The Future of Payments: Review or Preview?
In Australia, the current payment regime was established after the Wallis Financial System Survey recommendations published in 1996. Wallis established a Payments System Board, established under the auspices of the Reserve Bank of Australia (RBA).
The regulator has the ultimate power to set the rules, as it has done with certain fees associated with the credit card system, but more often than not it has been happy to work with industry participants, under of the mission statement to “solve the problem between you but if you cannot – or if we are not satisfied – we will do it for you”.
Almost a quarter of a century old, this regime is definitely old in this time of rapid disruption and creative destruction. But it is not necessarily outdated.
All over the world, two regulatory models are emerging. One is essentially a regulatory ecosystem that assumes that no central body can ultimately set the rules and arbitrate a global system with all these new players and technologies. And if there was a central body, it could actually hinder the entry of new competitors.
The other approach is to strengthen central arbitration. The recommendation of this new Australian journal is to give more power to the Federal Treasurer and to subordinate public service entities. This position assumes that opportunities and threats emerge as the pace of payment disruption accelerates requires more centralized control to be “in the national interest”.
According to review author, lawyer and financial services specialist Scott Farrell, “this review has revealed that our regulatory architecture needs to advance in three areas.” They are:
- Improved payment leadership. The role of government in providing overall strategic direction, vision and oversight should be reinforced with new obligations and new powers to protect the payments system and establish an inclusive, specific and dynamic strategic plan. for its development.
- Aligned payment regulations. Coordination between payments regulators should be strengthened and a functional perspective on payments regulation implemented to improve consistency and certainty of regulatory outcomes and better align with strategic direction.
- Simplified payment licenses. The government should establish a single, integrated licensing framework for payment services that evolves with businesses as they grow, provides clear consumer protection, and facilitates transparency in access to payment systems. payment.
Farrell’s review provides valuable insight into the Australian system and, although he focuses on the national regulatory architecture, he is aware of global strengths. And finally, Australia is sort of a satellite state when it comes to the payments universe.
Payments are a holistic system, whether they are established actors as Visa and MasterCard or scalable entities like Worldline or Square or new powerhouses like Amazon, Google, Apple, Tencent or Alipay.
Australia cannot quarantine itself against global forces. Take, as an example, central bank digital currencies (CBDCs).
As Farrell’s review notes, “given that Australia is an open economy with broad international ties, the actions of foreign central banks around CBDCs could have domestic implications.”
“The nature of these implications and the potential risks they pose will vary depending on the country issuing the CBDC and its design. For example, if a retail CBDC issued abroad were to be made available and used for domestic transactions, the implications for financial stability, monetary policy, confidentiality, national security, AML / FT, consumer harm and data collection and use by monitoring agencies.
Potential for improvement
A new report from New Zealand, Payments NZ’s “Developments in the Global Payments Landscape: Environmental Scan Report 2021”, echoes this reflection: “Central bank digital currencies have entered general discussions on the future of money, as they are seen as having the potential to improve both financial stability and inclusion. financial. “
Indeed, the two reports cover essentially the same themes, just like a series of reports in the world.
The New Zealand analysis found that the six critical themes are:
- Payments are continuous and increasingly international in their orientation.
- Payments are faster, more mobile, more informative, less visible and increasingly better linked throughout the value chain.
- Updates and renewals of the payment infrastructure are widespread.
- Regulation of financial services and payments is expanding and aimed at producing more inclusive and resilient systems.
- Security and authentication of payments is a major concern.
- Payment associations face heightened expectations.
Again, it is the global nature of payments and the key players in payments that will determine the evolution of the new ecosystem and pose continuing challenges around national regulatory sovereignty and the need for much global coordination. larger to manage cybersecurity threats.
The only certainty is that the pace of disruption will continue and, therefore, the need for innovation and competition will intensify – without putting individuals or systems at risk. Given the pace of change, even current thinking could quickly become obsolete.
McLean Roche payments industry veteran Grant Halverson argues that even current reviews are outdated: “Australia needs a future payments vision backed by a strategic plan” – a vision that goes beyond ‘a focus on regulatory structures to anticipate what is looming, ”he said. .
“Payments in 2030 will revolve around fully portable ‘digital’ consumer and business IDs that are supported in cyberspace and do not require a card, watch or phone,” Halverson predicts, “instead a consumer “calls” the identifier at any point of sale and confirms the sale using biometric and security features that work in person or remotely for digital and “e-commerce” transactions.
“Portability and convenience will be the main drivers, while service levels, data protection and credentials are essential deliverables,” he adds. “This future poses major challenges for regulators who must be aware of changes and react quickly to anticipate excesses.”
Given what happened to payments during COVID-19, with a massive shift to e-commerce and digital payments, and recent developments in the Chinese payments world – now the largest in the world – any new regulatory regime must be agile and adaptable. Like all business entities that want to be successful.
Andrew Cornell is editor-in-chief of bluenotes