Payments in a global, digital world

Australian Payments Council2019 Consultation

Review of the Australian Payments Plan

2 / Australian Payments Council

Con

tent

s About the Consultation 3

Australian Payments in Global Context 4• Since2015,Australia’spaymentlandscapehascontinuedtorapidlyevolve• Australianpaymenttrendsarepartofabroaderglobalevolution• Globalplatformshavealsobecomeasignificantforceinpayments

Objectives for the Australian Payments system 9• ThePaymentsCouncilisrenewingitsstrategicagenda• Yourinsightwillhelpshapethefutureofpayments• Thepaymentssystemmustsupportadiverserangeofusers• Aneffectivepaymentssystemisreliable,efficient,accessibleandadaptable• Digitisationischangingthewaywepay

Collaborative Industry Work Since 2015 14• The2015planprovidedastrategicvisionforthepaymentsindustry• Thisvisionhashelpedshapecollaborativeindustrywork• Otherindustryinitiativesarealsodrivingchange

A Renewed Vision for Payments 17• Areasforindustrycollaboration• Howtohaveyoursay

Appendices 21• Glossary• Whatis‘fintech’?• References

Australian Payments Council 2019 Consultation Payments in a global, digital world / 3

About the Consultation

The payments system plays a foundational role in our economy, as part of our financial system infrastructure. It includes the instruments, rules and systems that govern the way people transfer funds to and from each other.

With globalised commerce requiring a global payments system, other countries provide glimpses into possible futures, suggest alternative paths forward and influence our own payments system. The future of Australian payments has local, regional and global dimensions.

In 2015, the Australian Payments Plan identified that the way we pay was rapidly evolving. Since then, these trends have accelerated.

Alongside evolving technology and customer expectation, regulation plays a key role in shaping the payments system. Recently, the Australian Government has explored areas such as:

• Open Data: The Government has announced open banking will commence 1 July 2019, as part of an economy-wide Consumer Data Right;1

• A New Framework for Stored Value: Government is reviewing how it regulates stored value facilities. A simplified regime may encourage more service providers to enter the payments industry;2

• The Role of Cash in the Economy: The Black Economy Taskforce recommended a cash payment limit of $10,000 for many transactions. If adopted, this may impact the payments mix in the economy;3

To renew our strategic vision for the payments system, we are seeking views from a range of stakeholders – businesses, NGOs, government and consumers. Your feedback will help ensure the payments system continues to meet the changing needs of Australians.

We welcome written responses and will also be facilitating consultation workshops in Sydney and Melbourne.

The deadline for written submissions is 5pm, Friday 22 February 2019. Information on how to make a submission is provided on page 20.

4 / Australian Payments Council

Australian Payments in Global Context

2015 6.2

Billion

8.8Billion 20

18

3.1Billion

2015

3.9Billion

2018

Cheques

Card Payments

Cash Usage

Australians who hold no cash at a given time

Mobile Payments

Internet Commerce

Australians using fintech on a regular basis

Direct Entry

152.5 Million

2015201880.3Million

25%

�

42%

�

CHEQUE

0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

FROM

AMOUNT

PURPOSECHEQUE

0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

FROM

AMOUNT

PURPOSE

DEBIT CARD

CREDIT CARD

2013

2016

2018

PAY

47%

37%

32%

2016

$20 Billion

2018

$26.5 Billion

201513%

201737%

-21.3%

-47%

2015 6.2

Billion

8.8Billion 20

18

3.1Billion

2015

3.9Billion

2018

Cheques

Card Payments

Cash Usage

Australians who hold no cash at a given time

Mobile Payments

Internet Commerce

Australians using fintech on a regular basis

Direct Entry

152.5 Million

2015201880.3Million

25%

�

42%

�

CHEQUE

0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

FROM

AMOUNT

PURPOSECHEQUE

0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

FROM

AMOUNT

PURPOSE

DEBIT CARD

CREDIT CARD

2013

2016

2018

PAY

47%

37%

32%

2016

$20 Billion

2018

$26.5 Billion

201513%

201737%

-21.3%

-47%

2015 6.2

Billion

8.8Billion 20

18

3.1Billion

2015

3.9Billion

2018

Cheques

Card Payments

Cash Usage

Australians who hold no cash at a given time

Mobile Payments

Internet Commerce

Australians using fintech on a regular basis

Direct Entry

152.5 Million

2015201880.3Million

25%

�42%

�

CHEQUE

0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

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AMOUNT

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0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

FROM

AMOUNT

PURPOSE

DEBIT CARD

CREDIT CARD

2013

2016

2018

PAY

47%

37%

32%

2016

$20 Billion

2018

$26.5 Billion

201513%

201737%

-21.3%

-47%

Source: RBA Payment Statistics

Source: RBA Payment Statistics

Source: Roy Morgan, Digital Payment Solutions Currency Report

Note: RBA Payment Statistics are for Financial Years

Source: RBA 2016 Consumer Payment Survey Source: RBA 2016 Consumer

Payment Survey

Source: EY 2017 Fintech Adoption Index

Source: NAB Online Retail Sales Index (June 2016, June 2018)

