Introduction
As with all things in this day and age, innovation is driving change at rapidly accelerating rates. Technological innovation, coupled with increasing competition in the supply of payment services, has seen a marked change in the way Australians are making payments.
Gone are the days of using cash and cheques as people turn to newer, faster and more convenient payment solutions to keep pace with their busy lifestyles. 'Tap and go' card payments, digital wallets, 'buy now, pay later' services, in-app payments, digital (online-only) providers of international money transfers and the New Payments Platform – whilst being relatively new developments – have quickly embedded themselves into normal life.
So where do we go from here? Well, 2020 is already set to be a busy and interesting year in the payments space in Australia – especially as the world braces and adapts to COVID-19 and the novel and far-reaching challenges that come with it. Among the possible outcomes in the longer term is the possibility that this will speed up Australia's progress towards being a cashless society.
By way of update, here is a summary of some of the key trends and developments to keep an eye on for the year ahead in Australia (in no particular order):
1. Card-only payments
It is an understatement to say that we are currently experiencing unprecedented change as a result of COVID-19. One particular facet of our lives that has been significantly impacted during these uncertain times is the way consumers are paying for transactions.
Given the risk of COVID-19 being spread through touching objects, consumers and businesses alike are avoiding the use of coins and banknotes, and turning to card-only payments. This is forcing all consumers and businesses to implement cashless payment methods.
The question is, can a business legally refuse to accept a consumer's 'legal tender' (such as official Australian coins or banknotes) as payment?
The answer is yes. Currency and legal tender in Australia is governed by two primary pieces of legislation: the Currency Act 1965 (Cth); and the Reserve Bank Act 1959 (Cth). Importantly, there is no law against a business refusing to accept cash for goods and services. Businesses are within their rights to set the commercial terms upon which payment will take place before the 'contract' for supply of goods or services is entered into.
According to research by market analyst East & Partners,1 cash payments across Australian businesses could fall below 2 per cent by 2022, creating a virtually cashless society. The Commonwealth Bank of Australia, on the other hand, has taken a more conservative approach, predicting that Australia will be cashless by 2026.2
In light of recent events, we anticipate that this change may occur sooner than expected. For example, as part of its COVID-19 stimulus package, the US Congress proposed a digital dollar and digital wallet in order to facilitate payments, although this was subsequently removed.3 It is our prediction that Australia will experience a sharp increase in digital payments over the coming year as more and more users shy away from cash and start to adopt digital payment products and services.
2. Ban on cash purchases over A$10,000
On September 19, 2019, the Australian Government introduced the Currency (Restrictions on the Use of Cash) Bill 2019 (Bill), which introduces offences for entities that make or accept certain cash payments of A$10,000 or more.
The Bill was considered by the Senate Economics Legislation Committee4 and, if passed, will introduce penalties of up to two years of imprisonment and fines on people using cash for purchases above that limit.
Under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), businesses that provide certain 'high-risk' services must report cash payments for goods and services of A$10,000 or more. Similarly, a person entering or departing Australia must declare amounts of physical currency of A$10,000 or more. The Bill is therefore a further extension of existing restrictions on cash payments in Australia, and comes as a recommendation from the Final Report of the Black Economy Taskforce.5
It is important to note, though, that the Bill does not currently capture digital currencies such as Bitcooin, which has been criticised as one of the shortfalls (amongst others), sparking fears it could lead to more sophisticated "black economic" activity.
The Bill has passed the House of Representatives and is currently before the Senate.
3. Buy now, pay later code to be launched
Buy now, pay later (BNPL) service providers, including Afterpay and Zip Pay, have proposed a new code aimed at providing safeguards for vulnerable customers.6
The code has been prepared under the auspices of the Australian Finance Industry Association (AFIA), with BNPL services committing to cap fees, screening the ability of customers to repay and never initiating bankruptcy procedures.
AFIA aims to have the code operating by July 1, 2020, but acknowledges that this will be affected by the consultation process.
4. Select Committee on Financial Technology and Regulatory Technology
On September 11, 2019, the Senate resolved to establish a Select Committee on Financial Technology and Regulatory Technology (Committee) to "undertake a comprehensive inquiry into the current state of Australia's FinTech and RegTech industries and to investigate opportunities for government to promote effective and sustainable growth in these sectors in order to enhance Australia's economic competitiveness."7
The Committee, chaired by Liberal Senator Andrew Bragg, is currently in the process of inquiring and reporting on the following matters:
- the size and scope of the opportunity for Australian consumers and business arising from FinTech and RegTech
- barriers to the uptake of new technologies in the financial sector
- the progress of FinTech facilitation reform and the benchmarking of comparable global regimes
- current RegTech practices and the opportunities for the RegTech industry to strengthen compliance but also reduce costs
- the effectiveness of current initiatives in promoting a positive environment for FinTech and RegTech start-ups.
From January 30, 2020 to February 28, 2020, the Committee held public hearings and has received over 150 submissions from interested parties ranging from regulators, banks, FinTechs and RegTechs.
The Committee is to present its final report on or before the first sitting day in October 2020, and has promised to deliver an interim report in March 2020.
One of the many issues raised is the practice known as "screen scraping". Screen scraping occurs when a consumer gives their banking user name and password to a third party, such as a FinTech firm, in order to access their data. This is a practice some lenders use, for example, in order to conduct credit checks, but there is a divergence of views as to whether it should be permitted.
