Strategic Review of Innovation in the Payments System:
Conclusions – June 2012
1. Overview

This document sets out the conclusions of the Reserve Bank's Strategic Review of Innovation in the Payments System. The Strategic Review was announced in May 2010, with the objective of identifying areas in which innovation in the Australian payments system could be fostered through more effective cooperation between stakeholders and regulators. The focus of the Strategic Review is medium-term, looking at possible gaps in the Australian payments system that might need to be filled through innovation over a time horizon of five to ten years.

The conduct of this Review does not imply that there is a lack of innovation in payments per se in Australia. Indeed, some significant innovations are currently underway and it seems likely that customer-facing innovations will have a very significant impact on the payments market over the next few years. As has been stated on a number of occasions during the course of this Review, the Reserve Bank's focus is on areas of system-wide or cooperative innovation, where decisions are not just in the hands of a single player. Innovations of this nature have proved difficult to achieve. While a significant concern in its own right, the difficulty of achieving cooperative innovation also constrains the innovative solutions that can be built upon common systems by individual players on a proprietary basis. Therefore addressing these issues has the potential to unlock significant future innovation, resulting in ongoing improvements to the efficiency of the payments system.

The conclusions outline a change in approach by the Payments System Board in relation to payments innovation. In recognition that there are impediments to the payments industry collectively delivering solutions that would be valued by businesses and consumers, the Board intends to be more proactive in setting out strategic objectives for the payments system, that is, its expectations for the services that the payments system should be able to offer in the future. The Board believes that this will help to overcome some of the coordination problems that have been evident in the payments system over the years. The paper sets some initial strategic objectives: same-day settlement of Direct Entry (DE) payments; early progress towards real-time retail payments; availability of payment systems out of normal banking hours; the ability to transmit additional remittance data with payments; and the ability more easily to address payments.[1] While not wishing to dictate how the strategic objectives are met, the paper also outlines the Board's thinking on a possible approach to architecture for providing real-time payments.

The Bank envisages an ongoing role in relation to innovation. In particular, processes flowing from the Strategic Review will require significant dialogue over the coming months and years. Most importantly, the Board proposes that there be regular and ongoing engagement between it and the industry on strategic objectives and other industry issues. In order to facilitate this, it proposes that the Bank work with the industry on constituting an enhanced industry coordination body that would engage directly with the Payments System Board.

This paper is the fourth issued during the course of this Review. It follows Strategic Review of Innovation in the Payments System: Issues for Consultation (Issues for Consultation), the Bank's 2010 Consumer Payments Use Study and Strategic Review of Innovation in the Payments System: Summary of Consultation (Summary of Consultation).[2] The Review has drawn extensively on two rounds of public consultation, along with the activities of the BIS Committee on Payment and Settlement Systems (CPSS) Working Group on Innovations in Retail Payments.[3]

The discussion through the course of the Review has tended to be divided into consideration of: specific potential gaps in the payments system; architecture arrangements appropriate to fill the gaps identified; and industry governance arrangements to underpin future innovation. Sections (3, 4 and 5) of this paper follow those themes. Before addressing those issues, however, Section 2 focuses on the relationship between innovation and the Board's mandate. Section 6 summarises the conclusions and outlines the next steps.


‘Real-time retail payments’ in this paper refers to ‘credit transfers’ that can be initiated by the payer and provide funds availability to the payee in real time. There are existing systems (in particular for card payments) that provide real-time authorisation ‘debit transfers’, but these are largely only available for payments to merchants and funds availability might lag significantly. [1]

See Reserve Bank of Australia (2011), Strategic Review of Innovation in the Payments System: Issues for Consultation, June, available at <> Bagnall J, S Chong and K Smith (2011), ‘Strategic Review of Innovation in the Payments System: Results of the Reserve Bank of Australia's 2010 Consumer Payments Use Study,’ June, available at < innovation-results.pdf> Reserve Bank of Australia (2012), Strategic Review of Innovation in the Payments System: Summary of Consultation, February, available at < 2012.pdf>. [2]

Australia participates in the Working Group on Innovations in Retail Payments, which issued a report, ‘Innovations in Retail Payments’, in May 2012. [3]