Source: RBA Payment Statistics

Australians continue to adopt digital payment methods

Cheque use continues to drop Direct entry transactions continue to grow

More people are shopping online

Fintech is maturing4

11.5% OF AUSTRALIANS HAVE USED CARDLESS/MOBILE CONTACTLESS PAYMENTS

2015 6.2

Billion

8.8Billion 20

18

3.1Billion

2015

3.9Billion

2018

Cheques

Card Payments

Cash Usage

Australians who hold no cash at a given time

Mobile Payments

Internet Commerce

Australians using fintech on a regular basis

Direct Entry

152.5 Million

2015201880.3Million

25%

�

42%

�

CHEQUE

0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

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AMOUNT

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DATE

ADDRESS / CITY / STATE / ZIP CODE

FROM

AMOUNT

PURPOSE

DEBIT CARD

CREDIT CARD

2013

2016

2018

PAY

47%

37%

32%

2016

$20 Billion

2018

$26.5 Billion

201513%

201737%

-21.3%

-47%

2015 6.2

Billion

8.8Billion 20

18

3.1Billion

2015

3.9Billion

2018

Cheques

Card Payments

Cash Usage

Australians who hold no cash at a given time

Mobile Payments

Internet Commerce

Australians using fintech on a regular basis

Direct Entry

152.5 Million

2015201880.3Million

25%

�42%

�

CHEQUE

0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

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AMOUNT

PURPOSECHEQUE

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DATE

ADDRESS / CITY / STATE / ZIP CODE

FROM

AMOUNT

PURPOSE

DEBIT CARD

CREDIT CARD

2013

2016

2018

PAY

47%

37%

32%

2016

$20 Billion

2018

$26.5 Billion

201513%

201737%

-21.3%

-47%

2015 6.2

Billion

8.8Billion 20

18

3.1Billion

2015

3.9Billion

2018

Cheques

Card Payments

Cash Usage

Australians who hold no cash at a given time

Mobile Payments

Internet Commerce

Australians using fintech on a regular basis

Direct Entry

152.5 Million

2015201880.3Million

25%

�

42%

�

CHEQUE

0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

FROM

AMOUNT

PURPOSECHEQUE

0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

FROM

AMOUNT

PURPOSE

DEBIT CARD

CREDIT CARD

2013

2016

2018

PAY

47%

37%

32%

2016

$20 Billion

2018

$26.5 Billion

201513%

201737%

-21.3%

-47%

2015 6.2

Billion

8.8Billion 20

18

3.1Billion

2015

3.9Billion

2018

Cheques

Card Payments

Cash Usage

Australians who hold no cash at a given time

Mobile Payments

Internet Commerce

Australians using fintech on a regular basis

Direct Entry

152.5 Million

2015201880.3Million

25%

�

42%

�

CHEQUE

0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

FROM

AMOUNT

PURPOSECHEQUE

0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

FROM

AMOUNT

PURPOSE

DEBIT CARD

CREDIT CARD

2013

2016

2018

PAY

47%

37%

32%

2016

$20 Billion

2018

$26.5 Billion

201513%

201737%

-21.3%

-47%

2015 6.2

Billion

8.8Billion 20

18

3.1Billion

2015

3.9Billion

2018

Cheques

Card Payments

Cash Usage

Australians who hold no cash at a given time

Mobile Payments

Internet Commerce

Australians using fintech on a regular basis

Direct Entry

152.5 Million

2015201880.3Million

25%

�

42%

�

CHEQUE

0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

FROM

AMOUNT

PURPOSECHEQUE

0152 - 635486565 - 4526589 -60045

DATE

ADDRESS / CITY / STATE / ZIP CODE

FROM

AMOUNT

PURPOSE

DEBIT CARD

CREDIT CARD

2013

2016

2018

PAY

47%

37%

32%

2016

$20 Billion

2018

$26.5 Billion

201513%

201737%

-21.3%

-47%

Since 2015, Australia’s payment landscape has continued to rapidly evolve

Card transactions are still growing

Cash continues to fall

Consumers are starting to adopt mobile payments

CONSUMER PAYMENTS MADE IN CASH 1 in 5

AUSTRALIANS OVER THE AGE OF 18 HOLD NO CASH AT ANY GIVEN TIME

Australian Payments Council 2019 Consultation Payments in a global, digital world / 5

Technological developments and new business models are underpinning this consumer shift

LAUNCHED IN 2018, AUSTRALIA’S FAST PAYMENTS SYSTEM IS ALREADY SEEING

400,000 transactions a day.

