in a nutshell
The Australian Government has released a strategic plan for its payment system: a consultation document (“consultation form”). This is important insofar as it demonstrates the current government’s commitment to reform by creating a fit-for-purpose regulatory framework for payments that reflects international developments. It is also significant in that the paper explicitly states that the reform agenda includes the implementation of a phased licensing framework for his providers of payment services.
Stakeholders are invited to comment on this consultation. The deadline for responses is February 6, 2022.
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The key reforms proposed in the Australian Government consultation paper are:
| Modification of PSRAs | It covers all entities that play a significant role in the Australian payment system. Cabinet appointment powers that allow the Finance Minister to intervene in the national interest. |
| New payment license system | Establish a new “feature-based” licensing framework for payment service providers. |
| Mandatory ePayments Code | Provides a roadmap for mandating the ePayments code as part of the new licensing framework. This norm remains a voluntary norm so far. |
| Access to payment systems | Opens access to the Australian payment system to payment service providers who do not hold an ADI license. However, these participants are subject to operational, financial and systemic risk mitigation requirements. |
| Least cost routing (LCR) | LCR is available for face-to-face debit card transactions and online debit transactions, but not yet for mobile wallet debit transactions. It has been proposed that the PSRA’s expanded regulatory reach could also allow the Reserve Bank of Australia (RBA) to mandate LCRs for these types of payments. |
| Modernization of payment systems | The check system and the bulk electronic clearing system (BEC) are two of Australia’s major legacy systems and we are looking to migrate from such legacy systems as needed. |
| Strengthening cross-border payments | Supports the G20 cross-border payments roadmap, enabling new payment platforms (NPPs) and other payment systems to interoperate with major payment systems in other countries. |
Background
The consultation paper provides background on the current payments environment, including trends occurring at the international and regional levels. Tap-and-go, mobile payments and Buy Now Pay Rate (BNPL) solutions continue to grow in popularity. At the Australian level, technologies such as New Payments Platform, PayTo and new entrants such as big tech companies are driving new solutions in the market. The consultation paper also identifies additional risks facing payment service providers, including his 2022 fraud, fraud and cybersecurity risks on key infrastructure.
This consultation is also consistent with a request for submissions from the government to help develop the regulatory framework for the BNPL arrangement (read our alert here).
About the agenda
The Australian government’s vision for Australia’s payment system is to “protect Australians from fraud and fraud while maintaining an international reputation for being safe, efficient and open to competition”.1
Reforms proposed by the government include:
- Develop a strategic plan on this topic with representatives of regulators, industry, consumers and businesses
- update of Payment Systems (Regulation) Act 1998 (PSRA) Covers the full range of payment agencies and systems and provides the Federal Treasurer with agency authority to address payment matters outside the public interest mandate of the RBA
- Implementing a Tiered Licensing Framework for Payment Service Providers
- Reduce transaction costs for SMEs, such as LCR for cards and mobile payments
- Improving international interoperability through cross-border initiatives
- Broader digital intersecting with payments, including connections with digital wallets, BNPL, stablecoins, crypto-assets, central bank digital currencies (CBDC), consumer data rights (CDR), and state-based payment initiatives Consider developments occurring in the economy
Central to the proposed reforms is the development of a “strategic plan” for payments so that there is a shared vision among government, regulators, industry, consumer and business representatives.
Strategic plan proposal
The consultation paper sets out the main proposed principles of the strategic plan. In putting these together, international benchmarks such as the Bank for International Settlements (BIS) Core Principles are considered.
The key principles proposed today are efficiency (in terms of payment processing), innovation (seeking value additions to the user experience), accessibility, and reliability.
Key priorities for upholding and promoting the Key Principles are: To ensure alignment of the new regulation with the broader transformation of the digital economy (e.g., if payments were introduced as a CDR action, to align the CDR’s authorization requirements to initiate payments with those of the payments license), and to Modernize your structure.
The consultation paper outlines each major priority, as well as the numerous initiatives that support each, as well as roadmaps and assignments of responsibilities for the major initiatives. The supporting initiatives are summarized in Appendix B of the consultation paper and the draft roadmap is summarized in Appendix C.
review of the plan
The Australian Government has proposed an annual review of the Strategic Plan and will engage with private and public sector participants on the same in the months following the Strategic Plan’s publication.
Consultation content
The questions posed in the consultation paper were:
| main principle | What are your views on the proposed key principles? Are there other principles that should be included? Please explain. |
| main priority | What are your thoughts on the proposed key priorities? Do they provide enough certainty about what the government’s key priorities are? Anything else that should be included? Please explain. |
| Main efforts | What are your thoughts on the proposed key supporting initiatives? Are there other initiatives that could be included in the plan? Please explain. Do you have any feedback on the proposed approach of either initiative (outlined in Appendix B)? Please provide an explanation. What are the key milestones for specific key initiatives that you would like to see included in your plans? Are there conflicts between milestones or pressure points that need to be taken into account when revising the roadmap? |
| Plan review process | What are your views on the proposed review process and contractual arrangements? Are there any other sections or topics you would like us to add to the plan? |
Feedback from this consultation process will be used to finalize the initial strategic plan, which is scheduled for release in the first quarter of 2023.
To discuss how our experience can help you, or if you have any questions about any of the above issues, do not hesitate to contact your usual Baker McKenzie contacts or the attorneys listed in this alert. please do not.
1 https://treasury.gov.au/sites/default/files/2022-12/c2022-343663-final.pdf
