Strategic Review of Innovation in the Payments System: Conclusions
6. Summary of Conclusions and Next Steps
The Board's proposed approach following the Strategic Review of Innovation is summarised below.
1. The Board will establish high-level strategic objectives which it believes the payments system should be able to meet by a specified time.
Every three years the Board will establish new or revised strategic objectives for the payments system, or confirm existing ones. Strategic objectives will cover the services that are provided by the payments system and potentially some of the characteristics of individual systems, for instance relating to access or interoperability. The Board will establish objectives by consulting extensively with stakeholders, both privately and through a public consultation process. As with the process that has occurred during the Strategic Review, it will take account of developments overseas. The Board will review progress towards meeting current objectives annually.
In general, the Board does not see its role as dictating the means by which the strategic objectives are met. It considers that the industry is best placed to determine how it does so in the most efficient manner. The Board, however, has an interest in ensuring that the objectives will be met to its satisfaction in a timely manner.
The Board will set objectives that it considers to be in the public interest. If it is not satisfied that they will be met otherwise, it will consider using other means, including the Reserve Bank's powers under the Payment Systems (Regulation) Act (subject to the tests and processes required by the Act), or the provision of infrastructure by the Reserve Bank itself.
To be successful, these arrangements will require considerable interaction between the Bank and the industry. The Bank is seeking an initial industry response to the strategic objectives by end August, including feedback on the timetable identified by the Board and possible approaches to meeting the objectives, in particular real-time retail payments. In future, such a dialogue should occur largely with an enhanced industry body. At this stage, given that governance arrangements have not been settled, the Board encourages the industry to engage collectively with the Bank, through APCA or another grouping, but is also prepared for interested parties to engage with the Bank separately. The Board would like to have a clear path forward identified later in 2012.
2. The first set of strategic objectives for the payments system will reflect the gaps identified by the Board during the Strategic Review.
The strategic objectives are presented in Box E on page 20. In summary the payments system should be able to provide:
- same-day settlement of all DE payments
- the ability to make real-time retail payments
- the ability to make and receive low-value payments (Direct Entry, real-time payments and crediting of card payment receipts) outside normal banking hours
- the ability to send more complete remittance information with payments
- the ability to address payments in a relatively simple way.
While these objectives need not be available through all payment systems, they should be readily available among a menu of payment services offered by different payment systems across accounts at all financial institutions. The Board recognises that the challenges in each are different and may need to proceed on different timelines. The Board's preliminary view is that same-day settlement of all direct entry payments should be available by the end of 2013. The capacity to carry additional data with payments, make and receive payments out of hours, and provide real-time payments (with real-time funds availability) should be available by end 2016. To the extent that simpler addressing of payments is provided via a new real-time system, it should be available by the end of 2017. This does not rule out earlier availability via other solutions.
The Board is prepared to consider adjusting these dates as part of its initial engagement with the industry on its strategic objectives. It is possible that these capabilities could be delivered in less time and the Board encourages the industry to strive to do so.
3. While the Board intends to let the industry determine the approach to meeting strategic objectives, it sees merit in the establishment of hub-based architecture for providing real-time payments, including a real-time settlement hub provided by the Reserve Bank.
The Board sees a system providing real-time payments as key to further innovation in the retail payments system. Such a system should be as open as possible, implying that the costs of new players joining should not rise significantly with the number of participants. It should also be capable of providing additional processing services. Finally, the Bank believes that there is a case for settling these transactions in real time so that real-time payments do not rely on credit provision. All these points suggest the adoption of a hub-based solution.
The Board recognises that there are potentially significant costs involved in a new system, risks around any commercial model, and the potential for the exercise of monopoly power. It therefore does not rule out the possibility that a commercial model is not optimal and that such a system would need to be established by the Reserve Bank.
The Bank is seeking industry feedback by end August on its preferred approach to real-time payments and the model for delivery. Next steps will depend on the outcome of that process. Should the Bank determine that the best approach is for it to provide the architecture itself, it will consult with the industry on key requirements and capabilities for a real-time payments hub solution, with a view to the possible initiation of a tender process from mid 2013. Further details on a possible approach are provided in an attachment to this paper.
4. The Board recommends a review of industry coordination, with a view to constituting an enhanced industry body with which the Board will engage more directly.
The Board proposes that the Reserve Bank convene discussions with stakeholders on constituting an enhanced industry body. The body would have broad industry coverage and would be responsible for industry coordination, as well as being the principal voice of the industry in liaison with the Reserve Bank and the Payments System Board, including in respect of the strategic objectives outlined above.
The Board considers that the governance arrangements for such a body should include the following features:
- The body should have a clearly stated obligation to consider both the interests of the industry and the public interest.
- It should be representative of those that have a genuine stake in the outcomes and not dominated by any class of participants. End users should be represented either explicitly or through independent directors.
- The body should be small enough to be effective.
- A strong role for independent directors should be provided.
- Representatives at the peak level should be sufficiently senior to promote a strategic approach.
Over the coming months the Bank will engage with stakeholders on the approach to constituting an enhanced industry coordination body that will engage with the Payments System Board on innovation and other matters.
The Bank is seeking input on the strategic objectives and timelines identified in this paper. In particular it is seeking input on the approach to the provision of real-time retail payments. This dialogue can begin immediately, but the Bank would like to receive views both on the strategic objectives and on the delivery of real-time payments no later than end August. As noted above, the industry is encouraged to engage collectively with the Bank, through APCA or another grouping, but the Bank is also prepared to engage with interested parties separately.
The Bank is happy to receive initial written submissions or to meet with interested parties in person. Written submissions should be addressed to:
Head of Payments Policy Department
Reserve Bank of Australia
GPO Box 3947
Sydney NSW 2001
The Bank will publish written submissions on its website at the request of the submitter.