82% OF AUSTRALIANS USE CONTACTLESS AT LEAST ONCE A WEEK

Source: NPP Australia Limited

Source: KPMG5

Source: Telsyte6 Source: Telsyte7

Source: Deloitte 2017 Mobile Consumer Survey

Source: Publicly reported card scheme data 2017

65+

In 2017, 88% of Australians owned a smartphone including 78% of Australians over 65.

78%65+

In 2017, 88% of Australians owned a smartphone including 78% of Australians over 65.

78%IN 2017, 88% OF AUSTRALIANS OWNED A SMARTPHONE INCLUDING 78% OF AUSTRALIANS OVER 65

UP 80%in 2018

UP 80%in 2017-18

UP 80%in 2017-18

$

CREDIT CARD

5G

UP 80%in 2018

UP 80%in 2017-18

UP 80%in 2017-18

$Over $US830m WAS INVESTED IN AUSTRALIAN FINTECH BETWEEN 2016 AND JULY 2018.

New Payments Platform

Fintech Investment

Wearables

Smartphones

Contactless

5G

IN THE FIRST HALF OF 2018, SMARTWATCH SALES

grew 80%

YEAR-ON-YEAR, TO 680,000 UNITS.

COMMERCIAL 5G SERVICES ARE SCHEDULED TO COME ONLINE IN AUSTRALIA IN 2019.

6 / Australian Payments Council

European Union• Sectoral direction heavily influenced by regulation.8 • PSD2 has introduced open data with payment initiation.• GDPR provides a high-level of privacy protection.

Scandinavia• Cheques accounted for

less than 0.1% of non-cash payments in 2014.9

• In Sweden, cash is used in less than 20% of in-store transactions.10 Given the decline of cash, the Riksbank is exploring a digitally-issued eKrona.11

South-East Asia• Chinese tech firms are

establishing their presence in retail payments.

• MAS has released a new law to simplify and consolidate payments regulation.18

• HKMA has issued guidelines for virtual banks.19

Africa• The imperative to address

under-banking is driving mobile payments innovation.

• M-PESA is available in ten markets with around 29.5m active customers.15

India• Leading world adoption of

non-cash payment methods.16

• Second highest rate of fintech adoption, at 52%.17

• Demonetisation in 2016 sought to reduce the black economy and shift consumers to electronic payments.

United Kingdom• World first open banking

system debuted in 2018.12

• Card payments surpassed cash payments in 2017.13

• The Bank of England is consulting on adopting ISO 20022 for UK payments.14

Australian payment trends are part of a broader global evolution

Australian Payments Council 2019 Consultation Payments in a global, digital world / 7

China• Retail payment innovation is driven by tech firms,

which are replacing cards and cash with mobile app payments.

• China possesses 42% of global e-commerce and 11 times more mobile payments than the US.20

• First half of 2018 saw over $14.4bn fintech investment, principally Ant Financial.21

• China has the highest global fintech adoption rate, at 69%.22

United States• Comparatively high reliance on cheques.

• Private sector offerings, such as Venmo, are driving innovation in retail payments.

• US tech firms are entering the payments space.

• Adoption of ISO 20022 for high-value clearing systems to be completed by 2023.23

Global Trends• Mobile operators are projected to

invest $500bn worldwide in 2018-2020, increasing 5G coverage to 11% of the world’s population.24

• Led by developing markets, global non-cash transactions rose from 438bn in 2015 to a projected 597bn in 2018.25

• Cash-in-circulation continues to rise, indicating it may be used as a value store rather than a payment instrument.26

• While crypto-currencies have not seen wide adoption, blockchain continues to be explored.

• Global fintech investment reached $US58bn in the first half of 2018, up from $US11.6bn in the first half of 2017.27

• SWIFT is leading payment system upgrades to ISO 20022.

• FATF continues to develop best-practice anti-terrorist laws and regulations.

• ISO/PCI continue to evolve standards for payments.

8 / Australian Payments Council

Source: AusPayNet, A.T. Kearney 28

Global platforms have also become a significant force in payments

eCommerce Accommodation

EntertainmentPaymentsTransport

Devices Social Interaction

Cloud and Business Services

Consultation Questions 1. What are your views on the trends outlined on pages 4 to 8?

Are there other factors or issues to consider?2. What are some other interesting international trends?3. Is digitisation changing the way we view payments?

Australian Payments Council 2019 Consultation Payments in a global, digital world / 9

The Australian Payments Council (APC) was formed in 2014 as the strategic coordination body for the Australian payments industry. Our role is to help ensure the Australian payments system continues to meet changing customer needs with innovative, secure and competitive payment services.

