RBA Governor Lays Out the Future of Payments in Australia

Philip Lowe, Governor of the Reserve Bank of Australia (RBA), spoke recently at a conference about the future of payments in Australia. He said that the direction of change was ‘pretty clear’.

The five changes he highlighted were:

• The declining use of banknotes and the increasing use of electronic forms of payment.

• The greater use of digital wallets.

• The growing involvement of the ‘big techs’ in payments.

• The increasing specialisation within the payments value chain and the emergence of new business models.

• The growing community and political interest in the security, reliability and cost of payments.

ATM withdrawals over the last six months are 30% down in Australia, a significant acceleration of a long-term trend. There has been a switch from credit cards to debit cards and strong growth in Account-to-Account (A2A) payments, predominantly using Australia’s New Payments Platform (NPP).

The move to digital wallets has beneficial implications for a future Central Bank Digital Currency (CBDC), should one be introduced. Their use for non-traditional payment methods is another reason why he expects the growth in wallets to continue, albeit with new business models emerging driven by the big tech firms and the growth of the fintech sector.

Australia has seen an increase in community and political interest in payments around issues such as:

• How to ensure that banknotes remain widely available for those who want to use them. The RBA is currently undertaking a public consultation on banknote distribution arrangements (see feature article in the November issue of sister publication Currency News™).

• How to keep downward pressure on the cost of electronic payments, particularly for small merchants. As more payments are made electronically, the focus on the cost of these payments will increase.

• How to address competition issues that arise with the increased involvement of big techs in payments. One important issue here is the access arrangements for the devices and the digital wallets they offer.

• How to ensure that the electronic payments system is secure and available when people want to use it. ‘Our economy is increasingly dependent on our digital infrastructure, so we need to make sure it is resilient to cyber threats as well as other operational risks’, he said.

While these topics have a degree of universal relevance around the world, Australia faces some specific challenges. One example is the launch of its PayTo service on the NPP in July next year, which is intended as a replacement for today’s direct debit system. Other include progressing its ‘payment with documents’ overlay on the NPP, the ability to link documents with payments allowing reconciliation for recipients, the implementation of open banking, the development of a digital identity service and how to reduce the cost of cross-border payments.

The RBA has been running a wholesale CBDC project – Project Atom - with four external parties. Further work is planned. It is also running Project Dunbar with the BIS Innovation Hub and three other central banks, a cross-border CBDC payments project.

The RBA is examining the case for a retail CBDC. Interestingly the speech suggested that payment tokens could be ‘issued and backed by an entity other than the central bank, though still denominated in Australian dollars. These could be a form of stablecoin.’ The speech mentioned cryptocurrencies and made the point that they, and stablecoins, may have a role accessing the benefits of smart contracts and Decentralised Finance rather than as a new unit of account.

Finally, the speech touched on the regulatory environment which crosses over with the Treasury and the Council of Financial Regulators agencies. The RBA welcomes the government’s plans to review the Payment Systems (Regulation) Act 1998 to make sure it is fit for purpose, seeing this as necessary to allow it to meet its broad mandate to promote competition, efficiency and stability. The regulatory framework will need to include the various new digital assets.