Rising Payments Technologies and Trends by Andy White

I recently had the great pleasure of moderating a (virtual) panel session for the Australian Trade and Investment Commission (Austrade) on rising payments technologies and trends. In that session, I made the point that the digital economy is increasingly the economy. This is not an original opinion. The OECD stated as long ago as 2016 that, “now more than ever, the digital economy is the economy.” The Australian and NZ Productivity Commissions echoed that view last year in their joint report on the trans-Tasman economy: “given the ubiquitous nature of ‘digital’ in everyday life, there is little to differentiate the digital economy from the broader economy”.

However, there is no doubt that COVID-19 has accelerated that trend. McKinsey argued in May that, “recent data show that we have vaulted five years forward in consumer and business digital adoption in a matter of around eight weeks.” A recent report by the Institute of International Finance, in partnership with Deloitte, analysed this in more detail. It concluded that COVID-19 had led to four fundamental shifts in the accelerated digitisation of financial services, one of which was explicitly payments-related, namely a tipping point for digital and contactless payments. Another of the shifts related to the evolution of market structure and the economy itself.

So, if the digital economy is increasingly the economy, what does that mean for payments? Three points stand out:

• Any inefficiency in legacy payment systems should be dealt with.
• The data richness of payments is becoming key.
• The way consumers pay digitally needs to be both convenient and secure.

Legacy Payment Systems

In her speech last month, Michele Bullock, the RBA’s Assistant Governor (Financial System) suggested that, “the changes associated with COVID-19 … will further reduce the use of cheques and demonstrate to people that there are alternative and more efficient ways of making payments.” “Is this suggesting the end of the cheque system? I think it may well be,” she said.

As Michele noted, “with the continuing decline in the number of cheques being processed, the fixed costs of maintaining the system are becoming a more significant issue.” In other words, the costs of maintaining the cheques system are becoming inefficient to the point of being uneconomic, for the economy as a whole, including merchants and consumers, as well as financial institutions.

Similar efficiency questions will become pertinent over time in regard to the direct entry system (BECS), as the New Payments Platform (NPP) matures as a payment system and NPP Australia successfully rolls out its roadmap.

We will have more to say on the future of cheques and BECS later this quarter, when we publish the conclusions from our industry consultation on the future state of Australia’s payment systems.

Data

Australia’s Consumer Data Right (CDR) officially went live on 1 July, with four “data holders” (the major banks) and two data recipients (Regional Australia Bank and Frollo). The day prior, my personal journey with CDR came to an end, alongside my two-year term on the Advisory Committee to the Data Standards Body. It is fantastic to see the CDR come to life. As the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator the Hon Jane Hume, said recently, the CDR “will dramatically change the landscape of how we go about engaging without financial services.”

The data richness of payments will also be enhanced by the migration of Australia’s high value payments onto the ISO 20022 message standard; work that AusPayNet is leading.

We are already seeing the benefits – and additional use cases – of data rich payments through the NPP. The migration of high value payments onto a data rich format, and the strategic harmonisation of that format across domestic real-time and high value payments, and with cross-border payments, will add significantly more value.

The recent announcement that the Department of Finance commenced using the NPP in March 2020 gives us an insight to both the response to COVID-19 and the future. It has enabled government departments, including those charged with delivering policies and programs related to the current COVID-19 crisis, to better respond to emergencies, with the ability to access funding in real-time. Future crises will be serviced better through such real-time payments but also through the data that goes with them, which will help refine the government response.

Paying Digitally, Conveniently and Securely

Similarly, the accelerated digitisation during COVID-19 has demonstrated how much more secure and convenient digital payments would be with a rigorous digital identity mechanism to support them. As we note elsewhere in this Payments Monitor, that makes it an exciting time for the TrustID framework in ensuring that it – and specifically its governance, accreditation process and branding – are ready for digital identity solutions to leverage the framework when they go live.

This logic, in terms of areas that COVID-19 has emphasised as being important, extends to our work – through our Emerging Technology Experts Group (ETEG) – on authentication and privacy. And equally, the work ETEG is doing on QR codes is important as an example of ensuring that the benefits of standardisation and interoperability are factored into new payment technologies so that payments continue to be safe and convenient for all.

Get all of this right, and we will continue to have, in the words of the RBA’s Governor, Philip Lowe, at our Summit last year, “a payments system that works for the digital economy.”

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Responding to COVID-19

• The temporary increase to the contactless card limit to $200 has been in place across certain cards and at certain merchants since 8 April 2020. We have been monitoring the Government’s COVID-19 Biosecurity Emergency Declaration and note that it’s been extended to 17 September 2020. The decision on whether to continue with the higher contactless PIN limit will be made at an industry meeting at the end of July 2020.
   
• In our recent webinar with UK-based payments expert, David Birch, members had the opportunity to consider how COVID-19 is changing consumer behaviour. Drawing on his global perspectives based on work in Europe, North America and Asia, David provided thought-provoking insight into what the post COVID-19 payments landscape might look like, posing that the crisis could prove to be an opportunity for the industry. Read our blog here.
   
