Australia’s Payments System Strategic Plan

Following industry wide consultation at the end of 2022, the Australian Federal Government has published its Strategic Plan for the future of Australia’s payments system setting out a number of policy objectives and priorities. The plan outlines the government’s commitment to ensuring that the country’s payments system is safe, affordable, trusted and will remain readily accessible.

A safe and resilient system

As in many developed economies, the way in which Australians make and receive payments has changed greatly. The pace of change has accelerated in recent years, partly driven by consumer responses to the COVID 19 pandemic. Transactions are continuing to shift from in person to online forms of shopping and there is an increasing demand for near instant and seamless payments.

A key component of the government’s strategy is to ensure that the underlying payment systems are safe and resilient, with the report calling out two focus areas, tackling financial scams and fraud and addressing the growing threat of cyber-attacks.

In 2022 Australians lost a record A$3.1 billion to scams. Reported card fraud increased by 5.7% in 2021 to A$495 million. The government has committed to establishing a National Anti-Scam Centre and it is already developing new cross-sectoral industry anti-scam codes. The centre will start on 1 July 2023 and build its information sharing capabilities over the next three years.

Cyber incidents are also a growing threat to Australia’s payments infrastructure. In response, the Security of Critical Infrastructure Act 2018 was recently updated to enhance the regulatory framework for operators of critical infrastructure assets. The Mastercard and Visa debit and credit card systems, the domestic electronic fund transfer point of sale (EFTPOS) card system and the New Payments Platform (NPP) faster payments system have all been deemed critical infrastructure.

In order to ensure payment systems are safe and secure, the industry association and self-regulatory body AusPayNet has commenced planning an industry wide program to migrate the Australian card payments system to the safer Advanced Encryption Standard, together with improvements to cryptographic key management practices. This process will involve migrating almost 1 million POS terminals, around 25,000 ATMs, all hardware security modules and all card networks. AusPayNet plans to develop a programme of work for this migration over the next 18 months, with a view to initiating an industry migration programme in 2025.

Legacy payments

There has been a rapid decline in the use of cheques in the past ten years, which now comprise only 0.2% of non-cash payments in Australia. Subject to further stakeholder consultation, the government intends to remove legislative and other barriers that entrench cheque use and plans to phase out their own cheque issuance by the end of 2028. They expect the eventual retirement of the cheques system by no later than 2030.

Turning to cash, the government acknowledge that it is an important payment method for certain groups in Australia and plays a vital role in their inclusion in the wider economy. The report notes that 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 government plans to work with 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.

Drawing on Reserve Bank of Australia (RBA) research, as of June 2022 an estimated 95% of the population live within around 5km of a cash access point. However, there are some communities that are facing a reduction in cash services more acutely, particularly those in regional and remote areas. The report references the current 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. Findings from the inquiry are due to be published by December 2023.

The plan also calls out one of the legacy electronic payment systems operating in Australia, the Bulk Electronic Clearing System (BECS), which facilitates the processing of Direct Entry payments. The government plans to lead and work with the industry to migrate transactions to the data rich faster National Payments Platform (NPP).

Cross border payments

According to Australian Bureau of Statistics (ABS) data, Australia’s international trade activity is equivalent to almost half the value of total GDP in 2022, so cross border payments are critical to the country’s international trade and economic activity.

The report notes that across the globe, cross border payments lag domestic payments in meeting expectations for services to be cheap, fast, accessible and transparent. Countries in the South Pacific (with which Australia has deep connections) face particular challenges in relation to the cost and accessibility of banking services. G20 countries, including Australia, have endorsed a roadmap for making cross border payments cheaper, faster, more transparent and more accessible. The roadmap outlines specific targets to be achieved by 2027.

Regulation and licencing

The report notes that new payment services and technologies are testing the limits of the current regulatory frameworks, and that several recent reviews have identified regulatory gaps which can contribute to increased risks, future systemic instability and decreased private sector investment in innovative products and services.

In response, the government plans to update the Payment Systems (Regulation) Act 1998 (PSRA) and introduce a new payments licensing framework. It claims reforming the regulatory framework will promote innovation and support competition in the sector while also ensuring there are consistent protections for consumers. Evidence from other countries suggests that adopting a payments (or ‘e-money’) licenses approach shows that innovators are supported by the wider ecosystem in a way that they would not be supported if they were unregulated. This gives confidence to investors to support innovators.

Given the constantly evolving payments landscape, the government intends to review and publish an updated strategic plan every 18 months.

The full plan can be found at https://treasury.gov.au/publication/p2023-404960.

Paul Blond is Managing Partner of cash and payments consultancy The Blond Group LLP based in Australia and the United Kingdom.