The Australian Payments Network (AusPayNet) champion the payments system. They enable competition and innovation, promote efficiency, and control and manage risk to deliver improvements for all users of the payments system.
Australia: Future State of Payments Action Plan
Given the rapid and increasing pace of change in payments AusPayNet have conducted a consultation on ‘A Future State for Australia’s Payment Systems’. AusPayNet’s aim in consulting industry stakeholders was to establish and publish conclusions that will help shape industry’s thinking on the future state of Australia’s payment systems.
The Future State of Payments Action Plan, published in August 2020, is the outcome of this consultation process.
The Action Plan outlines the industry’s response to the evolution of payments and customer preference for faster, data rich, 24/7 payments. As the uptake of digital payment methods accelerates, AusPayNet’s focus is on modernisation and ensuring payments system efficiency through the rationalisation of older systems. This has implications for two of AusPayNet’s frameworks – APCS for cheques and BECS for direct entry.
Whilst an interesting document in itself the conclusions outlined in AusPayNet’s Action Plan provides some thought provoking points that are very appropriate for us in the UK as we consider a rapidly changing payments landscape and the future New Payments Architecture.
UK: Action Plan Pointers
1: The UK’s payments landscape and challenges it faces are not unique – there is much we can learn from other countries.
Customer uptake of newer payment options that offer greater convenience and security has naturally led to a decline in use of older systems; we are now at the stage where we can seriously consider the future of these older systems. This is particularly important given the requirement to ensure the continued resilience, efficiency, adaptability and accessibility of the payments system
With efficiency front of mind, the continued evolution of the payments system requires modernisation and rationalisation of old infrastructure. This will help deliver a better payments system, allowing industry to focus attention and resources on the core systems required to enable Australia’s digital future.
A Future State for Australia’s Payment Systems
2: Whether regulated or self-regulated a wide collaboration approach is vital.
The UK’s payment systems are subject to regulation by the Payment Systems Regulator and the payments system in Australia is governed by a legislative framework that favours self-regulation by the industry with the Reserve Bank of Australia (RBA) imposing regulation in a narrow range of activity.
Within this context, AusPayNet was founded 28 years ago “to develop and manage regulations and standards governing payments clearing and settlement within Australia”.
Over time, AusPayNet’s role has evolved and, as the industry association and self-regulatory body, its broader purpose is to promote confidence in payments. A key part of this role entails facilitating collaboration between payments industry participants (including financial institutions, retailers, payment systems operators and technology companies) to deliver on a vision of convenient and secure payments for all.
A Future State for Australia’s Payment Systems
3: The UK’s changing payments landscape is not unique
The UK is not unique – the changes in Australian payment behaviour is something that we would recognise here in the UK: faster, data centric 24/7 availability, digital and API based.
Australia’s changing payments landscape is similar to the UK:
- Bulk submission payments relatively static with NRT payments growing
- Growth of Buy Now Pay Later providers
- Significant decline in the use of cash
- Exponential decline in the use of cheques.
4: Australia’s key payment considerations could easily be the UK’s.
Cash use in Australia is in decline and being driven by contactless Debit Cards being used by a wide range of the population and increased contactless payment limits. The Australian cash focus is on: industry impact of the decline of cash on the broader payment systems (especially access to cash and cash handling process) and retail fallback payment alternatives.
Migration to ISO 20022: Australia’s new National Payments Platform (NPP) offers:
- Real-time settlement of individual payments and supports data-rich ISO20022 messages. The new NPP functionality supports a wider set of use cases such as debit-like payments, subscriptions, scheduled recurring payments, payroll and accounting.
- Further developments by NPP participants will accelerate the transition from BECS to NPP. Banks and other NPP participants are exploring options to make it easier for institutions to process batch payment files and submit payments via APIs using systems other than direct entry.
- Australia’s high value payments will migrate to a rich data format, and this comes with the strategic opportunity to harmonise messaging formats across domestic high value payments, cross-border payments and real-time payments (NPP) to ensure interoperability. The report also suggests a migration from the High Value Payments system to the Real Time System (think CHAPS and Faster Payments).
Digital ID: AusPayNet have concluded that a successful digital economy demands convenient, secure and privacy-enhancing ways for people and businesses to build trust online and consider that there may be a requirement to accelerate this work.
The TrustID framework is currently being managed by AusPayNet and work is progressing on three fronts:
- Accreditation: involving the design of an accreditation process.
- Governance: defining the appropriate governance structure.
- Brand development: creating a trust mark to create confidence in accredited solutions and to support consumer recognition.
5: AusPayNet’s questions equally apply to the UK
The acronyms may be different but the key questions AusPayNet faces apply well to the UK:
- The changing role of cash offers an opportunity to increase the efficiency of the payments system, while keeping in mind potential impacts on resilience and accessibility.
- The customer-led move away from paper-based systems raises questions about the long-term viability of APCS and presents opportunities to improve its efficiency.
- Investment in innovation and data-rich systems raises questions about the longer-term future of BECS. Migration to other systems raises questions about the benefit of potentially duplicative services and may offer an opportunity to improve the overall efficiency of the system.
6: Like the dinosaur cheques have has their day in Australia as well
Cheque use in Australia reached its apex in the mid-1990s and has been steadily declining since. In recent years, the rate of decline has accelerated and recently reached a year-on-year peak of 25%. Like the UK, the COVID pandemic seems to be accelerating this decline, with the RBA reporting a 15% decline in April 2020 alone.
AusPayNet conclude that if current trends were to continue, there would be no cheques in circulation in Australia within five years.
Unlike the UK, the AusPayNet conclusion is that Australia is at the point where the public conversation can focus on the inevitability of the end of the cheques system – with a decision on the operational future of cheque clearing requiring to be made within two years.
Interestingly, AusPayNet note that it has been working with government and professional bodies to promote payments neutrality and remove regulations that impede such neutrality (e.g. by requiring specific types of payment method).
7: Australia is planning for (payment system) retirement
AusPayNet administer the Bulk Electronic Clearing System (BECS) for electronic debit and credit payment instructions – think Bacs Direct Debit and Direct Credit. BECS is recognised as a safe, reliable and low-cost workhorse of the Australian payments system.
As Australia has developed newer payments systems that offer faster and more flexible payment options BECS’ technical capacity reflects the limitations of the time in which it was created. It is difficult to enhance or change, and its messaging format lacks data richness and is incompatible with ISO20022.
Whilst AusPayNet note that there may be a potential role for redundancy within Becs it believes that it would be prudent to start planning for BECS retirement. Retirement planning will need to take into account BECS functionality that is not provided within the New Payments Platform and that stakeholders outside the industry have built systems on top of BECS.
Sound familiar? Again, think Bacs Direct Debit and Direct Credit.
AusPayNet note that migration away from BECS will ultimately benefit all stakeholders and will be assisted by early transition planning to simplify the process and allow for a prompt and orderly migration away from BECS at an appropriate time.
During 2020, AusPayNet plan to inform a roadmap for BECS transition / managed decline, including a timeframe, dates, identification of consumer needs and approach to overcoming any identified barriers.
Conclusion
By publishing the Future State of Payments Action Plan, AusPayNet have outlined a number of thought provoking points that are very appropriate for us in the UK as we consider a rapidly changing payments landscape and the future New Payments Architecture.
Read the full plan: Australia Future State of Payments Action Plan.