CEO’s Corner

A New Year; Consultation Season

As I highlighted in the last Payments Monitor, the end of 2023 and start of 2024 was not so much a festive season as a consultation season, as we engaged with our Members on, and responded to, three major Government consultations: on payments licensing, cheques, and scams.

The second consultation on payments licensing built on its predecessor by setting out proposals for:

• an updated list of payment functions that would require a licence, the regulatory oversight and licensing obligations that would apply to those functions
• a framework for the setting of mandatory technical industry standards.

Our submission highlighted the following key points:

• The proposed regulatory framework broadly aligns with the principle of ‘similar activity, similar risks, same regulatory outcome’.
• Members continue to have concerns around the clarity and breadth of some of the proposed functions, which will need to be worked through during the legislative drafting process.
• We support the proposal to require all payment system participants (PSPs) to comply with relevant mandatory technical standards, subject to appropriate guardrails on the way such standards could be used and applied.

The consultation on Mandatory Industry Scam Codes outlined the roles and responsibilities for Government, regulators and the private sector (banks, telcos and digital communication platforms) in addressing the growing prevalence of scams in Australia. Key points in our submission were:

• We support the introduction of a whole-of-ecosystem regulatory framework that will ensure all key sectors in the scams lifecycle take appropriate steps to prevent, detect, disrupt and respond to scams.
• The distinction between authorised and unauthorised fraud is a key concept in delineating scams from other types of fraudulent activity.
• Given the prevalence and impact of scam emails and websites, we strongly encourage the inclusion of internet service providers (ISPs) and email service providers within the scope of the framework. Some Members suggested that non-bank PSPs should also be designated, to ensure that customers are protected regardless of the payment method or service provider used, and to allow for better collaboration on disrupting scams across the entire payments ecosystem.

The consultation on winding down Australia’s cheques system sought feedback on a proposed transition plan for closing down the cheques system by 2030, including the potential need for industry coordination and any challenges that need to be addressed to ensure an orderly transition. Our submission highlighted the following:

• Many Members are of the view that an orderly closure of the cheques system could be achieved earlier than 2030.
• The Government has a critical role in ensuring a smooth and timely transition and should make clear commitments on the process and timeframes for both reducing its own cheque usage and addressing any legislative and regulatory barriers to moving away from cheques.
• AusPayNet stands ready to play a leadership role in the transition, including through facilitating further discussions between Treasury and industry on finalising the transition plan, and working with industry on any coordination required among members to achieve the relevant milestones in the plan.

Cash

One topic which was not subject to a consultation but has received significant media coverage is cash, specifically on the economics of cash distribution and their implication for consumers’ access to cash. The RBA has convened roundtable discussions with industry participants to discuss what more could be done to promote the sustainability of cash distribution, and the ABA has received interim authorisation from the ACCC for authorisation to develop in-principle solutions to the challenges facing the cash distribution industry.

In terms of the overall picture on cash, AusPayNet’s current role can best be described as operations support, while the RBA and the Government are responsible for the strategic direction and roadmap for continuing access to cash. The scope of AusPayNet’s current role in cash includes:

• Management of the Australian Cash Distribution & Exchange System (ACDES) Framework
• Management of the Decline of Cash Working Group including the commissioning of the annual cash usage trends survey performed by RFI
• Facilitation of the RBA’s Banknote Distribution Agreement Forum.

We will continue to monitor developments in this space and consider changes to our role as necessary.

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AusPayNet Summit 2023

AusPayNet held its annual Summit on 12 December at ICC Sydney, with the conference selling out for a second consecutive year. More than 500 delegates attended the event, themed ‘A Turning Point’, which comprised a dynamic mix of interviews and panel discussions, centred around the critical juncture at which payments finds itself, particularly following the release of the Government’s Strategic Plan for Australia’s Payments System.

Headlining the event were RBA Governor, Michele Bullock, who made her first payments address since her appointment to the role, and the Hon Stephen Jones MP, who took part in a panel discussion on the role of regulation in the prevention of scams. We’ve prepared a highlights video to capture the essence of the day and would like to thank each of our speakers and valued event partners for making the Summit a resounding success.

