The Reserve Bank of Australia (RBA) is calling for better oversight of the digital payment system to minimise the risk of disruptions, following a rise in retail outages as electronic payments become more widespread.
In its submission to Treasury’s review of the Australian payments system, the RBA said there have been significant changes to the way Australians pay for goods and services since the current architecture was put in place more than two decades ago.
Among the RBA’s key concerns is the increasing number of outages in retail payments that are reported by banks and financial institutions.
Since 2018, the number of outages has increased twofold, rising from more than 1,000 hours in 2018 to almost 2,500 hours in 2020.
“Oversight of payment systems to minimise financial stability risks and the potential for disruptions to economic activity from outages has become more important over time as operational and cyber-security risks have increased,” the RBA said.
The RBA is recommending the government clarify the bank’s ability to set regulatory requirements to promote the resilience of payment systems.
The RBA would also like access to transparent information from payment service providers and banks about outages to ensure it can accurately assess the performance of the digital payment system.
“These benefits should encourage improved reliability of retail payment services and support public confidence in these services over the longer term,” the RBA said.
Small business compensation for outages
The RBA’s concern about increasing payment outages forms part of its submission to the Australian payments system review, which is examining whether the current system is “fit-for-purpose” and keeping pace with changes in technology.
The review, which began in October last year, is led by King & Wood Mallesons partner Scott Farrell, who will deliver the final report next month.
New South Wales Small Business Commissioner Chris Lamont has also recommended the government consider establishing a service guarantee to help small businesses gain compensation for lost trading arising from outages.
In January, thousands of retailers using Tyro payment terminals endured a prolonged system outage, which lasted up to five weeks for some business owners.
Lamont said a set process for “a remediating a system outage” as well as “compensatory mechanisms” to support affected businesses should be established.
The process would include a service guarantee that sets out “clear expectations of service providers and merchants in the event of system outages”.
“Small businesses have become increasingly reliant on electronic payment providers given changing consumer preferences away from cash,” Lamont said.
“COVID-19 has intensified these trends which are unlikely to reverse.”
Toward a cashless society
The use of cash has been steadily declining in Australia, with the share of consumer cash payments dropping 42% between 2007 and 2019, according to the RBA’s 2019 Consumer Payments Survey.
Gary Mortimer, professor of marketing and consumer behaviour at Queensland University of Technology, says the spike in digital payments has “accelerated because of COVID-19”.
“We can see that digital payments and cashless economies are growing substantially,” Mortimer tells SmartCompany.
“Retailers and small businesses are dependent on technology that facilitates that transfer of cash electronically, and when those terminals breakdown, then it certainly has a significant financial impact,” he says.