CEO’s Corner

As we close the year, we thank all of our Members and stakeholders for their support and input over 2020 and wish them all the best for the festive season and for 2021.

Top of mind heading into 2021 are two items: industry consolidation; and the Treasury review of the regulatory architecture of the payments system.

This week saw the announcement that Australia’s three domestic payment operators, eftpos, BPAY Group and New Payments Platform Australia (NPPA) intend to amalgamate, with the unified group aiming to improve choice, competition, innovation, the efficiency and the affordability of Australia’s payments system.

Those aims resonate strongly with AusPayNet’s own and, subject to the proposal being approved by the ACCC, we will work with the unified group – as we do currently with each of eftpos, BPAY and NPPA as members of ours – to understand how we, as the industry’s independent industry body and self-regulator can help it meet those aims.

As noted elsewhere in this Payments Monitor, as part of the recent Budget, the Government announced a review into the regulatory architecture of the payments system.

This review is timely. Most of the current regulatory architecture is largely unchanged since the 1997 Financial System “Wallis” Inquiry and the 1998 Payment Systems (Regulation) Act (PSRA). Almost 25 years on it is appropriate to review that architecture to ensure that it sets up the payment system to continue to deliver optimal outcomes for its users and the wider economy. Its timing is also opportune given COVID-19: the payments system is an enabler of the wider economy, hence the review’s place within the Government’s wider Digital Business Plan to drive Australia’s economic recovery from the pandemic.

A key aspect that the Review will consider is the appropriate balance between self-regulation, formal regulation and government policy. The lens it will apply here is how that balance ensures that the payment system continues to work in the best interests of end-users.

As part of that, the Review asks the question as to what regulatory architecture is needed to provide support and clarity for businesses – particularly new entrants – to invest and innovate. The recent publication of our “Navigating Payments for New Entrants” guide provides a useful frame for considering that question. It emphasises the complexity not necessarily of the payment system itself, but of the licensing arrangements that pertain to it. Having a strategy to simplify those licensing arrangements would be a good outcome of the review, for innovation and for end-user outcomes. In that regard, the recent review of stored value facilities (SVFs) is a useful example of such simplification.

The SVF review (which was recommended by the Productivity Commission in August 2018 and accepted by Government in November 2020) should also inform another aspect of determining the right balance between self-regulation, formal regulation and government policy, namely the agility with which policy and regulation responds to changes in payments. Another example is ASIC’s review of the ePayments Code, which was initiated in March 2019. There is no doubt that responding to some changes in payments has and will require greater agility. That is the role for self-regulation, which can naturally move faster than legislation or regulation. Often this agility comes from self-regulation being based around “skin in the game”: those participants involved in payments have an incentive to solve for such payments challenges on behalf of their customers.

Encouragingly, this appears to already be recognised by Government. The Senate Select Committee Inquiry into Financial Technology and Regulatory Technology concluded that “industry self-regulation can be an efficient way for innovative products in the financial services sector to emerge, while ensuring adequate protections for consumers … a co-regulatory approach between industry and regulators can be effective in enhancing consumer outcomes.” It also recommended that “the Australian Government should support initiatives where self-regulation can be utilised appropriately in financial services.”

Australia's payments system already operates on the assumption of self-regulation – indeed the PSRA was designed to operate on the basis of this assumption – and AusPayNet plays a core role in facilitating this. This has proven highly effective in that it allows Government to set high-level principles and broad policy objectives, while industry focuses on operational implementation, creating innovative solutions and providing competitive offerings to business and consumers. This seems to provide a blueprint for the future in terms of principles-based policy settings (such as “same risk, same rules”), reinforced by independent regulation and self-regulation, providing an appropriate balance.

AusPayNet welcomes the Review and looks forward to contributing to the objective of ensuring that the regulatory architecture of the Australian payments system “remains fit-for-purpose and is capable of supporting continued innovation for the benefit of consumers, businesses and the broader economy” through the various phases of the review process.

Navigating Payments for New Entrants

This week we published a practical guide to help new entrants better navigate the interdependencies within the payments system. Entitled “Navigating Payments for New Entrants” the guide provides an overview of payment system regulation, the different models for participation, and the regulatory licences that might be required, to help new entrants better understand Australia’s payment systems.

The new interactive guide is a result of research and consultation with new entrants and financial sector regulators to better understand the needs of new entrants to payments. In addition to an overview of the payments system, it includes information on:

• Participating in cards as an issuer or acquirer
• Installing new POS technology
• Participating in the direct entry system, BPAY and real-time payments
• Participation and licencing requirements

“Navigating Payments for New Entrants” is available here.

