On 23 March 2021, shareholders and members of Australia’s three domestic payment system operators, BPAY, eftpos and NPPA, announced that they had submitted a formal application to the ACCC seeking to amalgamate the three schemes under a single parent company and Board (“NewCo”).
A logical question arising from that announcement is what does it mean for AusPayNet?
Firstly, it’s important to understand that the ACCC has until 30 July 2021 to make its decision. The ACCC states that their “consideration of the application will focus on the likely effects on competition, as well as whether the public benefit from the proposed amalgamation outweighs the public detriment."
Secondly, were the application to be approved by the ACCC, the practical implication is that NewCo would provide one voice on behalf of Australia's three domestic payment system operators into AusPayNet forums: an example here is NewCo's standards working group noted in the application to the ACCC, which would provide input into AusPayNet's industry-wide standards.
Thirdly, in terms of AusPayNet’s role, there is little impact. The proposed amalgamation is complementary to the trend already underway, which is that AusPayNet’s industry-wide focus will increasingly be issues-based rather than rails-based. To understand that, it’s worth reflecting on the three key pillars of AusPayNet’s strategy:
While the proposed amalgamation includes Australia’s three domestic payment system operators, the vast majority (over 95% by value) of Australia’s payments sit under AusPayNet’s rules: they do not have an “operator”; instead they rely on technology distributed among Australia’s financial institutions.
AusPayNet’s work to modernise these other payment systems therefore continues. It includes our work on legacy payment systems such as cheques and direct entry:
Ultimately these legacy payment systems will close, thus enabling AusPayNet to focus more on payment rail-agnostic issues or projects than on payment rails themselves.
An example already underway is the industry’s major project to migrate Australia’s high value payments system to ISO 20022. This multi-year project has just concluded the Planning and Design phase and started the Build phase; the latter will last into 2022.
Similar projects will require industry collaboration over time. One such – which is at the initiation stage – is the migration of card payments to the Advanced Encryption Standard. Again, this will be a multi-year, major industry undertaking.
AusPayNet’s role in industry self-governance remains paramount. That is evident from multiple submissions to the current Treasury Review of the Australian Payments System which emphasise the need for effective payments self-regulation, in harmony with the government’s policy agenda and the work of the financial regulators.
The quid pro quo of this is that such self-governance needs to be representative of the whole payments system. AusPayNet’s goal is to continue to do that:
And this wider industry self-governance is a clear role for AusPayNet: individual schemes are inevitably more limited in their representation, both in terms of the input they seek (namely on their payment services) and from whom. As an example, the potential consolidated entity has 22 shareholders/members; AusPayNet has over 130.
In practical terms the demand for self-governance continues. Over time it will – given the work described above on legacy payment systems – be less focused on our traditional frameworks (e.g. cheques, direct entry). However, new frameworks will emerge: the TrustID framework being one example, and another the work currently being conducted with the RBA, financial institutions and Electronic Lodgement Network Operators on a potential industry code for e-conveyancing.
This approach, where the emphasis of AusPayNet’s work switches from traditional frameworks to specific issues or projects, is also evident in the policy and advocacy space.
Examples of specific issues on which we are leading are:
Another issue on the horizon is the future direction of the Consumer Data Right (CDR), especially in terms of payment initiation and account switching. This is another area where considering the roles of both AusPayNet and the potential consolidated entity is apt: NewCo would provide one (or more) solutions for payments to be initiated (e.g. through NPP’s Mandated Payment Service), but others will exist (e.g. on cards), and therefore industry-wide standards will be required.
More generally, we will continue to work closely with all stakeholders to progress projects which modernise Australia’s payment systems and which deliver appropriate standards and governance to ensure secure and convenient payments for all. To that end, if their application is approved by the ACCC, we look forward to working with NewCo, as we work with BPAY, eftpos and NPPA – and all of Australia’s other payment system operators – today.
The ISO 20022 Industry Migration Program led by AusPayNet reached a key milestone this month with completion of the Planning and Design phase. During this first phase, High Value Clearing System (HVCS) participants defined and developed a range of requirements and specifications. This work culminated in Message Usage Guidelines (technical specifications) and Back Office Requirements and Support documentation released in April 2021. Participants will be applying the required system changes and enhancements to support the new message formats during the 12-month Build phase – which is now underway.
