Futureproofing Australia’s Payment System: Unveiling the Government’s Strategic Plan
14 June 2023
The Australian Government has released its Strategic Plan for Australia’s Payments System (Strategic Plan). The Strategic Plan follows on from the Treasury’s Consultation Paper released in December 2022 and outlines a raft of proposed legislative and policy changes to the current payments system regulatory framework. The foreshadowed changes are significant and far-reaching and are aimed at building a modern and resilient payments system. Treasury has heralded the Strategic Plan as the biggest overhaul of Australia’s payments system in 35 years, positioning Australia as a leader in the global payments landscape.
With the majority of changes due to be implemented over the next 12-18 months, payment service providers and the broader FS market will be closely monitoring the Government’s rollout of the new regulations and policies that are set to reshape the future of the payments regulatory landscape in Australia.
Gadens provides an overview of the key changes below.
The Strategic Plan is an aspirational statement of the Government’s vision for the future of Australia’s payments system. That vision is to ensure that Australia has a ‘modern, world‑class and efficient payments system that is safe, trusted and accessible, and enables greater competition, innovation and productivity across the economy’. The vision encompasses a payments system supported by a modern and resilient regulatory framework that is fit‑for‑purpose, both now and into the future.
The Strategic Plan identifies five key priorities and objectives:
- promoting a safe and resilient system;
- updating the payments regulatory framework;
- modernising payments infrastructure;
- uplifting competition, productivity and innovation across the economy; and
- maintaining Australia’s leadership in the global payments landscape.
The Strategic Plan also outlines a set of overarching principles to guide the future direction of the payments system: trustworthiness, accessibility, innovation, and efficiency.
The primary objective behind the Strategic Plan is to ensure that Australia keeps pace with the rapidly evolving payments sector, particularly the increasing digitisation of payments systems and exponential advances in underlying technology, while also safeguarding the interests of payment providers and market participants.
In its present form, the Strategic Plan is still in an embryonic stage. It could best be described as a statement of intent of the Government’s key priorities and initiatives for the future regulation of the payments system, and serves as a roadmap for the key changes over the next 12 – 18 months.
The majority of key changes are largely subject to further consultation and as such are not yet set in stone. Nevertheless, the plan includes some notable reforms which will be significant and far-reaching if ultimately implemented as proposed. These include:
- expanded regulatory powers for the RBA extending to all operators in the payments sector, including the New Payments Platform (NPP) and digital wallet providers;
- a new payments licensing framework under the Payment Systems (Regulation) Act 1998 (Cth);
- eliminating the use of cheques by or before 2030;
- transitioning away from the Bulk Electronic Clearing System (BECS) currently used for electronic funds transfers to the NPP; and
- a new tiered, risk-based licensing framework for ‘payment service providers’ (PSPs), based on a defined list of payment functions, which will replace the existing non-cash payments regime under the Corporations Act 2001 (Cth).
The Strategic Plan sets out a comprehensive statement of the key issues and proposed reforms. These are summarised in the table below:
|Promoting a safe and resilient system||Reducing the prevalence of scams and fraud||
- Establishing the National Anti-Scam Centre.
- Developing new industry codes across sectors, including for banks, telecommunications, and digital platforms in 2023.
- Bolstering consumer protections through the new payments licensing framework.
|Strengthening defences against cyber-attacks||
- The Government is releasing its Cyber Security Strategy 2023-2030 later this year, which will include confirmation of the Government's confirmation to continue to monitor the payments industry’s cyber safety and preparedness, and assess whether more needs to be done to protect against future incidents.
- Industry will begin migration to the Advanced Encryption Standard in 2025 with AusPayNet developing the transition program over the next 18 months.
|Supervising systematically important payment systems ||
- The Reserve Bank of Australia (RBA) is extending its supervision from systemically important systems to also include prominent payment systems such as the NPP, Visa, Mastercard and eftpos.
- The RBA will also consult the industry in 2023 on the development of an updated supervision framework for monitoring safety and resilience of prominent payment systems.
|Updating the payments regulatory framework ||Implementing changes to the Payment Systems (Regulation) Act 1998 (Cth) (PSRA) ||
- The PSRA will be updated to ensure regulators and the Government can address new risks to the payments system as the provision of payments evolves and increases in complexity.