The APC provides a forum for the Payments System Board (PSB) to consult directly with industry. The PSB is one of two boards of the Reserve Bank of Australia (RBA), and is responsible for the RBA’s payments system policy. This arrangement is formalised in a Memorandum of Understanding established in August 2015.29 The direct engagement with the PSB is an important part of the Council’s role and the two parties convene a meeting in August each year.

The Australian Payments Plan was released in December 2015. Created in consultation with consumers, government bodies, academics and business, the plan outlined a roadmap for industry collaboration to ensure that our world-class payments system continues to meet the changing needs of Australians. Over the last three years, the plan has guided the strategic thinking of the APC in areas such as digital identity, open data and the changing payments mix.

The Consultation ProcessThe current plan recommended a triennial review, the first to take place in 2018. Given the pace of change, a new strategic agenda will help ensure our payments system continues to effectively support the needs of all users. We are seeking written submissions, and will facilitate roundtable sessions in the first half of 2019. This consultation is your opportunity to help shape the next stage. Information on how to make a submission is contained at the end of this document.

Concurrent ConsultationsIn the first half of 2019, the RBA and Australian Payments Network (AusPayNet) will be consulting on specific aspects of the payments system’s future. These consultations will run at the same time as this review. AusPayNet’s work will create a vision and roadmap for Australia’s payment rails, while the RBA will be seeking feedback on the timing, scope, approach and other strategic decisions for migrating the RITS ecosystem to ISO 20022.

The intention of this review is not to duplicate the work of other bodies, but look to identify common strategic issues. We will share any submissions received during this review which relate to those reviews.

The Australian Payments Council

The Australian Payments Plan

Objectives for the Australian Payments system

The Payments Council is renewing its strategic agenda

10 / Australian Payments Council

Your insights will help shape the future of payments

Your insights and perspective will help us shape our new strategic vision and help ensure our payments system continues to meet the changing needs of Australians.

We welcome feedback from all users of the payments system, including both general feedback on issues related to our strategic coordination role and specific responses to the consultation questions within this document:

Australian Payments in Global Context1. What are your views on the trends outlined on pages 4 to 8?

Are there other factors or issues to consider?2. What are some other interesting international trends?3. Is digitisation changing the way we view payments?

Objectives for the Australian Payments System4. Within the four user-groups (individuals, business, community groups and

government), what sub-groupings have special needs or requirements that we should consider?

5. Do Resilience, Efficiency, Accessibility and Adaptability remain appropriate characteristics for our vision of an effective payments system?

6. Should digitisation change our vision for an effective payments system? If so, how?

Areas for Industry Collaboration7. Do the identified topics represent appropriate focus areas for the APC, given our

vision of an effective payment system?8. Are there other potential focus areas that we have not identified?9. How do you think we should prioritise our work within these focus areas?10. Can you provide any information on emerging technologies that may impact

our work?11. Can you provide any information on any other ongoing strategic work within

these focus areas? Including industry, government, academia, NGOs, etc.?

Australian Payments Council 2019 Consultation Payments in a global, digital world / 11

The payments system must support a diverse range of users

Users of the payments system are grouped into four categories:

In turn, these users are supported by four groups of stakeholders:

IndividualsAn individual’s habits and needs may vary based on the basis of age, location, language spoken at home or disability.

Community Groups

Community groups include charities, education institutions and recreational clubs. They may include large non-governmental organisations, or small local sporting clubs.

Businesses

Business range in size from micro-businesses through to large multinational corporations. Businesses may operate onshore or internationally. Increasingly, B2B and B2C are both moving online.

Government Local councils, state and federal governments each need to accept payments and distribute entitlements.

Service Providers Banks and other payment organisations who offer services to payment users.

Operators

Operators provide the payment networks that link service providers and users with each other. Examples include American Express, BPAY, Diners Club, eftpos, Mastercard, Union Pay and Visa.

Infrastructure Providers

Infrastructure providers administer common elements of the payments system, often used by multiple payment networks and services, such as the Reserve Bank of Australia and the New Payments Platform.

Regulators and Government

The Australian Government has reponsibility for the banking and financial system. The RBA is the primary regulator of the payments system, with ASIC, APRA and the ACCC also holding responsibility for some elements.

Consultation Question4. Within the four user-groups (individuals, business, community groups and

government), what sub-groupings have special needs or requirements that we should consider?

12 / Australian Payments Council

To accommodate this diverse set of needs, the APC is guided by a vision of a payments system that demonstrates four desirable characteristics:

Resilience

Stability

Payments infrastructure is certain and predictable and provides a basis for delivery of well-defined and valued payment services to users through operators and service providers.

Reliability Payment services are available when users and service providers want them, and outages are minimised.

Security The system is structured to protect against unauthorised access to value and data.

Efficiency

Resource Allocation

Finite system resources are allocated for maximum stakeholder value.

Sustainability Operators and service providers are able to develop and maintain sustainable business models.

