The likes of Apple and Google could be further regulated as the federal government embarks on an overhaul of the Australian payments regulatory framework.
It comes after the Treasurer received advice the current approach is inconsistent, complex and ill-equipped for emerging payments ecosystems, such as Google Pay and Apple Pay.
The changes are being touted by the Treasurer as being as disruptive as the economy-wide Consumer Data Right and come with warnings that without a new strategic direction led by government, Australia’s payment system will be manipulated by foreign Big Tech.
Among the proposals is much greater power for the Treasurer, including new authority to direct payment regulators and to designate providers for more regulation when it is in the national interest to do so.
A payments system review conducted by KWM partner Scott Farrell between October and June was released by the government on Monday. It found the current payments framework is delivering safe and effective service but lacked a clear strategic direction and is too complex.
Mr Farrell, who architected Australia’s still developing Consumer Data Right, said Australia’s payments system had evolved into an ecosystem, with the “unbundling” of traditional services and several new providers, many from outside traditional boundaries. But Australia’s regulatory architecture has not kept pace, remaining relatively unchanged over the last two decades, according to the review.
It recommended a greater role for government in setting strategic direction, including a formal plan; greater coordination between payments regulators; more designation powers; and a single, tiered payments licensing framework.
The review recommended the Treasurer lead “enhanced leadership, vision and oversight” of Australia’s payments ecosystem, with decisions to always be made to serve the consumers and businesses that rely on it.
Treasurer Josh Frydenberg said the review showed the need for reform to account for disruptive technologies like digital wallets, cryptocurrencies and buy now pay later services.
“The payments ecosystem is in the midst of rapid change. New technology, business models and participants are transforming the old payments system. This is providing increased convenience and opportunities but also giving rise to greater complexity and new risks,” the Treasurer said in a joint statement with Digital Economy Minister Jane Hume.
The government is now considering the 15 recommendations made in the report and will hold consultations on them before a response is provided before the end of the year.
However, Mr Frydenberg foreshadowed the reforms will target the increased role large US tech companies are playing in payments ecosystems, warning in an Australian Financial Review opinion piece that without change “it will be Silicon Valley alone that determines the future of our payments system”.
The companies would be more easily designated as payment providers under the proposed reforms.
The review called for the Reserve Bank to be able to designate new and emerging companies as payment systems when it is in the public interest, while the Treasurer would have similar powers to designate payment systems and participants of designated payment systems “where it is in the national interest to do so”.
The new power for the Treasurer would include their authority to direct regulators to develop regulatory rules and to give binding directions to operators of, or participants in, payment systems.
The government should also flex its buying muscle by using payment systems that “best serve the need of Australians”.
Other recommendations include a new single, tiered payments licensing framework. The framework would be in line with another new list of regulated payment functions and would remove the need for applicants to go through multiple regulators.
Instead, they would apply through ASIC, which would coordinate on behalf of licence applicants with other relevant regulators. Individual obligations to different authorisations would remain, with the various regulators remaining responsible.
The new single payments licencing framework should also facilitate access for licences to payments systems, and in a more transparent way, according to the review, which recommends the RBA develop common access requirements in consultation with the operators.
The review also recommended Australia’s payments regulators and industry standards be better aligned, including Treasury again leading the coordination between regulators.
The Parliamentary Joint Committee on Corporations and Financial Services this month examined emerging issues in payments, including buy now pay later and the role of digital wallets. Evidence to the committee that tech giant’s involvement in payments was harming the local industry sparked an ugly spat between the Commonwealth Bank and Apple.
Do you know more? Contact James Riley via Email.