March 2020
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Two Years of Fast Payments in Australia
It has been two years since the public launch of the New Payments Platform (NPP) and the Fast Settlement Service (FSS). Together, the NPP and FSS now enable customers of more than 90 financial institutions to make fast payments 24 hours a day, every day of the week (‘24/7’). Customers can send detailed information with a payment and nominate the payment recipient in a simple way. While the rollout of the NPP has been gradual, usage grew rapidly over the second half of 2019 and compares favourably with other successful fast payment systems introduced overseas. With a range of new functionality under development, the NPP and FSS are well placed to deliver innovative new payment services to support the Australian economy into the future.
Consumer Payment Behaviour in Australia
The Reserve Bank’s 2019 Consumer Payments Survey has provided further evidence that Australian consumers are increasingly preferring to use electronic payment methods. Many people now tap their cards, or sometimes phones, for small purchases rather than paying in cash. Consumers also have an increasing range of options available for making everyday payments. Despite this, cash still accounts for a significant share of lower-value payments and a material proportion of the population continues to make many of their payments in cash.
The Cost of Card Payments for Merchants
Data on merchants’ costs of accepting card payments show large differences in payment costs across both merchants and card systems. Smaller businesses typically face higher payment costs than larger businesses, credit card transactions are generally more expensive that debit cards, and debit card transactions tend to be more costly for most merchants when processed through the international card schemes compared with the domestic debit scheme. Overall costs of accepting card payments have nevertheless declined over the past decade, following the implementation of various reforms by the Bank.
Developments in Banks' Funding Costs and Lending Rates
Banks’ funding costs declined over 2019, driven by reductions in the cash rate. Lenders passed most of the decrease in funding costs through to interest rates on mortgages and business loans. Funding costs and lending rates are at historical lows.
Renewable Energy Investment in Australia
Renewable energy investment has increased significantly in Australia over recent years, contributing to a continuing shift in the energy generation mix away from traditional fossil fuel sources. Current estimates suggest that investment in renewable energy has moderated from its recent peak and is likely to decline further over the next year or two. In the longer term, the transition towards renewable energy is expected to continue. Significant coal-fired generation capacity will be retired over coming decades and is likely to be replaced mainly by distributed energy resources and large-scale renewable energy generators, supported by energy storage.
The Road to Australian Dollar Funding
A key feature of Australia’s financial system is that nearly all liabilities are denominated in, or hedged into, Australian dollars. A pre-condition for this state of affairs is that investors are willing to hold Australian dollar-denominated assets. Investor confidence in Australian dollar assets is supported by Australia’s sound institutional framework, history of positive macroeconomic outcomes, and well-functioning financial system. Australia’s journey to funding in its own currency spanned nearly a century and involved various costs. Today, these funding arrangements confer substantial benefits to the Australian economy, including by reinforcing the same positive economic, financial and institutional outcomes that made Australian dollar funding possible in the first place.
Regional Variation in Economic Conditions
Differences in economic conditions between capital cities and regional areas have widened since the early 2000s. Some regional areas, particularly outer regional and remote areas, have faced considerable structural changes and have taken longer than other regions to adapt to these developments. Most regional labour markets appear to have adjusted quite well to the differences in regional economic conditions, though the adjustment process may have been more difficult for some regions.
Demographic Trends, Household Finances and Spending
The share of the population in their peak earning and spending years (ages 35–54) has decreased over the past decade, while the share aged 65 and above has increased. Demographic change has tended to reduce aggregate growth in household income and consumption, but by less than what previous patterns of household spending would suggest. This is because older households have earned and consumed more than in the past, and they have become wealthier. By contrast, growth in spending by younger households has been subdued, consistent with their weak income growth. The different earning and spending behaviour of households across different age groups will continue to affect trends in aggregate household consumption and income as the population ages further.
Some graphs in this publication were generated using Mathematica.
ISSN 1837-7211