Transcript of Question & Answer Session The Future of the Payments System

Thank you very much for that address. Very informative. We’ve got quite a few questions for you. But I have one just following up on your speech. You talked a lot about how much is going on at the moment in the payments industry. Can you give us a sense of the bank’s approach to engaging with industry?

Yeah. For those that are perhaps new to the payments landscape in Australia, we’ve taken an approach, almost like a philosophical approach that’s a little bit different from some of our counterparts internationally, in that we try and - our point of departure is always to engage as constructively as we can. We are not disposed to starting our conversations by reciting passages of legislation or by bringing armies of lawyers into the room. That’s not how we try and engage. Our lived experience has been that the best public policy outcomes can often be achieved by speaking with industry in a way that gives them context and allows them to understand what the intent of a particular proposal might be. Now, that said where those conversations are not leading to outcomes that we think are in the public interest, we will always reserve the right to invoke a national security concept. To bring out the hard power. To bring to bear the full range of our regulatory powers. But that’s typically not where we try and start and we found that to be, frankly a useful guiding philosophy.

Okay. Just pointing out that behind you, you can see the graphic recording of your speech. Can we just have it up again on the screen? It’s disappeared now. Never mind. There it is. Have a look at it. Have you ever had one of your speeches transcribed that way?

I have not. No. That’s a first.

Yeah. It’s really amazing. It takes a bit of time to read into it but so interesting. Okay. We’re going to go to audience questions now. Thank you very much to everyone who has sent them in. Let’s start with David Ross, a journalist with the Australian. Did the RBA fail to foresee the huge rise in scams and fraud when the NPP was introduced and why didn’t it push for a name check style technology at that time?

There’s been - like the rise of scams has been an issue that has been increasingly front and centre for the entire - I would say for the entire official regulatory family. And the responsibilities on scams are dispersed across all of the regulators. I can assure you that all of the regulators that form the council - the Council of Financial Regulators, Treasury, ASIC, APRA, ourselves, and also the ACCC are very, very focused on this. There’s a concerted effort to tackle this. It’s taking multiple forms. The role that the bank has played in this has been to actively promote the development of mandatory codes. The bank has also been actively promoting safeguards like PayID over a long period of time. We are also engaging quite intensively with our counterparts at the ACCC who have got the anti-scam set up there. So there’s a huge amount of discussion, information exchanged, idea generation happening across the entirety of the official family, and of course we’re engaging with banks and nonbanks very frequently on all of the things that they’re doing. So I want to assure everyone that the entire regulatory apparatus in Australia has a full core press on around this issue.

John Ryan from PayEd, are other solutions aside from NPP being considered for BECS replacement?

That’s really a question for industry. We, at the bank - the way that we see our role in this is not to be prescriptive about the end state. The decommissioning of BECS, the target date of 2030 was an industry-led initiative. Our role here is to ensure that as industry develops, plans for our future account-to-account payment system arrangements, that that process is done in a way that’s really orderly and where the full ecosystem of participants have a voice in helping to shape that future. So that’s really how we view that process. We’ve got a key role to make sure that the transition to whatever the future state that industry wants to coalesce toward, that that is an orderly transition and that risks are being appropriately managed. We don’t see our role to be highly prescriptive and telling industry what that future system - what the features of that system could be. We’ve also got a role, as I mentioned in my remarks, in engaging with a wide range of stakeholders and feeding back into forums like this, some of the concerns and questions and issues that we hear, to make sure they get a good airing in these industry discussions about what the future systems should look like.

Okay. I’m not sure who this question has come from, but why doesn’t the RBA adopt the ECB regulatory framework? Is it time to learn from other mature markets?

That’s a slightly tricky one. There’s lots of different regulatory frameworks. It could be - is it in relation to digital assets or is it in relation to interchange?

We don’t get the details in the -

Okay.

We can move on, if you like.

Yeah. Maybe it’s safest to move on then.

Okay. What’s the expected outages for NPP PayTo processing in 2025? How many hours down time per quarter? That’s very specific. This person says thanks. If you could just give us a heads up on that.

Yeah. That one is above my pay grade unfortunately.

How do we, as an industry, help our customers make the move from the way they use BECS to NPP by 2030? Is this a bank to customer problem or something that industry has to address? Michael from NAB has asked that question.

Yeah. It’s a really good question. What we understand is that there is now a very common understanding about the point of departure. We’re moving on from BECS. Okay. Industry has made that call. There is much less understanding across the entirety of the system, and by that I mean including the end users, about what the actual functional features of that future system should look like. We think it’s really important that there’s agreement sooner rather than later that a consensus is able to be formed, sooner rather than later, on what the key principles, the key functional features of that future system should look like because once there is very clear understanding of the features that end users really value, then you can start to work backwards. You can start to build a roadmap that allows those - that creates a pathway really for those different features to be enabled and developed. I don’t think it’s helpful jumping straight to a - one potential solution without having very broad-based discussions with the entire landscape about, what are the features that you most value? You know, account-to-account payments, and how can we build on and uplift what we’ve already got? That’s really the - we think the foundational piece. That has to be industry-led. Now, the bank is happy to participate in roundtables. And I think Treasury are also happy to participate in roundtables to help provide a perspective here or there but industry has really got to grab the bull by the horns and make sure they are engaging with the end users in the system and making sure that their interests are being reflected in the development of the system of the future - systems of the future.