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Advanced Encryption Standard (AES) migration program update

Following the AusPayNet Board’s approval to continue with Phase 1 (Initiation & Mobilisation) of this project, additional program-funded resources have been on-boarded to support delivery of this phase in 2024. Within the program:

• The Migration Planning Working Group (MPWG) met in February for the first time, focused on alignment of scope, objectives, and outcomes to deliver an AES Migration Strategy.
• The Standards & Requirements Working Group (SRWG) also met in February, focused on endorsement of the third interim release of the AES Technical Blueprint.
• A brief has been issued for a proposal to undertake:
  
  1. an assessment of industry testing requirements
  2. a definition of a strategy, including an approach and initial plan, for industry testing.

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BECS update

AusPayNet’s extensive three-year consultation on the strategic direction of the Bulk Electronic Clearing System (BECS, also known as Direct Entry) concluded in 2023. This consultation, which involved over 85 entities and included BECS Members as well as other relevant key stakeholders, identified that the payments industry supports a transition away from the BECS Framework to more modern payment systems.

Although BECS has served the payments system well over the past 30 years, it lacks critical features that are becoming increasingly necessary and available through modern alternatives, namely:

• payee look-up and confirmation
• 24/7 clearing and settlement in near real-time
• data-rich messaging and monitoring with ISO compatibility.

BECS Members also indicated no appetite to invest in addressing these limitations, given the significant and ongoing investment in the development and growth of more modern alternatives that are better suited to meet new and emerging needs of end-users and the Australian payments system.

To help focus industry attention and effort, AusPayNet has communicated a target end-date of June 2030 for closing the BECS framework. This date was considered reasonable by the majority of BECS consultation participants but will be reviewed once Treasury has completed its detailed consultation on bulk payments with businesses and government, expected later this year.

Retiring a significant legacy clearing system like BECS, that has traditionally been the payments workhorse for low-cost transactions, will not be without its challenges. AusPayNet is committed to ensuring that the industry’s transition away from the BECS framework is managed responsibly, with no disruption to the efficient and secure flow of direct entry payments. To this end, AusPayNet has commenced mobilisation activities to closely monitor the industry’s progress and the validity of the BECS framework’s target end-date.

AusPayNet will continue to provide regular updates on the progress of this transition.

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Cross-Border payments update

In September 2023, the G20 New Delhi Leaders’ Declaration reaffirmed their commitment to the effective implementation of the prioritised actions for the next phase of the G20 Roadmap for Enhancing Cross-Border Payments to achieve the global targets for faster, cheaper, transparent and more inclusive cross-border payments by 2027.

To assist them in taking forward the roadmap, both the Committee on Payments and Market Infrastructures (CPMI) and the Financial Stability Board (FSB) continue working through their respective taskforces established in 2023.

The CPMI’s Payments Interoperability and Extension (PIE) Taskforce has created four task teams that are focused on:

• Expanding payment system access and operating hours
• Promoting fast payment systems and their interlinking for cross-border payments
• Fostering ISO 20022 harmonisation
• Developing market intelligence and identifying supply side opportunities.

The scope and timelines on the deliverables will be further refined, with the expectation that all task teams will have deliverables by the end of 2024.

It should be noted that AusPayNet has already indicated that it will align its domestic high value ISO 20022 message-usage guidelines with the CPMI ISO 20022 data requirements for cross-border payments ahead of the end-2027 CPMI timeline for global adoption. This fully optimises the domestic HVCS and will help reduce inefficiencies along the cross-border payments chain.

The FSB’s Legal, Regulatory, and Supervisory Matters (LRS) Taskforce continues its work, having last met in September 2023. The focus to date has been on reviewing proposed updates to the Financial Action Task Force’s (FATF’s) Recommendation 16. The FSB is also undertaking work with regards to the interaction and potential constraints between data frameworks and cross-border payments. It was agreed that a dialogue with data privacy experts and authorities could also be beneficial to the FATF’s broader anti-money laundering and counter-terrorism financing (AML/CTF) work, going forward.

The API Panel of Experts (APEX) Taskforce has commenced its work on looking at API standards and harmonising their usage for cross-border payments. We look forward to the publication of their work over the course of 2024.

The recent publication of the FSB’s Annual Progress Report on Meeting the Targets for Cross-Border Payments shows that there is much work to be done and key challenges remain to close off data gaps. With key performance indicators (KPIs) now generally available, industry participants and jurisdictions will be able to start calibrating their responses to deliver on the global targets. The task is significant and resources are finite, but with annual KPIs and jurisdictional commitment, improvements will follow.