Integration Standardised, automated processes and straight-through processing minimise cost and risk.

Liquidity Money circulates rapidly at minimal friction cost.

Accessibility

Ease of UseConsumers and businesses have access to a range of user-friendly payment services so they can choose how to make and receive payments.

Reach The payments system is widely accessible amongst users, so that payers can reach payees.

CompetitivenessPayment service providers and operators have equitable access to underlying infrastructure so as to promote competition.

Adaptability

Openness The payments system is flexible to accommodate new business models, business strategies and technologies.

Innovation Innovation in payment networks and payment services is encouraged, so that changing user needs are met over time.

CollaborationWhere there are strong network effects, governance frameworks encourage operators and service providers to cooperate to bring about payments system improvements.

Regulatory Certainty

Regulation (including self-regulation and industry standards) is clear, up to date and supportive of both cooperation and competition.

An effective payments system is resilient, efficient, accessible and adaptable

Consultation Question5. Do Resilience, Efficiency, Accessibility and Adaptability remain appropriate

characteristics for our vision of an effective payments system?

Australian Payments Council 2019 Consultation Payments in a global, digital world / 13

Consultation Question6. Should digitisation change our vision for an effective payments system? If so, how?

Digitisation is changing the way we pay

As the payments system becomes more digital, new challenges and opportunities will emerge:

• The resilience of the payments system will become more dependent on electronic systems and people will continue to move away from traditional payment methods that once served as ‘back-ups’

• Digitisation will improve efficiency through innovation and replacing physical processes

• While accessibility will be enhanced, it is important to ensure appropriate payment options are retained in the transition to digital payments

• To maintain adaptability, regulation and self-regulation will need to accommodate and support the pace of innovation

14 / Australian Payments Council

In 2015, the APC identified that industry was already responding well to Australia’s changing payment needs. Globally, Australia has an advanced payments system and initiatives (such as the then-recently announced NPP) were underway to ensure we continued to lead international best practice.

Within three themes, the APC identified areas not covered by existing initiatives that required further exploration, where there was capacity to complement existing industry work:

Managing the Payments Mix

The APC committed to ensure that the consumer-led decline of cash and cheques is appropriately managed, by developing strategies on The Transition Away from Cheques and A Less-Cash Society.

The changing payments mix may require changing existing payments system frameworks, with the APC identifying a need to Review the Future of Existing Payment Systems.

Security and Trust

Given the rapid rise in online transactions, collaborative industry efforts to develop and implement effective anti-fraud measures were already advanced.

Progressing work in Digital Identity and Data Management would see the APC take an active role in the development of a national identity framework that builds on the industry’s expertise and payments innovation.

Given that the Financial System Inquiry had recently recommended formal mechanisms be developed for public-private information sharing, the plan suggested that the APC Lead Work on Cyber-Security, representing the payments industry in discussions with Government.

Enabling the Future

The plan found the APC was in a strong position to assess developments in payments and to promote an environment where innovation and community benefits can flourish. The APC recommended that it Enable Technology Innovation by regularly assessing the state of innovation, assessing impacts and recommending areas for further strategic consideration.

Collaborative Industry Work Since 2015

The 2015 plan provided a strategic vision for the payments industry

Australian Payments Council 2019 Consultation Payments in a global, digital world / 15

This vision has helped shape collaborative industry work

The Transition Away from Cheques

The APC researched community attitudes towards the decline of cheques. We spoke to dozens of consumer groups, representative organisations, industry, regulators and individuals; and facilitated industry workshops to consider these findings.

In a speech in November 2018, the RBA Governor noted this trend, stating “it will be appropriate at some point to wind up the cheque system”.30 The APC’s research found that cheque use is in long-term decline and, at a point in the future, cheques will not be part of the payment landscape.

The resulting report31 made recommendations to help ensure appropriate payment services are available to users of the Australian payments system, prior to the removal of cheques. Following acceptance of the report, implementation passed to the AusPayNet.

Digital Identity

The APC researched global approaches to digital identity and created an Action Plan to create a trust framework that will support portable, economy-wide digital identity.

Eighteen organisations from the APC and the wider community including the Digital Transformation Agency (DTA) are now delivering on this Action Plan and have selected a model that will lead to the creation of an open and contestable framework to support a wide range of interoperable identity services.

We anticipate that the development of a digital identity trust framework will be finalised by mid-2019.

Data Management

The APC developed a set of high-level principles for data-sharing, facilitated international learnings and held an open data hackathon.

On 9 May 2018, the Australian Government announced it will introduce an economy-wide ‘Consumer Data Right’.

The APC is pleased to have led early strategic thinking. Given Government’s announcement, this has moved from strategic policy development to operational implementation and the APC is no longer taking an active role.