For further information on the Committee's Inquiry, please see the Committee's website.
5. Review of Retail Payments Regulation
The payments landscape has shifted significantly since the Reserve Bank of Australia's (RBA) last review of the retail payments systems five years ago. To cater for this change, the RBA has released an Issues Paper to commence a review of the regulatory framework for retail payments. The Issues Paper is the first stage of its Review of Retail Payments Regulation (Review), which will take place over the coming year. However, in light of the current extraordinary circumstances associated with the impact of COVID-19, the RBA announced on 26 March 2020 that it is putting on hold the Review.8
The RBA had previously expected that the Review would be completed by late 2020, however it is now expected that the Review will be completed in 2021.
The Issues Paper discusses and seeks stakeholder views on a number of potential issues, including recommendations made by the Productivity Commission and the Black Economy Taskforce on interchange fees, merchant service fees and least-cost routing of dual-network debit card transactions. The Issues Paper also discusses surcharging and 'no-surcharge' rules, issues relating to digital wallets and tokenisation of payments.
Other issues identified include:
- the future role of cash
- the future of the cheques system
- the future of the direct entry system
- arrangements for the management of direct debits
- possible issuance of an electronic form of banknotes.
Stakeholders were invited to provide written submissions in response to these issues, as well as to raise any other retail payments matters that they thought the RBA should consider as part of the Review. The Review has so far received over 50 submissions.
Further information regarding the Review is available on the RBA's website.
6. New Payments Platform's largest payment and 2022 roadmap
The New Payments Platform (NPP) recently experienced its largest payment to date of A$920m (a government-related transaction), which was settled in the Fast Settlement Service (FSS) on March 10, 2020, accounting for nearly half of total FSS payment value settled on that day.9
NPP is a new payment system infrastructure designed primarily to enable consumers, businesses and government agencies to make fast, data-rich payments 24/7. NPP payments made between customers of different financial institutions are settled in real time in central bank funds through the FSS, a settlement system built by the RBA. The operator of the infrastructure, the NPPA, has recently released a roadmap which outlines its plans for future capability development on the platform up to 2022.10
7. Open banking and the commencement of the CDR
Australian authorities have been working towards the commencement of the Consumer Data Right (CDR) in banking (i.e. open banking) for a couple of years now. The CDR is intended to give consumers greater access to, and control over, their banking data, and improve their ability to compare and switch between products and services.
The start of the CDR in banking has been delayed and is now scheduled to commence for major banks as follows:
- from July 2020 for consumer data about credit and debit cards, deposit accounts and transactions accounts
- from November 2020 for mortgage and personal loan data.
The Australian Competition and Consumer Commission is working with the Office of the Australian Information Commissioner and the Data Standards Body in the development and implementation of the CDR.
8. Cryptocurrency, digital currency and the possibility of an eAUD?
While the phenomenon of cryptocurrencies has passed, regulators are still grappling with the task of how to treat different types of cryptocurrency, differentiating between a store of value, medium of exchange or unit of account. The RBA, collectively, views cryptocurrency, security tokens and utility tokens as 'crypto-assets' rather than money. However this can be misleading.11 The term 'crypto-asset' implies that the digital token is an asset, which the Australian Securities and Investments Commission has determined will be deemed to be a financial product should it have characteristics of a security, debenture or managed investment scheme.12
The Governor of the RBA, Philip Lowe, addressed the 2017 Australian Payment Summit indicating that the RBA had no immediate plans to issue an electronic form of Australian dollar banknotes, or 'eAUD', on the basis that it was unlikely to pass the public interest test.13 However, more recently, the RBA has been considering whether there is a role for the possible issuance of electronic forms of banknotes, or a central bank digital currency.
At this stage, the RBA is currently of the view that there is not a strong case for this. However, it will continue to monitor and review developments.14
2020 is set to be an exciting and interesting time in Australian payments. Given the unprecedented changes that we are currently experiencing, it is hard to predict what exactly will happen. However the developments we have outlined above are some of the important areas to watch over the coming year.
Stay tuned for further updates.
Footnotes
3 See https://www.congress.gov/bill/116th-congress/house-bill/6321.
4 See https://parlinfo.aph.gov.au/parlInfo/download/committees/reportsen/024377/toc_pdf/Currency(RestrictionsontheUseofCash)Bill2019[Provisions].pdf;fileType=application%2Fpdf.5 See https://treasury.gov.au/review/black-economy-taskforce/final-report.
6 See https://www.afia.asn.au/bnpl.
8 https://www.rba.gov.au/media-releases/2020/mr-20-10.html
9 See: https://www.rba.gov.au/publications/bulletin/2020/mar/two-years-of-fast-payments-in-australia.html.
10 See https://www2.indue.com.au/wp-content/uploads/2019/10/NPP-Roadmap-2019_28-Oct-2019-final.pdf.
11 See https://www.rba.gov.au/publications/bulletin/2019/jun/cryptocurrency-ten-years-on.html
12 See ASIC Information Sheet 225: Initial coin offerings and crypto-assets, available at: https://asic.gov.au/regulatory-resources/digital-transformation/initial-coin-offerings-and-crypto-assets/
13 Philip Lowe, Governor of the Reserve Bank of Australia, An eAUD? https://www.rba.gov.au/speeches/2017/sp-gov-2017-12-13.html
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