Australia’s regulatory framework for payments is no longer fit for purpose as non-bank fintechs play an increasingly important role, one of the country’s leading bankers says.
Reserve Bank of Australia deputy governor Michele Bullock cited the entry of buy now, pay later companies, smartphone-based services and cross-border payment companies into Australia’s payment system as accelerating the need for change.
“Currently many of these non-bank participants, they play a key role in the payment system (but) they’re not actually captured by our regulatory powers,” she told the Financial Services Institute of Australasia Regulators 2022 conference on Friday.
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Gateways, mobile wallet providers and payment facilitators do not hold deposits, “but they play a critical role in ensuring that payments are safe, secure and efficient”, Bullock said.
The RBA wants to ensure these new players do not have an unfair advantage over the incumbent banks because they are not being regulated, Bullock said.
The government is developing new payment regulations based on the functions a payment processor provides, rather than what type of institution they are, Bullock said.
“A facilitator of cross-border payments might be a bank, but it might not be a bank,” she said.
Bullock also said the RBA continues to consider the future of physical cash, which declined further during the pandemic but is still used “very, very heavily” by a large minority of people.
“The transition could happen quite quickly, and we need to make sure that in thinking about how we transition away, we don’t leave behind.”
The government is also looking at providing guidance to industry on how to wind down legacy payment infrastructure such as the chequing system and the direct entry payment system, Bullock said.
About 30 per cent of payments in Australia are handled by the next-generation New Payments Platform, launched in 2018.
The NPP enables instant payments to be addressed to PayIDs such as a mobile phone number or email address, while direct entry payments take longer and require the payer to know the recipient’s BSB and bank account number.
Bullock did not mention any timeframe for winding down these legacy payment systems, but it is unlikely to be anytime soon.
The NPP will not be ready to handle the Australian leg of international payments until next year, and its direct debit PayTo functionality was recently delayed until April 2023.
When PayTo eventually launches, it will give consumers more control over which third parties can initiate automatic debits from their accounts.
Bullock also said the RBA had been watching crypto payment systems and this week’s collapse of a stablecoin known as TerraUSD.
She described crypto as disruptive but still too small to threaten the traditional financial system.
Most cryptocurrencies originate outside Australia, she noted, so international co-operation will be needed to regulate it properly.