Post Events Thank-You

Thank you to our speakers and everyone who participated in the series of events we held in place of our annual summit. Starting on 30 October 2020 and culminating in a keynote address by the Reserve Bank of Australia Governor on 7 December 2020, the series explored a range of topics:

• Digital ID - What's working in Canada?
  Presented by Debbie Gamble, Interac and Dave Birch,15MB
• Transaction Monitoring to Combat Financial Crime - MEMBERS ONLY
  Presented by Jeroen Rijpkema, Nederlandse Vereniging van Banken and Baldwin Kramer, Deloitte. Facilitated by Dylan Ryan, ANZ
• Leveraging AI to Fight Fraud & Automate Payments
  Presented by Andrew Renshaw, Feedzai and Bianca Bates Cuscal / Dmitri Feigin, Sypht
• Digital Currency
  Presented by Nick Addison, ConsenSys and Sophie Gilder, x15ventures
• Address by RBA Governor, Philip Lowe – Innovation and Regulation in the Australian Payments System

If you missed any of the sessions, or would like to watch them again, click on the links above to watch the video recording.

Effective self-governance

At the AGM on 30 October 2020, AusPayNet members unanimously supported the recommendation to change the Director voting entitlements to one vote per Director. Previously, Directors’ votes were based on the payment system market share of the organisation(s) they represented. The move to the new, flatter voting structure was given effect as of 1 December 2020.

This amendment is the first arising out of our current review of AusPayNet’s constitution and governance architecture. The purpose of the review is to ensure that our approach to self-governance remains fit for purpose in the rapidly changing payments landscape. Future aspects will consider AusPayNet’s membership structure, Board representation, and decision-making structures more broadly. The review will continue through 2021.

Treasury’s Review of the Australian Payments System

As part of the Digital Business Plan announced in the 2020-21 Budget, the Government has commissioned a review into the regulatory architecture of the payments system led by Scott Farrell. The purpose of the review is to ensure the regulatory architecture of the payments system remains fit for purpose and responsive to advances in payments technology. The review provides an opportunity to ensure the appropriate balance between government policy, regulation and self-regulation continues to achieve competition, choice and the best end-user outcomes into the future. The Issues Paper released by Treasury on 20 November 2020 forms the first step in the review, which is due to report to Government by April 2021. AusPayNet looks forward to contributing to the various phases of the review process.

Further information is available here.

Card fraud continues to decline

New fraud figures released by AusPayNet on 2 December 2020 show that fraud on Australian cards continued to decline in the 12 months to 30 June 2020 (FY20), following a 6.9% drop in FY19. Against a total value of $803.4 billion (up 0.5%) in card transactions, card fraud dropped by 15.4% to $447.2 million in FY20. This translates to a fraud rate of 56 cents per $1000 – down from 66 cents per $1000 in FY19.

The FY20 figures show that card-not-present (CNP) fraud - affecting mainly online transactions - dropped by 14.0% to $392.4 million. This is likely due in part to the industry CNP Fraud Mitigation Framework, which came into effect on 1 July 2019. Other key card fraud categories also fell, with lost and stolen fraud down 28.5% to $30.8 million and counterfeit/ skimming fraud down 24.8% to $14.0 million.

Read the media release here.

Next Generation Banknotes

When the new $100 banknote came into circulation on 29 October 2020, it marked the end of a six-year industry project involving AusPayNet, Member banks and the Reserve Bank of Australia.

AusPayNet established the next generation banknote (NGB) project in 2015 to support the RBA’s roll-out of a new series of banknotes with upgraded security features and a tactile feature to help the vision-impaired. The RBA released the first denomination, the $5 banknote, in 2016 followed by the $10 in 2017, $50 in 2018, $20 in 2019 and the $100 banknote this year. Our project included ensuring devices such as in-branch note counters and ATMs could accommodate each new denomination as well as providing customer support and education. This coordinated industry approach resulted in a smooth transition with each release. The NGB series now accounts for a significant proportion of (the record number of) Australian banknotes in circulation.

Emerging Technology

Given the prevalence of QR codes as check-in solutions in response to COVID -19, interest in the technology continues to grow. AusPayNet’s Emerging Technology Expert Group (ETEG) is considering QR codes under two key themes – consumer confidence and capability constraints.

• Consumer education and ensuring a seamless customer experience are key to increasing consumer confidence in using QR codes.
• Domestically, the EMVCo standard is the predominant QR Code standard. There are mixed views on whether this standard is well suited to a broad set of use cases.

These themes will be further considered at an upcoming QR code workshop.

Supporting the Fintech Awards

We were delighted to support the 5th Annual Fintech Awards held in Sydney on 19 November 2020. AusPayNet sponsored the Best Fintech Payments Provider category; the finalists in this category were Monoova, Verrency & Split Payments. Our head of member engagement, Paul Anguita, was there to present the award to winner Monoova, alongside VIP guest and keynote speaker, Senator Andrew Bragg. We congratulate all the award winners and finalists!

In case you missed it – APC Annual Review

The Australian Payments Council (APC), the strategic coordination body for the Australian payments industry, released its 2020 Annual Review on 27 November 2020. Read it here.