts of the economy cease accepting cheques as a way to pay, it is important to ensure that the transition is appropriately managed. The Government has a role to play in managing the transition away from the cheques system, coordinating a whole of economy approach in a manner that provides appropriate support, and minimises adverse impacts to consumers and businesses.
In the short term, the Government will consult with industry and stakeholders to identify challenges, develop solutions and supports for affected users, and implement the changes required to ultimately close the cheques system. This would involve staged reforms, rather than a single change at the end of the proposed period. To this end, four main workstreams have been identified for ensuring a smooth transition away from the cheques system.
• The Government will work to reduce Commonwealth usage of cheques by working with agencies and departments with high cheque usage to develop a transition plan away from reliance on cheques. This includes identifying products, such as health services or tax payments, that will need viable and alternative forms of payment with the same level of reach and convenience as cheques.
• The Government will support industry in promoting the use, and removing barriers to adoption of, alternatives to cheque products, especially for institutional and commercial uses of cheques that cannot be serviced through existing digital channels. Industry’s development of education and outreach programs to assist cohorts that are greater users of cheques will also be required.
• The Government will explore changes to Commonwealth legislation that entrench the use and acceptance of cheques with a view to amending legislation. The Government aims to ensure that legislation mandating cheque use will become payment neutral in the future. As part of this process, the Government will consider the ongoing role of the Cheques Act 1986.
• The Government will also work with state and territory counterparts to encourage a coordinated approach to transitioning away from the cheques system. This includes encouraging state and territory governments to amend legislation that mandates the usage of cheques in certain industries such as gaming and insurance. ...
Cash is an important payment method for certain groups in Australia and plays a vital role in their inclusion in the wider economy. Cash is still widely accepted as a means of payment by merchants, used as a store of value, and provides resilience to the payments system during outages where digital forms of money cannot be used.
The use of cash as a method of payment has declined substantially in the last decade and this trend accelerated during the COVID 19 pandemic. According to the Reserve Bank’s Consumer Payments Survey, 13 per cent of payments were made using cash in 2022 whereas, in 2019, this share was 27 per cent. At the same time, financial institutions are reducing the number of branches and ATMs they operate across the country. APRA reports that over the 5 years to June 2022, bank branches have declined by 30 per cent in major cities, and 29 per cent in regional and remote areas. The number of ATMs in Australia have declined by approximately 25 per cent since the peak in 2016.
The Government understands the important role cash still plays in our payments system and supports Australians having continued access to cash. The Government will work with the relevant agencies across the public sector and with industry to ensure that Australia has a sustainable cash distribution network that maintains adequate access to cash. Currently, Australians have good access to cash services with an estimated 95 per cent of the population living within around 5km of a cash access point as of June 2022. However, there are some communities in Australia that are facing a reduction in cash services more acutely, particularly those in regional and remote areas. These Australians typically have to travel further to access cash and are particularly vulnerable to the removal of cash access points, bank branches and cash distribution facilities. The declining transactional use of cash has led to a per unit increase in costs in distributing cash across the country. Australia’s two largest Cash in Transit (CIT) service providers, Armaguard and Prosegur, have responded to these financial pressures in recent years by downsizing or closing some facilities and reducing the frequency of CIT services.
More recently Armaguard and Prosegur have applied for ACCC authorisation to merge their cash distribution and management, device monitoring and maintenance and ATM businesses to help create a more efficient and financially sustainable business. Merger authorisation includes both a competition assessment and public benefits assessment. The ACCC is expected to make a decision by 14 June 2023. The applicants have submitted that the merging of the businesses could help operations by achieving synergies. These synergies will better enable continued provision of CIT services across Australia in an environment where both providers reported incurring heavy financial losses due to declining demand.
Regardless of the decision made by the ACCC on this application, the Government will closely monitor developments regarding access to cash for Australians, in close consultation with relevant regulators. This is to ensure that as cash reliance declines and the the CIT industry undergoes transition, the market can operate both efficiently and fairly, that the potential for disruptions that could impact cash access are identified early and minimised, and that Australians continue to have access to cash.
The RBA is working to reduce impediments to improved efficiencies in cash distribution operations. This includes introducing transparent and standard contractual arrangements for the distribution of banknotes by the RBA as well as the establishment of a banknote distribution industry forum to facilitate more timely changes to make the distribution of cash more effective, efficient, resilient and sustainable. The Government notes the Senate Standing Committees on Rural and Regional Affairs and Transport Inquiry into Bank Closures in Regional Australia, in particular its investigation of the effect bank closures and the removal of face to face cash services are having on cash access. The Senate inquiry will report by 1 December 2023.
The Government notes industry’s role in supporting the Bank@Post network which provides access to banking services through Australia Post outlets, including in 1,800 locations in rural and remote areas. The use of this network is supporting communities at a time of transition towards greater use of electronic payments, but may not fully address issues around access to cash for all Australians.
