Consultation for sweeping payments reforms closes

The government’s Strategic Plan for the Payments System consultation paper, which opened in December 2022 will close for public consultation on Tuesday (7 February).

The reforms seek to update and strengthen the payments system and financial market infrastructure; establish a regulatory framework for buy now, pay later; and apply more red tape around crypto service providers.

Among the changes, the Reserve Bank of Australia (RBA) could get expanded powers to regulate new and emerging payments systems such as digital wallet providers and cryptocurrency services.

The federal Treasurer had previously stated that the regulatory architecture “has not kept pace with changes” in the market.

Indeed, consumers have reduced their reliance on the physical forms of payments such as cash and cheques and increased reliance on contactless card payments and online transactions spurred on by the COVID-19 pandemic.

According to the central bank, around 55 million transactions are made in Australia each day and the pace of change in new technology has increased, increasing the risk of scams and fraud.

As such the strategic plan aims to “provide leadership to the payments industry and regulators, shaping the future direction of the payments system”.

The payments systems reform includes (“but is not limited to”):

• Developing a strategic plan for the payments system in collaboration with regulators, industry, consumer, and business representatives
• Updating the Payment Systems (Regulation) Act 1998 (PSRA) to capture the full suite of payment entities and systems as well as provide the Treasurer with ministerial powers to address payment issues outside the scope of the Reserve Bank of Australia’s (RBA) public interest powers
• Implementing a tiered licensing framework for payment service providers
• Reducing small-business transaction costs particularly through least-cost routing or a similar solution

The paper indicated that stakeholders have raised concerns that merchant costs are too high due to ‘tap and go’ payments not being automatically routed down the cheapest payment rails.

As such reviews from the Productivity Commission and parliamentary joint committee on corporations and financial services have found that government or RBA intervention may be necessary to address this issue. For example, the RBA could force digital wallet providers to use least-cost routing (LCR), where transactions are processed on the payment infrastructure that carries the lowest cost.

• Continuing development of international interoperability through cross-border initiatives
• Considering developments in the broader digital economy that are related to payments such as digital wallets, buy now, pay later arrangements (BNPL), stablecoins, crypto assets, central bank digital currencies (CBDCs), and the Consumer Data Right (CDR)

Giving the RBA regulatory power over digital wallets could give rise to allowing banks to enter the digital wallet market and bring more competition in the face of Apple Pay, Google Pay, and Samsung Pay.

This consultation paper presents an opportunity for feedback to determine the key objectives and priorities for the payments system and how the plan can be used to coordinate action across public and private sector participants.

Payment Times Review

Meanwhile, on the back of the Payment Times Reporting Act 2020 (the Act), which commenced on 1 January 2021, “little improvement” has been made, according to the ombudsman, signalling the importance of the ongoing independent review.

Under the Act, large businesses and government enterprises (known as reporting entities) must submit information on their payment terms and actual payment performance for small businesses to the Payment Times Reporting Regulator in Treasury every six months.

While a review is underway, data released by the regulator indicated that there has been “little sign of improvement” by the worst-performing businesses, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Bruce Billson said.

ASBFEO has analysed data, released by the regulator, of more than 7,000 big businesses, and found 24 per cent take more than 120 days to pay their suppliers.

Big businesses operating in manufacturing, construction, and retail trade reported the worst performance.

“A vast number of big businesses just aren’t meeting the mark and it’s causing needless harm and cashflow challenges for small and family businesses who are waiting too long to have their invoices paid,” Mr Billson said.

Weighing in, the Payment Times Reporting Regulator, Mary Jeffries, said it was “concerning that register data indicates payment terms and payment performance have not materially improved since the commencement of the scheme”.

“Because payment practices have not improved across recent reporting periods, we will also explore how the register can be used by small business suppliers, investors, advisers, supply chain managers and other stakeholders to incentivise improved payment performance by large businesses,” Ms Jeffries said.

The report also found the best performers were big businesses operating in public administration and safety, but it was still only just over half (51 per cent) of small-business invoices paid within 30 days.

Mr Billson praised the big businesses that paid their bills in fewer than 20 days and added that initiatives such as e-invoicing enabled faster payment times and were significantly cheaper to process than other payment methods.

[Related: Australia's financial system to get with the times]