Takeaways from our Australian Payment Summit
We held this inaugural event in Sydney on 13 December 2017.
If you missed our Australian Payment Summit last month, or you’re looking for an overview of what’s current in payments right now, here’s a deeper dive on the consistent themes of the day.
Blockchain and Digital Currencies
From the Reserve Bank of Australia Governor’s opening address to the final rapid-fire pitches by fintech startups, there was a lot of discussion about cryptocurrencies and blockchain. Dr Philip Lowe presented five hypotheses for Australian payments: a continuing shift to electronic payments; banks to remain central to this shift; electronic cash to co-exist with traditional bank systems; an exchange settlement account with the RBA for all; and new systems using distributed ledger. You can read Dr Lowe’s full speech here.
On digital currency the Governor explained that the RBA has no plans to issue “An eAUD” in the near future but is considering the pros and cons of a digital Australian dollar. Dr Lowe described the fascination with bitcoin as “speculative mania”, but importantly did not exclude the possibility of a viable cryptocurrency emerging over time. An example given was that banks could issue AUDs as electronic files or tokens that are exchanged using distributed ledger technology, but unlike bitcoin, are backed by a central entity. Before “putting the AUD on blockchain”, he concluded that the RBA would need to better understand the potential efficiencies, and why it should run the system, rather than the private sector.
While the payments world is divided on the longevity and stability of cryptocurrencies, there is an established and growing focus on the potential that blockchain technology offers in terms of efficiency improvement. During “Blockchain – is it harvest time?”, panelists agreed that the first real world applications are likely to appear in the multi-party, paper heavy, supply chain use cases where blockchain can provide efficiency and transparency benefits. Discussion also touched on the concept of programmable money, and the ability for a range of participants in the value chain to hardwire controls into their transactions.
Julian Hosp of TenX in Singapore said that Australia is truly at the forefront when it comes to cryptocurrencies and regulation, referring to the close relationships here between regulators, fintechs and industry.
Digital Identity
Digital Identity was a consistent theme, threading its way into many of the discussions. The Governor set the tone for the day, empowering the payments industry by calling for “a strong system of digital identity that can be used in the financial sector, and perhaps elsewhere”.
The panel debate on Open Banking: The New Frontiers highlighted digital ID as a key building block of seamless cooperation between Banks and fintechs. As an enabler of convenience and security, panelists agreed that digital ID can help to create an environment where individuals and businesses are able to provide informed consent for data sharing.
Digital Identity as the Cornerstone of Payments tackled the topic head on, with the discussion focusing on the customer need and the problems that digital ID solves. Panelists highlighted that we’ve seen a proliferation of online services, but the development of secure and convenient ways for customers to identify themselves online has seriously lagged. Discussion progressed to consider how - as an industry - we can navigate the requirements of collaboration, such as interoperability, standards and governance and at the same time create the right conditions to support innovation and the development of competitive services. Nigel Dobson, Banking Services Business Domain Lead at ANZ, commented that identity, like payments, is a network business and that we need to collaborate in order to deliver scale and meet customer needs. The role of government was also discussed, with a range of views expressed about whether it’s possible to drive wide adoption in the private sector without the direct involvement of government agencies.
With their experience of international markets, panelists agreed that the key challenge facing the Australian market is to agree on an approach that will work for our unique set of market conditions.
Regulation
Regulation can be a catalyst for innovation and change, as evidenced in the EU. In setting the scene for Open Banking in the EU, Michael Salmony, Executive Advisor of equensWorldline, described how EU regulators were fed up with the lack of competition and innovation. Addressing this concern, the European Commission is advancing plans to improve the range and quality of payment services on offer, as well as improving the security surrounding payments with PSD2. This directive requires banks to provide third parties with access to customer data and to enable these third parties to initiate payment transactions, once the request from the customer has been securely authorised. A separate piece of regulation, the General Data Protection Regulation (GDPR), requires businesses to protect the personal data and privacy of EU citizens. While these two pieces of legislation are seen as conflicting by some, Mr Salmony said that in truth, PSD2 and GDPR work together to strengthen data protection and consumer rights.
Highlighting the needs of the Australian market with respect to open data, Jo Spencer, Head of Technology, Strategy and Architecture – Payments at ANZ indicated that the interoperability focus should be on the data attributes.
The New Payment Environment & Regulatory Challenges panel session stimulated debate around the role regulation plays in enabling new entrants. Danielle Szetho, CEO of FinTech Australia highlighted the differences between the regulatory approach in Australia and in Singapore. Here, the fintech community needs to navigate through several regulators including APRA, ASIC and the RBA, compared to Singapore’s single point of engagement, the Monetary Authority of Singapore (MAS). Tony Richards, Head of Policy at the RBA cautioned about the challenges of a single financial services regulator, highlighting overseas examples of where this approach had unintended consequences.
Graduated regulation was an important part of discussions around enabling new entrants. Michael Saadat, Senior Executive Leader & Regional Commissioner at ASIC, described how the ASIC Regulatory Sandbox and Innovation Hub have provided potential entrants with a way of engaging with the regulator and getting assistance in navigating the licensing regime. Similarly, APRA is undertaking a consultation looking at 'Restricted-ADIs', which proposes to introduce a graduated licensing scheme to assist new entrants into banking.
Graduated licensing and its impact on payments systems has been highlighted as a priority policy issue at AusPayNet as part of our Policy Roadmap review.
Innovation
With digital identity seen as an enabler of innovation, and regulation as a potential catalyst for it, it’s not surprising that innovation was the dominant theme at our Summit. There was a great deal of discussion about the collaborative environment in Australia and how industry collaboration has spearheaded major payments system innovations like the New Payments Platform (NPP).
The New Payments: Disruption and Change Cross in Border and Domestic Payments panel highlighted how the NPP’s layered design, separating the “rails” and overlay services, will support payments innovation into the future. Using the NPP, payments can be made to a mobile phone number or email address and extensive information can be sent with the payment. Panel discussions centred on the opportunity for innovation around the customer experience as payments become increasingly integrated and seamless.
The panel debate on Online Marketplaces and E-commerce highlighted that near-term innovation is leading to the blurring of online and offline retail experiences and the payments that go with them, meaning that point-of-sale terminals as we currently understand them are changing. Online, alternative payment mechanisms are gaining significant traction; for example, in Germany 90% of online payments are through ‘buy now, pay later’ solutions or bank account transfers. Alongside the development of these payment methods, alternative approaches to managing fraud are also gaining traction: these approaches rely heavily on real time data analysis and may also include solution providers taking the liability for fraud.
Recognising the importance of fintech to the future of payments, the day culminated in a showcase from the country’s best startups. The innovative solutions ranged from using metadata to identify unknown transactions on statements to offering a frictionless login experience through global shared intelligence.
Looking to our 2018 Summit
Following the success of our inaugural Australian Payment Summit, we are already planning for 2018 and welcome your ideas on topics and speakers. This year’s conference is slated for December in Sydney - look out for more details in the coming weeks and months.