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Economic crime update

Economic Crime Forum (ECF) and the National Anti-Scam Centre (NASC)

AusPayNet is represented on the NASC’s Advisory Board and participates in its fusion cell and workgroups. Since its establishment in June 2023, the NASC has brought together all industries in the scam lifecycle to collaborate on prevention and disruption strategies, including the disruption of AI-driven investment scams. Pleasingly, there have been some early indicators of scam loss reduction, however the work of the NASC has also highlighted:

• The importance of mapping international and domestic mitigation initiatives to assess their effectiveness or unintended consequences
• That implementing payment holds and blocking of high-risk entities, including certain digital currency exchanges, has reduced scam losses
• A need for strong onboarding and exchanged customer due diligence, not just in our industry, but across all players within the scam lifecycle
• A need to review the Privacy Act and ‘tipping off’ provision of the AML/CTF Act, to overcome barriers preventing cross-sectoral collaboration and data sharing to block scams
• A need for clarity and guidance on the right to deny a transaction
• A need for ongoing work across government and industry to align and remove complexity or duplication with other related economic crime responses, including cyber-enabled scams.

In February 2024, the ECF met in Perth, coinciding with national law enforcement meetings. Law enforcement briefed the Forum on their own priorities for 2024, and the critical importance of payments data in supporting most organised crime investigations today. Since 2023, the payments data evidentiary workgroup has held workshops with all the major banks to assist them in ascertaining how they can more efficiently share important payment data with law enforcement agencies and potentially reduce some of the compliance burden associated with that data sharing. The ECF is progressing through options to create efficiencies in this process for both banks and law enforcement. 

FY23 payment fraud data

On 19 December, AusPayNet released data showing a 35.6% rise in fraud on payment card transactions in the 12 months to 30 June 2023 (FY23), to $677.5 million.

Total spending on Australian cards during the same period rose by 15.4% to $1.055 trillion. As a result, the fraud rate for FY23 increased to 64.2 cents per $1,000 spent, up from 54.7 cents in FY22, and returning to nearly the same levels as the pre-pandemic FY19 figure of 66.1 cents per $1,000 spent.

In FY23, card-not-present (CNP) fraud constituted 90% of all fraud on payment cards. CNP fraud involving Australian merchants processing Australian cards (domestic CNP fraud), covered under AusPayNet’s CNP Fraud Mitigation Framework, increased by 14% to $313 million, lower than the 26% growth in equivalent CNP spend. This meant that the fraud rate for transactions covered by the CNP Framework actually fell 9%, from $1.21 per $1,000 in FY22 to $1.10 per $1,000 in FY23.

The main driver of the increase in the overall fraud rate was CNP fraud on Australian cards used at overseas merchants. While this only accounts for less than 15% of overall spend on Australian cards (according to RBA Payments Statistics), it contributes half of all CNP fraud, and saw an increase in the fraud rate of 16%, from $8.13 per $1,000 spent in FY22 to $9.50 per $1,000 spent in FY23. AusPayNet’s CNP Fraud Mitigation Framework does not cover this fraud, given it involves overseas merchants.

More information about the FY23 payment fraud statistics is available on AusPayNet’s website, together with a blog post in which our Head of Economic Crime, Toby Evans, takes a closer look at the data and how industry responds to the activities of fraudsters.

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ISO 20022 migration update

For a high-level update regarding the progress of the ISO 20022 Industry Migration Program, please refer to the latest issue of Migration Monitor on AusPayNet’s website, published in December 2023.

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Stakeholder engagement update

Our Stakeholder Advisory Council met in both December 2023 and February 2024. The Council acts as an advisor to our Board, as we continue to seek feedback on important payments issues from non-Member stakeholders of the payments system.

In these meetings, we sought Council feedback on:

• The Government’s payment systems reforms
• AusPayNet's journey to becoming an authorised standards-setting body
• AusPayNet’s Corporate Strategy
• Industry's transition away from the BECS framework
• The winding down of the cheques system.

The Council’s feedback and perspectives were then presented to the Board at its February meeting.

Also, in December and January, we continued our Member event series, hosting three virtual Q&A sessions with Treasury teams on payment system reforms. These included:

• Payment Service Provider (PSP) licensing and mandatory standards
• The winding down of the cheques system
• Scams.

These sessions aimed to ensure Members had clarity around Treasury’s consultations on the reforms. All sessions were well attended by Members.

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New Members

AusPayNet is pleased to welcome:

• China Everbright Bank as an HVCS Member (effective 27 November 2023)
• Worldline Services Pty Ltd as a COIN Member (effective 11 February 2024)

For more information on AusPayNet membership, please visit AusPayNet’s website.