Transcript of Question & Answer Session Real-time Payments in Australia

So Ellis has kindly agreed to receive questions, but I noticed that nobody has sent me any, so I'm going to have to make them up. Ellis, you talked about disaster payments being made over the NPP, and of course, people are becoming more and more dependent on electronic payments. What happened at Lismore when the floods arrived, all of that connectivity sort of disappeared under water. How do you see the payments industry responding to these sort of disasters when power and communications goes down? Is the RBA thinking around these areas or are we all going to go back to cash?

Thanks very much, Lance. So I agree, the NPP is a wonderful piece of infrastructure for delivering disaster payments into accounts, so that part works very, very well. And the challenge in a situation such as in Lismore, is when there is no power when the infrastructure is knocked out, electronic payments are very, very challenging. I think in this situation, we see an ongoing role for cash. Cash has that capability to be used in these sorts of situations if you can get cash into the area, and we can see some of the banks in the area were able to get together and achieve that outcome.

So there's an ongoing role for cash and I think it reinforces the issues about the reliability of NPP services and electronic services, more generally. That is an ongoing challenge that the industry needs to work through. How can we provide services in disaster scenarios when the power's not there, when the infrastructure's knocked out? But I would highlight that the cash system does provide a reliable means of payment in those scenarios.

And you talked about the NPP potentially coming into play at Point of Sale as we've seen, as you pointed out in some other jurisdictions. Part of the issue here is the NFC access, and I see overnight, the EU has raised objections now to the anti-competitive nature of Apple's NFC quarantine. Do you think if that quarantine was broken and I could embed my NPP credentials into my Wallet, that would really overcome a lot of the issues here? Sorry to hit you with all these difficult questions.

It is an excellent question …

Nobody sent me any questions.

Excellent questions, Lance. So yes, I saw that development overnight and obviously a lot of regulators internationally have been focusing on the issues around big tech companies, including the issues of access to the NFC chip. Obviously, the Europeans have been focusing on that. The ACCC has also been looking into that issue. In our review of retail payments regulation that we released last year, we also looked into the issues around big tech and mobile Wallets, and clearly the case for regulators to be able to take action in this space is growing over time. One of the practical challenges is having legislation in place, which gives the regulators the capacity to intervene in these situations. In the case of the Reserve Bank, that's the Payment System Regulation Act. It was passed in 1998 and that was a very different payments ecosystem back then from now. Things like mobile Wallets were really on the horizon at best, at that time.

So it's time for the legislation to be updated, so we have more contemporary definitions of payment systems and payment system participants and those supporting payment system participants to give the Reserve Bank and other regulators, the capacity to regulate in the public interest and the national interest. In our case that's to support the safety, efficiency and competitiveness of payment systems. So we'd highlight that case for regulatory reform. The government is taking that up and the announcement was made in December last year, there are plans to modernise the Payment System Regulation Act. I'd also note that in our review, we did take some steps, particularly with regard to mobile Wallets, to very much encourage the industry, say to support dual network debit cards in mobile Wallets. So we are taking steps in this space, but for further steps to be made in future, it will be very helpful for the legislation to be modernised.

So I've now had the deluge of questions. The one that's got the most votes is around the pricing differential between direct entry and NPP, and the fact that that pricing differential is impacting the migration of payments onto the NPP. Is there a plan to address this and encourage migration to NPP-based services at a DE level pricing? It's probably outside the RBA's purview?

Yeah, I think, pricing is fundamentally an issue between NPP and its participants. What we would note of course, is as usage of the NPP grows over time, the per unit price of a transaction would fall. So it'll be interesting to see that progress continue which could lead to some convergence in that pricing.

And then the next one, is April 2023, the date for PayTo to be mandated, or is it just an expectation?

We really want to see PayTo up and running across the industry with payers connected no later than April 2023. So that is what the Governor has communicated to the major banks that have delayed their PayTo delivery for payers, and the major banks have responded to the Governor and have indicated they are all targeting delivery by no later than April 2023. So we are very much looking to see the industry come together and deliver PayTo in fullness in April 2023, so we can really take advantage of the wave of innovation that that could generate.

And what role is the RBA playing in offering different payment options to the Australian market? Is it part of your regime to influence the payment mix or is that completely over to the competitive market situation? In particular here, the question talks about the fact that we're tied to card payments.

Well, as I highlighted in the speech, we are very keen to see as much competition in the market as possible for retail payments. I highlighted that card payments in Australia are a surprisingly high share of retail payments compared to what's going on in some other jurisdictions. So our mandate is to support the safety, efficiency and competitiveness of the payment system, and clearly having more options in the payments mix will help to support those competitive outcomes, help to lower payment costs for consumers. So we'd be very supportive of a broad payments mix and clearly the NPP and the innovation that can come through PayTo will have a very important role to play in that.

And is part of the lowering of payment costs relating to this next question, the removal of cheques from the market? And what role is the RBA playing in making that happen?

Yes. The cheque system has been in decline for a very long time, and it will make sense at some point in the future for the cheque system to close, in the same way that we're having that discussion around Direct Entry. But once again, there are some steps that the industry needs to take to get us there. There's still some legislation out there which effectively relies on cheques. So we need governments around the country to put through the necessary reforms so it's not a requirement to use cheques. We also need the financial industry to support its customers in moving to alternatives from cheques. It can be a big transition to move away from paper-based means of payment to electronic means of payment. So we really need to see the industry put a lot of focus on getting their customers to be able to shift from cheques to alternatives. It's when you have those sorts of challenges overcome, that we can then get to the point of being able to close down the cheque system.

If I take the example in Ireland, the government there put a tax on cheques to encourage people to move. Is there any thought from the regulator that there should be some impost to assist this transition?

Well, one of the things that the government has highlighted in its reform package is it will put in place a strategic plan for the payments ecosystem. These sorts of strategic issues, such as winding down the cheque system, are the perfect sorts of issues to go into the mix of determining the strategic plan for the payments ecosystem. So I very much encourage everyone in the industry to be thinking about that to be communicating with the government, so we can all come together on an appropriate way forward. Obviously, it would be very helpful to be able to coalesce on a path towards closing the cheque system, so we can all coordinate around that.

And finally, and I'll come back to PayTo, and there are lots of people here with PayTo t-shirts on, so it's obviously the topic of the day, but the two top questions here are around, is it only the majors that have to deliver on April 23? What's happening to the smaller institutions? And can't we do something to stop the timeline constantly moving?

So the focus on the majors is to support the critical mass that is required for the network effects of PayTo, to really be able to get up and running. Obviously, we would encourage everyone in the NPP ecosystem to be targeting delivery of PayTo as soon as possible, no later than April 2023, so we can really deliver that wave of innovation that could come through a successful delivery of PayTo.