The key reforms proposed by the Australian Government's Consultation Paper are as follows.
|Amending the PSRA
||Including coverage of all entities that play a material role in Australia's payments system. A ministerial designation power to allow the Treasurer to intervene where in the national interest to do so.
|New payments licensing regime
||Establishing a new "functions-based" licensing framework for payment service providers.
|Mandating the ePayments Code
||Providing a roadmap for mandating the ePayments Code as part of the new licensing framework. This Code has so far remained a voluntary code.
|Access to payment systems
||Opening access to Australia's payment systems to payment service providers that don't hold an ADI licence, provided those participants are subject to operational, financial and systemic risk mitigation requirements.
|Least-cost routing (LCR)
||While LCR is available for in-person debit card transactions and now online debit transactions, it is not yet available for mobile wallet debit transactions. It is proposed that the PSRA's expanded regulatory perimeter could also allow the Reserve Bank of Australia (RBA) to mandate LCR for these types of payments.
|Modernising payments systems
||With the cheques systems and the Bulk Electronic Clearing System (BECs) being Australia's two key legacy systems, considering transitioning away from such legacy systems where appropriate.
|Enhancing cross-border payments
||Supporting the G20 Cross-Border Payments Roadmap, and ensuring the New Payments Platform (NPP) and other payment systems are interoperable with major payment systems in other countries.
The Consultation Paper provides background to the current payments landscape, including the trends occurring at an international and local level. Tap-and-go, mobile payments and buy-now-pay-later (BNPL) solutions continue to grow in popularity. At an Australian-level, technology such as the New Payments Platform, PayTo and new entrants such as the big technology players has driven new solutions in the market. The Consultation Paper also identifies the additional risks facing payments service providers, including most notably for 2022 fraud, scams and cybersecurity risks in respect of key infrastructure.
This consultation also coincides with the call for submissions from the Government to assist in the development of a regulatory framework for BNPL arrangements (read our alert here).
On the agenda
The Australian Government's vision for payment systems in Australia is to "maintain its reputation internationally as being safe and efficient, open to competition, while protecting Australians from scams and fraud".1
The Government's proposed reforms include:
- Developing a Strategic Plan on the topic alongside regulators, industry, consumer and business representatives
- Updating the Payment Systems (Regulation) Act 1998 (PSRA) to cover the full range of payment entities and systems and to provide the Federal Treasurer with ministerial powers for addressing payment issues which fall outside the remit of the RBA's public interest
- Implementing a tiered licensing framework for payment service providers
- Lessening transaction costs for small businesses, for example through LCR for card and mobile payments
- Increasing international interoperability through cross-border initiatives
- Considering developments occurring in the broader digital economy that intersect with payments, including digital wallets, BNPL, stablecoins, cryptoassets, central bank digital currencies (CBDCs), consumer data right (CDR), and connecting with state-based payments initiatives
Central to the proposed reforms is the development of a "Strategic Plan" on payments, such that there is a shared vision between government, regulators, industry and consumer and business representatives.
Proposed contents of the Strategic Plan
The Consultation Paper sets out the proposed key principles for the Strategic Plan. In putting these together, international benchmarks such as the Bank of International Settlements (BIS) core principles have been considered.
At present the proposed key principles are: efficiency (in respect of payments processing), innovation (looking to add value to the user's experience), accessibility and trustworthiness.
The key priorities supporting and promoting the key principles are: promoting a safe and resilient payments system, ensuring the regulatory framework is fit-for-purpose and promotes competition (including changes to the PSRA and the introduction of a new tiered payments licensing framework), ensuring alignment between new regulation with the broader digital economy transformation (e.g., if payments are introduced as an action in the CDR, to align CDR payment initiation accreditation requirements with that of a payments licence), and modernising payments infrastructure.
Alongside each key priority, the Consultation Paper sets out a number of supporting initiatives for each, as well as a roadmap and responsibility allocation for key initiatives. The supporting initiatives are summarised at Attachment B to the Consultation Paper and the draft roadmap at Attachment C.
Reviewing the Plan
The Australian Government has proposed that it will review the Strategic Plan on an annual basis, and in the months following the publication of the Strategic Plan will engage with private and public sector participants on the same.
The questions posed by the Consultation Paper are as follows:
- What are your views on the proposed key principles? Are there other principles that should be included? Please provide an explanation.
- What are your views on the proposed key priorities? Do they provide enough certainty on what the key priorities are for the Government? Are there other matters that should be included? Please provide an explanation.
- What are your views on the proposed key supporting initiatives? Are there other initiatives that could be included in the Plan? Please provide an explanation.
- Do you have any feedback on the proposed approach for any of the initiatives (as outlined in Attachment B)? Please provide an explanation
- What are the key milestones for particular key initiatives that you would like to see included in the Plan? Are there any conflicts between milestones or pressure points that need to be taken into account in revising the roadmap?
|Process for reviewing the Plan
- What are your views on the proposed review process and engagement arrangements? Please provide an explanation.
- Are there any other sections or topics that you would like to see added to the Plan? Please provide an explanation.
Feedback from this consultation process will be used to finalise the inaugural Strategic Plan which is scheduled for release in the first quarter of 2023.
To discuss how our experience can assist you, or if you have any questions on any of the matters above, please do not hesitate to liaise with your usual contact at Baker McKenzie or the lawyers listed in this Alert.