• An early payments-related concern arising from COVID-19 was that the scale of chargebacks by cardholders could result in liquidity pressures on, and possible business failures of, merchants. Card schemes, card issuers and merchant acquirers have all responded to this potential challenge to ensure that consumers and merchants are not adversely affected in these unique circumstances. Our blog explains how.

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First anniversary of CNP Fraud Mitigation Framework

Just over a year ago, (1 July 2019), we released the industry CNP Fraud Mitigation Framework providing a collaborative approach to fighting online card fraud in Australia. The Framework’s key elements include the setting of targets for card issuers to reduce CNP fraud, and the implementation of Strong Customer Authentication for merchants who exceed the set fraud threshold for more than two consecutive quarters. As at Q1 2020, of the merchants that exceeded the fraud threshold, over two-thirds brought their fraud back below the threshold in the following quarter. The remaining third, mostly with complex payment ecosystems and in higher-fraud market segments, are working closely with acquirers to reduce fraud. We expect these ongoing efforts will be reflected in declining CNP fraud in our upcoming payments fraud publications.  More on the Framework is available here.

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TrustID framework

It’s been an exciting period in the development of the TrustID framework, with progress in three distinct areas. These are accreditation, the development of a trust mark, and consultation on how the framework should be governed. These key components will provide the foundations for the provision of TrustID services. The work is being conducted in an inclusive and consultative manner, incorporating the views of a wide range of organisations, with the intention of making the framework as accessible as possible to prospective participants. More information on the TrustID framework is available here.

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ISO 20022 Industry Migration

AusPayNet has established the governance structure for the ISO 20022 migration program as set out in the Reserve Bank of Australia’s (RBA) and the Australian Payments Council’s Conclusions Paper. The newly formed ISO 20022 Industry Migration Steering Committee, comprising the RBA, major and regional Australian banks, and international banks, is chaired by Paul Lahiff (former chair of the NPP Steering Committee and NPP Australia Limited). We are mobilising the Program Management Office and have engaged SWIFT to help develop High Value Clearing System (HVCS) message specifications that are harmonised with existing SWIFT usage guidelines and the NPP. The Steering Committee has aligned Australia’s implementation with SWIFT’s schedule for cross border payments. The coexistence period for HVCS's current MT messages and the new ISO 20022 messages will now commence in November 2022 and end in November 2024.

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Emerging Technologies Experts Group

AusPayNet’s ETEG is exploring QR codes and the feasibility of developing a payment channel agnostic QR code standard. With the payments landscape changing rapidly, new payment solutions regularly come to market. A universal QR code standard could make it easier for merchants to receive the ever-increasing range of payment solutions. This work is in its early stages, with a variety of views being considered.

In addition to QR codes, the existing work on Authentication and Privacy is continuing. We also welcomed the addition of another workstream focused on AI. This work will be run in collaboration with Standards Australia. More information to come on this in future editions.

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Submission to the Deregulation Taskforce

The Australian Government’s Deregulation Taskforce has been examining the design, administration and effectiveness of the stock of government regulation to ensure it is fit for purpose. In June 2020, the Government announced two further priority areas to help assist in the COVID-19 recovery: modernising business communications and improving occupational mobility.

We were pleased to provide AusPayNet’s submission in July 2019 highlighting the benefits of self-regulation in driving innovation, thus creating jobs in the digital economy. Our submission noted that the payments industry is underpinned by self-regulation, which has enabled it to evolve rapidly to support the digital economy. It also suggested reform areas for consideration by the Taskforce as part of its ongoing review. AusPayNet noted there would be significant advantages for modernising business communications by removing mandated methods for making payments (such as via cheque) or preventing the adoption of new technologies (in satisfying identity requirements).

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Consumer Data Right

In May 2020, we welcomed the opportunity to respond to Treasury's Consultation, Inquiry into Future Directions for the Consumer Data Right. AusPayNet’s submission highlighted the prerequisites for a successful data economy: an effective and robust governance framework and customer identification and verification. This model has been tried and tested over time, as payments technology and consumer preferences have changed, and continue to change. Utilising this experience and leveraging existing regulatory processes and procedures, not only provide useful learnings and insights, but could be a more cost-efficient way of delivering a world class data economy for Australia. The full submission is available here.

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Systemic Resilience

The Australian Payments Council’s (APC) 2019 strategic agenda, Payments in a Global Digital World, identified systemic resilience as one of five key focus areas for the next period. Following the completion of a more detailed sectoral assessment in late 2019, the APC agreed to create a risk management strategy that would lead a programme of work to support the continuous identification, management and reduction of risks to payments system resilience. As part of our role as APC secretariat, AusPayNet has supported the Council on this key project. Earlier in 2020, AusPayNet assisted the APC to engage EY to create the strategy. As the project has progressed, AusPayNet has continued to provide support both to EY and the APC's working group. The APC is due to present the strategy at the annual meeting with the Payments System Board, in August 2020.

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OAM for former Director

Former long-serving AusPayNet director (2005-2018) Stuart Woodward, has been recognised in the Queens Birthday 2020 Honours List. Stuart was awarded the Medal of the Order of Australia (OAM) in the General Division for his service to the banking and finance sector, and to the Uniting Church in Australia. We congratulate him on this achievement.

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