Cyber-Security

Working with members of the APC and payments community, we identified the core needs of the payments community as: (1) awareness generation, (2) timely sharing of actionable intelligence, and (3) development and testing of incident management procedures. We have worked closely with government on how we can jointly address these needs.

The APC is in the process of agreeing requirements for an information sharing framework, which will form the basis of future collaboration.

16 / Australian Payments Council

Other bodies are progressing important initiatives within payments. Some of this work includes areas identified in the 2015 Plan and includes work by by industry and Government.

Industry:

• The Australian Banking Association is leading industry technical work on the CDR standards.

• AusPayNet is undertaking work to create a vision and roadmap for Australia’s payment clearing systems, and is investigating the impact of new technologies.

• NPP Australia and SWIFT, in collaboration with a number of participating financial institutions, are partnering to trial Australia-bound cross-border real-time payments.

Government:

• The Productivity Commission Report, Data Availability and Use, recommended the creation of the CDR.

• Following on from this, a Treasury Review, Open Banking in Australia, explored and recommended an appropriate regulatory model, and the Government has announced a phased implementation date starting in July 2019.

• Treasury investigated the taxation implications of the decline of cash, through the Black Economy Taskforce.

• The Final Report of the Productivity Commission inquiry into Competition in the Australian Financial System investigated and made recommendations into financial sector regulation, including the payments system.

• The Council of Financial Regulators has commenced a Review of Retail Payments Regulation: Stored Value Facilities.

• The Digital Transformation Agency is delivering a digital identity program, which includes a trusted digital identity framework and the creation of a digital identity provider, myGovID, to support convenient and secure access to government services. The DTA is also collaborating with the Payments Council on this topic.

Other industry initiatives are also driving change

Australian Payments Council 2019 Consultation Payments in a global, digital world / 17

Areas for industry collaboration

This section outlines challenges that have emerged or intensified over the last three years, and suggests new ideas for industry collaboration. We want to identify areas that provide the greatest strategic value, whether in the form of project work or ongoing strategic discussion. In doing so, we will take into account:

• Is there potential for strategic collaboration that supports market competition and innovation?

• Would the APC be duplicating work already underway elsewhere?

• Is the area suited to industry collaboration, rather than market competition?

The following pages outline some initial thoughts on new focus areas. We welcome your feedback on these areas, and also your views on any other areas.

Decline of Cash

The 2015 plan identified the decline of cash as a focus area, most recently highlighted in November 2018 by the RBA Governor.32 There is scope to explore the broader strategic implications of the decline of cash as a retail payment method.

A paper by the International Monetary Fund (IMF)33 explored the concept of central banks creating a ‘widely accessible digital form of fiat money that could be legal tender’. This considered how digital currencies could extend the attributes of cash to the digital world. While the paper concluded it was too early to draw firm conclusions, it suggested that this may vary given the circumstances of individual countries. Potential benefits of a central bank digital currency may include mimicking the benefits of cash in privacy and resilience.

Potential Output:• Examine alternatives to cash that fulfil a similar role in the payments system• Examine the role of cash in payments system resilience• Examine the impact of the decline of cash on remaining cash-users in Australia• Create an index to measure the decline of cash and payments system

digitisation

Systemic Resilience

As more payments become more digital and fewer Australians carry cash, the retail economy is becoming more reliant on electronic payment systems. There is both an operational and strategic component to payments system resilience. Strategically, in a world where the economy is ‘digital by default’, how should we conceptualise systemic resilience?

Potential Output:• Assess stakeholder expectations of systemic resilience

and international best practice• Develop high-level principles to guide industry and regulators

A Renewed Vision for Payments

18 / Australian Payments Council

5G, Hyper-Connectivity and the Internet of Things

Globally, we are now approaching 31 billion internet-connected devices. The Internet of Things represents a vision where these devices have a level of autonomy, including making purchases, which may present new challenges for the identification and authentication of devices, as well as payment initiation and confirmation.

Potential Output:• Examine the implications of these emerging trends on the payments system• Examine privacy implications in a world of autonomous payments

Financial Crime

While face-to-face card fraud has almost disappeared, the rise in internet commerce has seen fraud migrate online, rising from $323m in financial year 2015 to $478m for the same period in 2018 on Australian cards. As advances in payment systems make it quicker and easier to transfer money internationally, it may become easier for fraudsters to move funds offshore, and harder for banks to recover it.

AusPayNet has developed a draft framework to mitigate card-not-present (CNP) fraud, and is consulting with the e-commerce community. The Australian Financial Crimes Exchange (AFCX) is an independent Australian body that coordinates efforts to combat financial and cyber crime.

Internationally, the G20 has positioned the Global Legal Entity Identifier (GLEI) as an option to combat money laundering.

While there is already ongoing work within this space, there may be a strategic element for further exploration.

