The Payments System Review handed down yesterday could see the government keeping a closer eye on big-tech payment platforms, but industry players say the recommendations are, by and large, a good thing for competition in the Aussie ecosystem.
The review, headed up by KPMG senior partner Scott Farrell, was charged with finding ways to bring the regulatory system around payments up to date with technologies emerging in the space, and to assess whether the system is still fit-for-purpose and effective.
In a nutshell, the answer was ‘no’.
In his forward to the report, Farrell noted that new technologies, business models and even new forms of money are transforming the payments system. Whether we like it or not, those innovations are forcing adaptation and growth.
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“We cannot delay,” Farrell said in his foreword to the report.
“It has been more than twenty years since Australia updated its regulatory architecture for payments, and many other countries have already modernised their approaches to the benefit of their consumers and businesses.
“Although what we have has served us well, it is now time for an upgrade. A world-class digital economy needs a world class payments ecosystem.”
Among 15 recommendations are five key points:
- The government should take on more obligations and powers in setting the strategic direction of the payments ecosystem, in collaboration with industry and regulators;
- There is a requirement for a strategic plan for the ecosystem, backed by a ‘payments industry convenor’ and improved payments functions within the Treasury;
- Better coordination is needed between payments regulators, to ensure they’re aligned with said strategy;
- The scope of the Reserve Bank of Australia could be expanded to better protect the payments system; and
- There is a need for a more simplified, tiered licensing framework, removing the need for providers to secure multiple authorisations from multiple regulators, and installing a single system that will scale up to cater to a business as it grows.
The report also outlined several pressing challenges, in terms of new technologies and how they interact with regulation.
Those technologies include digital wallets, buy-now, pay-later services, cryptocurrencies and central bank digital currencies.
The report also highlighted de-banking as a concern, whereby banks withdraw services from a customer, particularly for suppliers of non-bank international transfers.
“De-banking undermines a necessary source of competitive tension in cross border payments,” the report said.
What does it mean?
These recommendations are intended to encourage collaboration between public and private sector participants in the sector, to respond to emerging challenges and improve customer outcomes, Farrell said.
According to the report, they are designed to allow for greater adoption of faster payments services both by consumers and governments, as well as supporting the creation of a new digital infrastructure allowing the payments system to better integrate with the digital economy.
They are also intended to support Australian businesses to expand internationally, and to allow Aussie consumers to benefit from payments services developed overseas as well.
However, all of this could mean tighter regulations around the payment solutions of international tech giants, such as Google and Apple Pay.
Would this allow for more competition for local players, or put the brakes on fintech innovation in Australia — one of our strongest startup sectors?
Victor Zheng, co-founder and chief of payments platform mx51, says the review is “incredibly timely”.
He argues that it is “increasingly obvious” that big-tech disruptors like Apple and Google — even Afterpay — are launching payment solutions in order to make inroads to then offer additional financial services.
That’s all “whilst continuing to operate outside of regulatory impositions”.
“They currently operate in a grey zone of payment regulation,” he says.
“This allows them to bypass some regulations imposed on the banks and move faster as a result.”
Zheng sees the recommendations in the report as levelling the playing field, something he says will be “crucial” for boosting competition in the sector.
FinTech Australia chief Rebecca Schot-Guppy also broadly agrees with the Payments System Review’s recommendations, and notes that the report is welcome, either way.
“It’s been over twenty years since our last review,” she says.
“Back then, cheques, cards and cash were primary forms of payment. Some of the major technology companies driving this shift in how we pay didn’t even exist.”
In particular, she draws attention to the need for a single payment licensing system that applies to all players. This is “especially crucial” as more tech companies make their move in payments.
And, she highlights the recommendation to put the needs of both consumers and businesses at the centre of reform.
“This is a stronger approach that is smarter than just slapping regulations on the newest players in the market as a quick fix, and will encourage overall innovation,” she explains.