Migration of HVCS to ISO 20022 messaging will lead to a myriad of benefits including richer and enhanced messaging content harmonised with NPP and cross border formats. Full migration will be achieved by the end of 2024.
Reserve Bank of Australia figures show that the long-term trend away from cheque use has further accelerated during COVID-19. Cheque use plummeted by 27.6% in 2020, compared to a 17% drop in 2019, with cheques now accounting for less than 0.2% of all consumer payments.
We recently held a member session on supporting the customer-led transition to digital payments, bringing together more than 100 participants. As outlined in our Future State of Payments Action Plan, AusPayNet is working on a number of fronts to ensure that those who still use cheques have access to alternative payment methods. The session covered our ongoing community outreach and advocacy for the adoption of payments neutrality in legislation, and education initiatives to increase awareness of alternative payment methods. This work will continue throughout 2021.
Read our Future State of Payments Action Plan here.
As mentioned in our last issue, interest in QR codes for payments is gaining momentum. To ensure there are no barriers to adoption, AusPayNet’s Emerging Technology Experts Group (ETEG) is exploring the topic, with the goal of ensuring interoperability.
As part of this, ETEG has considered a range of uses cases and determined that additional guidelines may be required to deliver a consistently convenient and secure experience for merchants and consumers. It is not anticipated that ETEG will recommend the development of new standards. Consistent with overseas jurisdictions, it is anticipated that implementation guidelines, building on existing international standards, will be required.
Read more about QR Codes and payments in our recent blog.
Since the last issue of the Payments Monitor, we welcomed the opportunity to respond to a number of Government consultations including:
Senate Select Committee on Financial Technology and Regulatory Technology – Second Issues Paper (December 2020) – AusPayNet’s submission expressed support for Recommendation 16 in the Committee’s interim report noting the role of industry self-regulation in enabling competition and innovation, and promoting efficiency and control, whilst effectively managing risk. Our submission also included recommendations for leveraging the potential of the Consumer Data Right and the data economy, and for a digital identity framework that enables innovation and choice.
Review of the Australian Payments System (January 2021) - As payments participants, products and services evolve, it is appropriate to consider whether the current regulatory architecture is well suited to the new paradigm, given its dominant focus on financial stability and prudential oversight. Our response to Treasury’s consultation emphasised that the challenge for regulation is to provide a level playing field in which new business models can flourish, while providing appropriate protection for, and maximising benefits to, customers. AusPayNet’s submission highlighted that the needs of the digital economy will be well serviced by a regulatory architecture that is based on greater clarity, coordination and a continued strong emphasis on self-regulation.
Modernising Business Communications (February 2021) - Building on submissions previously made to the Deregulation Taskforce, our response principally referred to the payment methods aspects of modernising business communications. Among other things, our position noted the need for payments neutrality in legislation, and that payment agnostic requirements would provide greater flexibility in adopting newer payment methods. For example, legislation could remove references to cheques. Our submission highlighted that cheques only accounted for some 0.2% of all consumer payments in 2019 and consequently, end-users should be provided with flexibility to choose their preferred payment method.
Read AusPayNet’s submissions here.
New Members: AusPayNet’s membership includes over 130 financial institutions, major retailers, card schemes, digital banks, fintechs and global technology firms. This quarter, we welcomed two new members:
New fintech forum: Fintechs play a pivotal role in enhancing digital payments. This year, we introduced quarterly sessions to provide an important forum for ongoing discussion. We were delighted to have 15 fintechs represented at the first virtual session held on 17 March 2021 and look forward to growing this initiative.
If you would like to join an upcoming session for fintechs in payments, or information on AusPayNet membership , please contact email@example.com.
New to payments: AusPayNet’s guide Navigating Payments for New Entrants was produced working closely with the fintech community. The purpose of the guide is to help new entrants better navigate the interdependencies within the payments system. Recommended by the Chair of Fintech Australia, Simone Joyce, as “a fantastic resource for any fintech looking to determine and understand their best pathway through the payments landscape”, the guide is available on the AusPayNet website.
We would like to congratulate Michelle McPhee on her appointment as Assistant Governor, Business Services at the Reserve Bank of Australia. Michelle resigned from the AusPayNet Board in March 2021 following taking up her new role, and has been replaced by Stephanie Connors, RBA Acting Head of Banking. We thank Michelle for her significant contribution to AusPayNet since joining our board in February 2017, and extend a warm welcome to Stephanie.
Meet the AusPayNet Board here.