For NPP coverage increase, does the RBA have plans or policy so that the same phone number can be used across more than one bank? If done it will exponentially increase NPP coverage.

Sorry, could you repeat that one?

Does the RBA have plans or policy with these account transfers that the same phone number can be used across more than one bank? I guess that’s to do with, like, PayID.

Yeah. I mean, if I can paraphrase or frame that question slightly differently. There are already mechanisms in place that mean that a single phone number can give you a lot of functionality and where - PayID is an example of that. And we’re supportive of that type of efficient functionality continuing into the future.

Okay. The Australian markets close earlier than the major currencies, thus making it difficult to align liquidity and dates of when banks can support making payments. Are we able to extend Australian dollar trade windows?

I think, again, that’s really - that’s a discussion that we would welcome industry having. We know that from the international experience that alignment of operating hours is almost always going to be beneficial, in terms of taking friction out of the system. We’ve seen operating hours by adjusted in other parts, for instance, of the Australian financial market infrastructure and we think that that’s been useful so there’s no reason why that same principle wouldn’t apply more generally, but again that’s one where we would be looking for industry to lead on.

Right. Okay. This next one speaks to the graph that you had up about the use of cash. Do we have any statistics as to whether the use of cash has increased at all by consumers who try to avoid the use of surcharge fees by retailers?

We don’t but we are about to launch - well, next year we’ll be running the next iteration of our consumer payment survey and that survey historically we’ve run every few years and gives us a real treasure trove of data in helping to understand how cash is being used and how different segments of the community are using it. We haven’t fully ironed out the questionnaire yet. We try and maintain some level of consistency in the questions from one year to the next but there’s always scope to introduce new questions and I think really the subtext to that question is actually quite important and it connects back to this broader piece of work that we’ve now undertaken in our review, which is to look really hard at surcharging, recognising that the era when the surcharging framework was put in place was very different. Right. Twenty years ago. The way that people transacted, engaged in the economy was very different to the way that they do today. And our review is not one of those reviews where maybe the answer has sort of been cooked up beforehand. This is genuinely a review where the bank has a very open mind about where we land. There’s a whole bunch of issues are going to feature in that mix. We’ve already seen a number of responses, which suggests to us that there are strong arguments on both side. I can’t give any steer now as to where we might land on that, other than to say that every single submission that’s been sent in will be given very close attention.

Because it is interesting to know the narrative that we’ve been reading about is that consumers are angry about those surcharge payments.

Yes.

But we’ve got a whole generation now, particularly that are used to just paying electronically and it would be interesting to know if that anger is strong enough to push people back to cash or whether cash has just had its day for many of us.

Yeah. One of the things that we always try and communicate when we’re talking about surcharging, and we realise it is a hot button issue and many consumers really don’t like it, is to think about the entire - surcharging in the context of a larger system. The propensity for merchants to surcharge will be lower if upstream costs are lower. So we have been very focused over the last two decades in pushing down the upstream cost, the wholesale cost. As those costs come down, our view would be that there would be, on average, less propensity for merchants to want to surcharge, just focusing on the surcharge piece without reference to what else is happening in the ecosystem we don’t think would lead to good policy making. Ultimately the costs in the system have to be borne by someone. They’ve got to be borne somewhere. So the consumer or the merchants or the card schemes or whoever. So we’re looking at this issue in its entirety, not just one piece of it.

Okay. We have 40 seconds left. One quick question. What is the RBA’s view of the desirable qualities of digital currency?

Great question. If I can - I’ll focus more response there on the wholesale side because that’s really where we see most case. There’s really two, I think, killer functions. One is it will be - potentially be able to do things that we can’t currently do with central bank money. The programmability piece is a notable example. The second piece is around this concept called atomic settlement. What that means is conditional instantaneous settlement. Right now we have a system where you have asset trading going on on one ledger and then two days later, and a completely different ledger, the settlement, the back end piece happens. Atomic settlement promises to cut through the T+2 world and bring the trading and the settlement on to potentially the same ledger happening conditionally and instantaneously and hence freeing up a lot of collateral and capital that’s tied up for a couple of days in traditional settlement processes. So they’re the two main, sort of, killer apps, if you like, of a wholesale CBDC and thence we’re really focused on the potential role that tokenised asset markets could play in uplifting the efficiency, resilience of the Australian financial system.

Okay. Well, unfortunately we are out of time for more questions but thank you for being such a good sport and taking all those questions, even the tricky one, and thank you very much for giving our key note speech.

Thank you. Thank you.