Transcript of Question & Answer Session A Payments System for the Digital Economy

So we have time for a couple of questions for the governor to officially wrap up his public responsibilities this year, so please just raise your hand, name and affiliation. Here we go. We got one up here.

I've got a two questions, if I may. The first one on the potential consolidation there of BPAY, eftpos and the NPP. I'm just wondering how any decision in that regard would be governed given the close relationships between NPPA and the RBA. Does the RBA focus on the customer outcomes there or the benefits of particular schemes? And my second question, Governor, if you might indulge me, is slightly broader than payments, but does the Reserve Bank agree with Kenneth Haynes' opinion expressed yesterday, that directors who fail to act on climate risk are neglecting their legal duties?

Your second question is way outside my lane, so I'm going to avoid that if you don't mind. On the first one, I think if there is a case for consolidation – and I don't think that case has yet been established, it may emerge – I don't see it being driven by the Payments System Board. It will be driven by the industry participants. How that best takes place, I don't really have a particularly strong view. I raised the issue though because many people, many of the institutions in this room, say that there are competing and conflicting investment priorities, and sometimes that gets in the way of progress. So the high level question is whether some consolidation would be in the public interest, and we've got an open mind about that and we're not going to drive it, but if the industry would like to explore it, we'll be supportive of it.

Any more questions? We have one over here.

If you indulge me as well, it's just our last chance to get hold of you. On the GDP on Thursday, I'm just wondering what you made of that, whether that's a real look in the rear view mirror, and what you're seeing perhaps from liaison is looking a bit better in terms of consumption and retail and that sort of thing, or whether we're sort of still in the doldrums and 3Q GDP represents where we were at?

Well, I can't avoid this question by saying it's outside my lanes. The GDP outcome was broadly in line with our expectations. Growth of 1.7% during the year was what we had expected.

I think the surprise was the weakness in consumption growth. In the September quarter, households did get a boost in their disposable income. They got it from lower interest rates and the tax payments the government's been making. So the surprise was the consumers decided to save a fair share of that extra income.

The evidence though, over time, is if that Australians have extra income, they spend a fair chunk of it. So I'm still confident that over time people will spend this extra income. This is why there are long and variable lags associated with monetary policy. We get the money today and it takes us time to adjust our spending plans. When interest rates come down, it takes people time to adjust their mortgage payments, but eventually they do that. And the evidence from all previous tax payments is that people do eventually spend a fair chunk of it. It's quite possible in the current environment that the spending's taking a bit longer. Many of us have got a high level of debt, probably too much debt, and we're using the opportunity of extra income to pay down the debt. But eventually when we do that, I think we'll spend more of it. So the weak consumption growth was a bit of a surprise, but I don't think it has particular messages about the future.

Great. We have a question just at the side here.

You talked today about the decline of cash, but we have seen in many cases customers still being charged significant surcharges and constant bank outages. Is there still always a place for cash in Australia because of situations like these?

Yeah, that's a good question. I feel like in the future perhaps cash is going to be the payment instrument you use when a disaster happens or there's a failure of the electronic system, and I think most of us who use tap and go payments all the time still carry some cash in our wallets or purses because you can't be 100% sure that you're going to be able to use the electronic system. If you look forward into the future, I think people are still going to want to hold some of the banknotes the Reserve Bank produces in their wallet or purse just in case.

It would be good if they didn't need to. If the whole system was kind of electronic, I think, in the end that's going to be a more effective solution for Australians. But while ever there are outages and there are high costs of electronic payments, people will always want to use cash. So I can see the end of the cheque system. I can't see the end of the cash system though.

Okay. I think two last two questions. We'll start here if we can.

The microphone's coming.

I'm just wondering, you mentioned the mandated payment service, obviously the migration to ISO. Do you see that the direct entry system will need to be also an end date set for that? And if so, do you have an indicative timeframe in mind for this?

Well, the direct entry system has really been the workhorse of Australia's payments system but it's outdated, isn't it? And I'm fond of telling this story so if you can indulge me telling, I'll tell it one more time. You know, when you send a message in the … you make a payment using the direct entry system, you've got 14 or 18 characters to kind of say your name and the invoice. And if you're like me, occasionally you run out of characters. The reason that it has only 14 or 18 characters is the original message length was 80 characters, and it was 80 characters because that's how many holes were in the punch cards. So the workhorse of Australia's payments system is still constrained by the punch cards, so it needs to be updated. We need to be able to send more than 14 or 18 characters with our payments.

I think eventually that system will need to shut down. The Reserve Bank isn't going to drive it, but I think the industry will have to think about that as part of its medium-term strategy. What happens to the direct entry system? We've got a much better system out there. It's faster, it's quicker, it's more convenient, more secure, more modern message standard. But it's not something that we're going to drive, but I hope the industry does drive it.

Okay. One last quick question, which I promised the gentleman down here before.

Governor, Julian Bajkowski, iTnews. Just on outages and the data that's been collected there finally, in a consistent manner. Is that going to be made public at an institutional level so that people can see the performance of institutions in terms of outages in the future? And just on the consolidation of the domestic schemes. It's a huge question but, I mean, who would be the umpire in such a scenario if there was to be a consolidation? It's great to throw it out to industry but, you know, there has to be some sort of regulation.

On the second one, I think the ACCC would have interest in the topic and so would the Payments System Board, we don't see ourselves as being the umpire here. If there were to be consolidation, I think we'd need to be able to demonstrate … the industry would need to demonstrate that was in the public interest, and it's quite possible that public interest case will emerge.

On the transparency of outages and the publication of the data, we're very keen to see that published at the individual institution level. We've done some consultation earlier in the year, and I think it's fair to say that not all institutions were enamoured by the idea of publishing it at the institution level, but we think it's important. It's important for public transparency and confidence in the system, and hopefully it allows institutions to benchmark themselves against other institutions. The process we're going through now is to work out what form of transparency, what form that should take, how do we provide data that's most meaningful to people. And we're still working through that with the industry, but over the course of the next six months, we'd hope to finalise that, because as I said in response to one of the other questions, that it's really important that people have confidence in the electronic payment system.

We've seen examples through the course of this year where businesses have not been able to sell their goods and services because the electronic payment system went down and people didn't have enough cash in their wallet. So it's really important to our modern economy that the electronic payments system's working well. Both APRA and the Reserve Bank have very strong interest in this. If standards didn't improve, both APRA and the Reserve Bank have the power to set standards in this area. I would hope that we wouldn't have to do that, but it's a possibility if things don't improve.

Great. Look, I think we have to wrap it there. We're a little bit behind time, so I would like everyone to join me in thanking the Governor of the Reserve Bank, Philip Lowe, for speaking today.