Potential Output:• Assess international trends to identify potential areas of financial crime that may

affect Australia in future• Assess what payments system developments are providing opportunities to help

combat financial crime • Develop a strategic industry policy to proactively respond to these areas

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Payment Interoperability: Global and Domestic Dimensions

Consumers and business increasingly expect that payments will operate across borders, across platforms, across devices and across the physical/digital divide.

Global systems are needed to underpin a global economy. Historically, payments systems were constructed on a national basis with international bodies such as ISO, PCI and SWIFT providing standards and interoperability. However, the WEF has identified that ‘different regulatory priorities, technological capabilities and customer conditions are challenging the narrative of increasing financial globalisation’.34 In an extreme case, after the introduction of the GDPR, it was reported that some US websites blocked visitors from the EU.

New business models are emerging, with remittance providers offering new products to customers. As real-time payment systems come online globally, there may be scope to explore greater levels of interoperability, for example with countries in the South Pacific.

Concurrently, global platforms are becoming a significant force. Social media platforms are ubiquitous throughout the world and seamless payment experiences through social media are becoming more common.

Potential Output:• Research international regulatory trends in financial services and privacy, to

identify if regionalisation poses risks for interoperability of Australian payments• Assess the role for APC in establishing common data standards to ensure

payments can be easily integrated to platforms and user experiences outside of existing banking channels

Social Inclusion

In many countries, digital innovations in payments system have helped improve social inclusion outcomes, by bringing more people into the banking system. Introduced in Kenya in 2007, M-PESA has proven highly effective in bringing more people within the banking system.35 To date, much of this potential has been realised in countries with large unbanked populations. While virtually all of the Australian population is banked,36 there may be an opportunity to explore other aspects of financial inclusion through the payments system. Alternatively, the impact of certain trends – such as the increased use of data analytics – could be examined.

Potential Output:• Assess the potential for the Australian payments system to address underbanking

and financial inclusion, and identify appropriate collaborative programs

Consultation Questions 7. Do the identified topics represent appropriate focus areas for the APC, given our

vision of an effective payment system?

8. Are there other potential focus areas that we have not identified?

9. How do you think we should prioritise our work within these focus areas?

10. Can you provide any information on emerging technologies that may impact our work?

11. Can you provide any information on any other ongoing strategic work within these focus areas? Including industry, government, academia, NGOs, etc.?

20 / Australian Payments Council

Written submissions should be emailed to: submissions@australianpaymentscouncil.com.au

Alternatively, submissions can be posted to: Review of the Australian Payments PlanAustralian Payments CouncilLevel 23, 3 International Towers300 Barangaroo AveSYDNEY NSW 2000

Submissions received will be reviewed by Council Members and posted on the APC website (www.australianpaymentscouncil.com.au), though the APC reserves the right to not post a submission it deems inappropriate. If you do not want your submission posted on the APC website, please ensure it is clearly marked ‘non-public’.

The deadline for written submissions is 5pm, Friday 22 February 2019.

During the consultation period, stakeholder forums will be held to discuss the issues raised in the Consultation Paper. For more information or to discuss any aspect of the consultation process, please email info@australianpaymentscouncil.com.au.

How to have your say

Australian Payments Council 2019 Consultation Payments in a global, digital world / 21

Appendix 1: Glossary

ABA Australian Banking Association

ACCC Australian Competition and Consumer Commission

AFCX Australian Financial Crimes Exchange

APC Australian Payments Council

APRA Australian Prudential Regulation Authority

ASIC Australian Securities & Investments Commission

AusPayNet Australian Payments Network

BAT Baidu Alibaba Tencent

BIS Bank for International Settlements

CDR Consumer Data Right

CHIPS Clearing House Interbank Payments System

COBA Community-Owned Banking Association

DTA Digital Transformation Agency

EMV Europay Mastercard Visa

FATF Financial Action Task Force

FIDO Fast Identity Online

GAF Google Apple Facebook

GDPR General Data Protection Regulation

GLEI Global Legal Entity Identifier

HKMA Hong Kong Monetary Authority

ISO International Organization for Standardization

MAS Monetary Authority of Singapore

NPP New Payments Platform

NPPA NPP Australia

PCI Payment Card International

PPF Purchased Payment Facility

PSB Payments System Board

PSD2 Payment Services Directive 2

RBA Reserve Bank of Australia

RITS Reserve Bank Information and Transfer System

SWIFT Society for Worldwide Interbank Financial Telecommunications

TCH The Clearing House

W3C World Wide Web Consortium

WTO World Trade Organization

Appendices

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• Many definitions agree that fintech refers to firms that focus on applying technological solutions to financial products. Traditional financial institutions are rarely included, even where they have sophisticated technological offerings. The term was traditionally applied to small start-ups but, as the fintech industry has matured, larger firms are also included.