- Expanding the regulatory perimeter of the PSRA by updating existing definitions of ‘payment system’ and ‘participant’ to ensure that all entities that play a role in facilitating or enabling payments are appropriately regulated.
- The Government is consulting on updates to the PSRA and proposes to introduce legislation by the end of 2023 to implement these changes alongside introducing a new Ministerial designation power.
|Establishing a new payments licensing framework ||
- The Government has opened its initial consultation on a new licensing framework for payment services providers. This will be followed by a second round of further consultation in late-2023 on the obligations to be imposed under the new framework.
This will be followed by proposed legislation in 2024 for the new payments licensing regime which will support regulations for the ePayments Code, common access requirements, and mandatory industry standards. It will also include implementing the recommendations made by the Council of Financial Regulators on the regulation of stored-value facilities (which inter alia recommended reducing the number of responsible regulators and simplifying requirements commensurate with risks to consumers and the broader payments system).
|Enabling greater collaboration between payments system regulators ||
- Improving the new Inter Agency Payments Forum (IAPF) established in July 2022 to strengthen collaboration, communication and aligned regulatory approaches between all payment system regulators, incl. the RBA, AUSTRAC, ASIC, ACCC and APRA.
|Reducing small business transaction costs ||
- The Government has committed to lowering small business transaction costs through least cost routing (LCR).
- The majority of payment service providers are to enable LCR for online payments by mid-2023, in line with the RBA’s expectations.
- Mobile wallet providers, and other industry participants as necessary, are to enable LCR on mobile wallet transactions by the end of 2024, in line with the RBA’s expectations.
|Modernising payments infrastructure||Phasing out cheques ||
- Treasury will engage with relevant Commonwealth, State and Territory Government agencies to transition away from the use of cheques.
- The Government intends to remove legislative barriers that entrench cheque usage by 2028 and wind-down the system entirely by 2030.
|Upgrading systems ||
- The Government is supporting an industry led, phased transition away from BECS (a long running electronic funds transfer system that facilitates the processing of Direct Entry payments, such as direct debits and direct credits).
- Industry, through the ongoing work led by AusPayNet, is to settle on a transition plan away from BECS by the end of 2023.
- The Government expects industry to make PayTo available on most NPP enabled accounts by mid - 2023, in line with the October 2022 NPP roadmap.
- The importance of cash in the payments system in Australia been underscored by the Government and proposals to ensure continued access to cash will be commenced in 2023 with relevant Commonwealth agencies and industry.
|Uplifting competition, productivity and innovation across the economy ||Aligning payments system objectives and the Consumer Data Right (CDR) framework ||
- The Government is committed to aligning developments under the CDR framework with the broader objectives for the payments system.
- In 2023, the Government will continue to engage with stakeholders on the potential interaction between the CDR framework and its broader objectives for the payments system, including on the use of PayTo and other licensing reforms.
- The Government plans to carry out an assessment and publicly consult with industry before bringing any action types, such as payments, into the CDR.
|Supporting the broader use of Digital ID and Digital Skills||
- Digital ID will be a secure and trusted verification method for a person's identity online and can currently be used to access more than 125 Government services, as well as private sector solutions.
- The Government is making a nationally coordinated and modernised Digital ID system a priority through reforms and enabling legislation.
- By the end of 2023, the Government proposes to have developed draft legislation to transition to an economy wide Digital ID ecosystem with an independent regulator.
- The Government wants to build Australian digital workforce and skillsets and will respond on a report being provided by Digital and Tech Skills Working Group, established at the Jobs and Skills Summit, on an ‘earn-while-you-learn’ model of training (akin to a ‘digital apprenticeship’). The Working Group is expected to provide the report to the Government by the end of this month (June 2023).
|Building public trust and confidence and supporting adoption of AI ||
- The Government is taking steps to build the public trust and confidence in the use of Artificial Intelligence solutions (AI) and support its adoption more broadly across the economy.