The Government also notes work being done overseas to maintain access to cash and ensure infrastructure supporting cash access and availability is effective, sustainable and resilient. Initiatives in the UK include widespread adoption of cash at point of sale without a purchase, ensuring cash facilities are available in all communities and that there is broad coverage of free to use ATMs. ...
The Plan articulates the Regulatory Framework
The regulatory framework for Australia’s payments system is determined by the Government, regulators, and key industry bodies. ..
The Government
The Government designs and, through the Parliament, implements laws that determine the regulatory architecture for the payments system. Besides its rule making function, the Government is uniquely positioned to provide high level strategic direction for the payments system due to its role in setting system wide policy.
The Government has a role in setting the overarching direction for the payments system by influencing the focus of agencies and regulators. A clear overarching direction from Government is critical for the payments system as the range of activities undertaken by businesses in the payments system cuts across the remit of several regulators. This feature of the payments system necessitates policy and regulatory responses to be coordinated and aligned.
Regulators
The Reserve Bank of Australia (RBA) and the Payments System Board (PSB)
The RBA is the primary payments system regulator, covering the wholesale, retail and commercial payments systems. The RBA’s payments system policy is determined by the PSB, which sits within the RBA.
The RBA’s regulatory powers are set out under the Payment Systems (Regulation) Act 1998 (PSRA), Payment Systems and Netting Act 1998, and Cheques Act 1986. In determining the RBA’s payments system policy, the PSB must exercise its responsibility in a way that best contributes to: • controlling risk in the financial system; • promoting the efficiency of the payments system; and • promoting competition in the market for payment services, consistent with the overall stability of the financial system.
The responsibilities of the PSB are broad, covering both the high value wholesale payments system and retail and commercial systems, which have high transaction volumes but are of lower value.
The Payment Systems (Regulation) Act 1998 (PSRA) is the primary regulatory framework governing payment systems. It authorises the RBA to impose regulatory requirements on participants in designated payment systems where it is in the public interest to do so. Intervention and regulatory action is generally preceded by industry consultations to explore non regulatory solutions first. Regulation is developed by the RBA closely with industry and relevant parties.
Australian Prudential Regulation Authority (APRA)
APRA is responsible for prudential regulation, including the licensing of Authorised Deposit taking Institutions (ADIs). APRA, alongside the RBA, also has the power to authorise the provision of Purchased Payment Facilities (PPFs), which are facilities that store funds for the purpose of making payments.
Specifically, APRA supervises providers of PPFs that have payment obligations of over $10 million (with deposit like features), which are redeemable in the Australian currency and are ‘widely available’ (more than 50 users). The provision of PPFs is treated as ‘banking business’ and providers are regulated as a special class of ADI.
Australian Securities and Investments Commission (ASIC)
ASIC’s role in regulating the payments system includes licensing financial service providers and overseeing the ePayments Code to ensure consumer protection for electronic payments. ASIC licenses entities that deal in a financial product. Most relevantly for payment service providers, ‘non cash payment’ facilities are a defined type of financial product under the Corporations Act 2001.
A person makes a non cash payment if they make payments, or cause payments to be made, other than through the physical delivery of Australian or foreign currency in the form of notes or coins. ASIC updates the contents of the ePayments Code and undertakes targeted compliance. The currently voluntary Code provides important consumer protections in relation to electronic payments, including ATM, eftpos, credit and debit card transactions, online payments, and internet and mobile banking. The Code provides key consumer safeguards and sets out the circumstances in which a financial institution will be liable to reimburse customers who lose money to an ‘unauthorised transaction’.
Australian Transaction Reports and Analysis Centre (AUSTRAC)
AUSTRAC has a role as a payments regulator under Australia’s Anti Money Laundering and Counter Terrorism Financing (AML/CTF) Act 2006. AUSTRAC regulates ‘designated financial services’ under the AML/CTF Act and imposes reporting requirements on entities in the financial system that provide those services. Designated financial services required to register with AUSTRAC include remittance services, digital currency token services, and the issuance of stored value cards that have stored value above a certain threshold.
Australian Competition and Consumer Commission (ACCC)
The ACCC has a wide remit on competition, consumer, and merger matters – as dictated by the Competition and Consumer Act 2010. In the payments system, the ACCC generally uses its powers to investigate potentially anti competitive behaviour, while also playing a role in assessing and authorising mergers (as seen with the eftpos, BPAY and NPPA merger in 2021).
The ACCC is also progressing the Digital Platform Services Inquiry report which is being delivered in bi annual interim reports until 2025. The 5th Interim Report released in November 2022 made recommendations to address consumer and competition issues, including recommending a new competition framework for designated digital platforms to be subject to service specific codes. Treasury consulted on these recommendations and the government is considering their response to the report. The next interim report is due to be submitted to the Treasurer in September 2023 and will consider potential competition and consumer issues and benefits from the expanding ecosystem of digital platform providers in Australia.