• FinTech Australia, the industry association, provides a short and expansive definition, noting that fintech is short for ‘financial technology’ and ‘part of the worldwide innovation boom’.

• The Financial Stability Board defines fintech as ‘technologically enabled financial innovation that could result in new business models, applications, processes or products’.

• The World Economic Forum Report Beyond Fintech defines a fintech as ‘a small, technology‐enabled, new entrant to financial services’ and excludes ‘large technology firms that enter financial servies’ and ‘incumbent financial institutions who increase their focus on technology’.

• The EY 2017 FinTech Adoption Index defines a fintech as ‘an industry that includes not only early-stage start-ups and new entrants, but also scale-ups, maturing firms and even non-financial services firms’.

• Some definitions of fintech include large tech firms. The Roy Morgan Digital Payment Solutions Currency Report describes Apple, Samsung and Google as fintechs.

• Although the KPMG 2018 Fintech 100: Leading Global Fintech Innovators does not include Google or Apple, it does list Chinese tech giant Ant Financial.

• Given the expansiveness of the definition, the fintech industry encompasses a diverse range of services to consumers and business. Fintechs can offer entirely new experiences, or can use technology to automate and enhance existing business models.

• Fintechs range from automated financial advice software, budgeting and financial management tools, lending marketplaces, payment solutions, micro-savings tools through to challenger digital banks.

• Fintech includes several emerging specialised sub-fields. ‘Regtech’ focuses on helping businesses utilise technology to fulfill regulatory and compliance obligations while ‘suptech’ assists supervisory agencies in their regulatory functions. ‘Insurtech’ focuses on the insurance industry.

There is no single agreed meaning but most definitions of ‘fintech’ share commonalities

Fintechs encompass a diverse range of business models

Appendix 2: What is ‘fintech’?

Australian Payments Council 2019 Consultation Payments in a global, digital world / 23

1 Treasury (May 2018), Government Response to the Review into Open Banking2 Council of Financial Regulators (September 2018), Review of Retail Payments Regulation: Stored-value Facilities3 Black Economy Taskforce (May 2018), Final Report4 For a discussion of the definition of ‘fintech’, see Appendix 1: “What is Fintech”5 Figures taken from KPMG (February 2017) US$656m invested in Australia’s Fintech Sector in 2016; and KPMG

(August 2018) Investment continues to grow in Australia’s Fintech sector6 Telsyte (August 2018), Australian Smartphone Sales Slow Ahead of 5G7 Telsyte (October 2018), Household Interest in 5G Gathers Pace8 For a discussion of PSD2 and GDPR, see: Deloitte (August 2017), PSD2 and GDPR: Friends or Foes?9 Nets EU (June 2016), Market Overview: Payments in the Nordics10 BBC (September 2017), Why Sweden is Close to Becoming a Cashless Society11 Riksbank (October 2018), E-Krona Project, Report 212 EY, (August 2017) Fintech Adoption Index13 UK Finance (June 2018), UK Payment Markets Summary14 Bank of England (June 2018), ISO 20022 Consultation Paper15 Vodafone (February 2018), Media Release: Vodafone Marks 10 Years of the World’s Leading Mobile Money Service16 Capgemini (October 2018), World Payments Report 201817 EY, (August 2017) Fintech Adoption Index18 Monetary Authority of Singapore (November 2018), New Regulatory Framework to Enhance Payment Services 19 Hong Kong Monetary Authority (May 2018), Guideline on Authorization of Virtual Banks20 McKinsey Global Institute (December 2017), Digital China: Powering the Economy to Global Competitiveness21 KPMG (July 2018) Pulse of Fintech Report22 EY, (August 2017) Fintech Adoption Index23 TCH (October 2017), Deep Dive into the ISO 20022 Implementation Strategy for US High-Value Payments systems24 GSMA (June 2018), Mobile Economy 201825 Capgemini (October 2018), World Payments Report 201826 G4S (August 2018) World Cash Report27 KPMG (July 2018) Pulse of Fintech Report28 A.T. Kearney, AusPayNet (December 2018), Towards an Internet of Payments - Global Platforms Re-defining the

Payment Landscape29 APC, RBA (August 2015), Memorandum of Understanding 30 RBA Governor, Philip Lowe (November 2018), Speech: A Journey Towards a Near Cashless Payments system31 APC (December 2018), The Changing Payments Mix32 RBA Governor, Philip Lowe (November 2018), Speech: A Journey Towards a Near Cashless Payments system 33 International Monetary Fund (November 2018), Casting Light on Central Bank Digital Currencies34 World Economic Forum (August 2017), A Pragmatic Assessment of Disruptive Potential In Financial Services35 Oxford University, Practitioner’s Insight (July 2018), M-PESA, A Success Story of Digital Financial Inclusion36 World Bank (2018), The Global Findex Database: Measuring Financial Inclusion and the Fintech Revolution

References