- On 1 June 2023, the Government released its consultation on its first review of a proposed regulatory framework for AI in Australia. The discussion paper entitled ‘Safe and responsible AI in Australia’ poses a number of consultation questions regarding the direction and scope of Australia's approach to regulating AI, including generative AI, and includes a number of 'risk-based framework' proposals (aligned with similar approaches being adopted in the EU).
- In addition to this regulatory consultation, the National AI Centre and the Responsible AI Adopt Program for SMEs are identified as additional Government actions aimed at supporting the safe and responsible use of AI, and ultimately increasing community trust and confidence.
|Australia as a leader in the global payments landscape||Creating an environment that attracts and enables innovation ||
- The Government will host an industry stakeholder roundtable for the payments system prior to its broader review of the Strategic Plan's key priorities in mid-2024.
|Facilitating cross border payments ||
- NPP participants will by 1 December 2023 join the NPP International Payments Business Service to enhanced the speed and efficiency of incoming cross border payments, in line with the October 2022 NPP Roadmap.
The RBA and industry will in 2023 explore issues associated with directly linking fast payment systems with other jurisdictions.
AusPayNet, the RBA and industry will by end of 2025 fully migrate the HVCS to the ISO20022 standard.
|Exploring the policy rationale for a central bank digital currency (CBDC) in Australia ||
- The RBA and the Digital Finance Cooperative Research Centre are collaborating on a report (expected mid-2023) on the outcomes of a CBDC pilot.
The Treasury and the RBA also plan to release a paper in 2024 which outlines a forward work plan for a CBDC in the broader context of the future of digital money in Australia.
The Strategic Plan includes the Government’s roadmap which outlines the timeline for the rollout of the proposed changes:
Click on the image to view it full size.
Those operating in the payments services sector will note that the Strategic Plan does not contain any materially new proposals. It is largely a repackaging of the announcements in Treasury’s previous Consultation Papers, most recently in December 2022. There is a little more colour provided nonetheless, in particular as regards the commitment to align and increase communication both between regulators and across ongoing legislative reforms impacting in adjacent areas, such as the CDR and on AI. Clarity on the timeline for the implementation of the revised payment systems licensing framework is also helpful for business.
The latest iteration of the planned changes is also an opportunity for payment providers and market participants to take guidance from the current Government as to its intentions for the future regulation of the sector, and reassess the potential impacts of these significant changes on their businesses. The Government is intent on future-proofing the regulatory architecture of the Australian payments system and these reforms are likely to have a significant impact on the future of innovation, as well as digital and technological advancement across the payments sector
The Government proposes to review and publish an updated Strategic Plan every 18 months – and will consult with industry stakeholders to support this review. Ongoing evaluation and adaptation to the reforms will be crucial to understanding and managing their impact effectively for all businesses active in the payment sector. Engagement in these consultation processes will give businesses a valuable opportunity to have their say on the shape of these reforms to come.
Payments Licensing – First Consultation process
As one of the first ‘cabs off the rank’ under the Strategic Plan, the Government is seeking input into the list of payment functions that are intended to underpin the new licensing framework for PSPs. The Payments System Modernisation (Licensing: Defining Payment Functions) Consultation paper (Licensing Consultation Paper) invites feedback on the foundations of a new tiered, risk-based licensing framework for PSPs, based on a defined list of payment functions and reflecting the recommendations of the Review of the Australian Payments System.
Further consultation on the regulatory obligations under the new licensing framework will take place later in 2023 with the introduction of legislation for the new payments licensing regime in 2024. Following the passage of legislation, detailed elements of the payments licensing reforms will be subject to further consultation. They include the design of supporting regulations for the ePayments Code, common access requirements, and mandatory industry standards.
Responses to the Licensing Consultation Paper are due by 19 July 2023.
Gadens will shortly be publishing a more in-depth article on the Licencing Consultation Paper and working with clients to assist them in making submissions on aspects affecting their payment products.
Gadens will continue to provide further updates as the roadmap is rolled out.
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Sinead Lynch, Partner
Caroline Ord, Partner
Philip O’Brien, Senior Associate
Ray Mainsbridge, Paralegal
This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.