Reserve Bank of Australia (RBA) governor Michele Bullock has warned that there is “a lot of work to do” to continue modernising Australia’s payments system.
In a speech to the Australian Payments Network Summit on Tuesday (12 December), Ms Bullock identified three key payments issues which she said will be particularly important in the year ahead.
Firstly, the RBA is planning to conduct a comprehensive review of retail payments once its regulatory remit is expanded under the federal government’s payments reforms.
The Payment Systems (Regulation) Act 1998 will be amended to ensure that newer players, such as buy-now-pay-later (BNPL) providers, payment gateways, payment facilitators and mobile wallet providers, can be regulated by Australia’s central bank.
“We expect these reforms to be in place sometime in 2024, at which point we intend to launch a holistic review of retail payments regulation,” said Ms Bullock.
“This will be an opportunity to consult widely on current regulation as well as on areas where regulation might be required in the interests of safety, competition and efficiency. This will help us to set our regulatory priorities in the expanded regulatory perimeter.”
Specific issues that the RBA is set to focus on as part of its review of retail payments include least-cost routing (LCR), mobile wallets and BNPL services.
Secondly, Ms Bullock said that how industry and government can work together to maintain access to cash will be another key issue for the coming year.
She pointed out that the share of consumer payments made using cash has been in decline for many years, falling from 70 per cent in 2007 to 13 per cent in 2022.
“Despite this decline, cash remains an important means of payment for some people and is widely held for precautionary or store-of-wealth purposes. Cash is also an important backup method of payment during system outages or natural disasters, when electronic payments might be unavailable,” Ms Bullock said.
“For these reasons, the RBA places a high priority on the community continuing to have reasonable access to cash withdrawal and deposit services. The government also highlighted the importance of maintaining adequate access to cash services as a key priority in its strategic plan for the payments system.
Ms Bullock noted that declining transactional cash use is affecting the economics of providing cash services and putting pressure on the cash distribution system.
She said that the RBA recently convened a roundtable discussion with the industry to discuss what more can be done to promote the sustainability of the cash distribution system.
“These discussions are ongoing, and industry, regulators and government will need to continue to work together to put in place sustainable arrangements for cash distribution,” said Ms Bullock.
Finally, the RBA governor touched on the industry’s plan to transition from the Bulk Electronic Clearing System (BECS) to more modern payment systems.
“The limitations of BECS are becoming more significant as users expect fast payments and the economy becomes increasingly digitised,” she said.
“But there are some significant challenges that will need to be overcome for the industry to successfully transition all BECS payments to more modern payment systems.”
These challenges include connecting all accounts that send and receive payments via BECS to the New Payments Platform (NPP), and ensuring that NPP services can reliably handle the full range of payments that are currently processed by BECS.
Is Australia lagging behind on inflation?
During a Q&A session following her presentation, Ms Bullock was asked how far Australia is behind the rest of the world in its fight against inflation.
“I don’t think we’re falling behind at all. I think we are trying to make sure that we slow the economy enough to bring inflation down to our target band,” the RBA governor said.
“Provided inflation expectations don’t get out of control – and they’re not at the moment – we think we can do that in the next couple of years, and we can do that while preserving the employment gains that we’ve won through the pandemic and coming out of the pandemic.
“So I don’t think we’re behind at all. I think we’re taking a cautious approach and we’ll continue to watch the data.”
Ms Bullock was also asked by host Juanita Phillips if there was any Christmas message she would like to share and what Australians can look forward to in the economy next year.
“Now that’s a nasty question, Juanita,” she joked.
“My only message to people is that, look, I know everyone’s worked really hard this year. I know, certainly in this room, I can speak for all of my teams, and I’m quite sure for all of the other teams here. It’s been a hard year.
“It’s been a hard year for people at work. It’s been a hard year for people who are dealing with rising interest rates and rising inflation. I’d like to think that we can all take some time to be with our families and hopefully things are going to get better next year.”
