Strategic Review of Innovation in the Payments System:
Conclusions – June 2012
5 .Payments System Governance

Most concerns regarding the governance of the payments system centre on two main issues. First, how can public interest objectives be taken into account when industry decision-making rests in the hands of commercial entities? Second, how can the coordination problems that inevitably hamper cooperation between industry participants be overcome, while ensuring that cooperation does not discourage new entry and competition?

Over the course of the Strategic Review, the Board has come to the view that these issues cannot solely be overcome from within the industry. In order to achieve public interest outcomes, the Board believes that some external guidance is required and that this guidance would most appropriately come from the Board itself. This approach suggests a fundamental change in the Board's relationship with the industry. This would involve the Board making clear its public interest objectives at a more detailed level than has previously been the case. Additionally, this process should appropriately involve a more direct ongoing engagement between the Board and the industry in order to better establish a common understanding and purpose.

The Board proposes three related initiatives to improve payments system governance. First, the Board proposes to set high-level strategic objectives for the industry, which will help to create a shared goal and to allow the industry to allocate its resources with greater certainty. This approach can only be expected to deal with a small number of high-level issues. It will therefore be important to ensure that industry coordination and governance arrangements are adequate to both take up strategic objectives identified by the Board and to deal with the large number of other cooperative decisions that need to be addressed by the industry. The Board's second proposal is therefore to encourage the constitution of an enhanced industry coordination body that is suitable to both interact with the Payments System Board on behalf of the industry and to provide cooperative agreement on issues that would not normally be taken up by the Board. Third, the Board proposes to establish a framework for more direct interaction between this industry body and the Board itself.

These issues are dealt with below.

5.1 Setting High-level Strategic Objectives

Industry coordination arrangements appear to have difficulty achieving major shifts in strategic approach. Few of the major innovations in the Australian payments system can be put down to a collective decision by the industry. In some cases change has occurred via participants pursuing proprietary projects, which are eventually made interoperable – for instance the introduction of ATMs. Alternatively, some external impetus, including at times intervention by the Reserve Bank, has spurred change. A number of parties echoed this point to the Bank during consultation. It appears that for a number of reasons discussed in the Issues for Consultation paper, it is difficult to garner collective support for change in a timely fashion.[1]

The Board's principal focus is on finding ways to overcome problems with coordination on high-level strategic issues. Based on the suggestions put during consultation, the Board has focused on two possible elements – a ‘road map’ set out by the Board on the future direction of the industry or a separate high-level decision-making or advisory body to help determine industry direction.

On the latter, some submissions to the Review suggested the formation of a council of senior-level representatives to act as custodian of an innovation road map and to provide strategic direction.[2] The expectation would be that members would be of a sufficiently senior level so as to be able to take a broad strategic view and to commit resources as appropriate. Such a body would try to reflect the views of a broad range of stakeholders. The Board's view is that having the right mix and breadth of high-level representation on a payments body could give some greater strategic direction for the industry than is currently the case. However, even a body of this nature is likely to have difficulty overcoming the fundamental conflicts underlying industry decision-making, given that the costs and benefits of any initiative are likely to fall unevenly; a clear business case might not exist for individual players; and priorities and investment cycles are unlikely to align. Most importantly, it is not clear how the public interest would be given priority in such a forum. The inclusion of end users in decision-making could bring alternative views to the table, but would make collective decisions even more difficult. It is difficult to see how such a body could be successful without an independent party such as the Reserve Bank playing a strong role in guiding the agenda of the body.

An approach that recognises these shortfalls and places the role of the Board and consideration of the public interest at the centre is appropriate. For this reason, the Board favours the setting of high-level strategic objectives by the Board itself, based on the Board's assessment of the public interest. Many submissions suggested that the Board set a road map for the industry in order to help individual players to prioritise their activities and plan their allocation of resources over the medium term. The Board sees considerable merit in this approach, given its capacity to break through at least some of the coordination problems discussed above and provide confidence that industry direction is consistent with the public interest. This would be likely to reduce the costs of innovation and increase efficiency in the payments system.

The implementation of this type of approach needs to take account of the nature of the Payments System Board. The Board is a policy body, not a technical body. Accordingly, its role is making judgements about the public interest, including matters of safety, efficiency and competition in the payments system. The Board therefore believes that its role should normally be to set high-level objectives for the payments system, but the onus should be on the industry to determine how those objectives are met in the most efficient way. Accordingly, the Board would not be establishing a detailed road map, but indicating the final destination, which could be reached by a number of alternative paths, determined by the industry. The Board will nonetheless be prepared to provide more detailed guidance where it considers it necessary in order for strategic objectives to be achieved in a timely and appropriate manner.

Over time it will be important for the Board to establish a clearly-articulated framework for setting strategic objectives for the payments system, including the general areas in which they are appropriate and criteria that those objectives must meet. The Board will work on this framework at coming meetings. In the meantime, the Board is of the view that the initial set of objectives for the payments system should reflect the gaps identified during this Strategic Review (see box).

Box E: Initial Strategic Objectives

The Payments System Board plans to outline strategic objectives for the payments system in order to establish a shared vision of the shape of the payments system in years to come. The strategic objectives will reflect the Board's assessment of the public interest. Based on its consultations over the course of the Strategic Review, the Board is proposing the following as the initial strategic objectives for the payments system.

  • All Direct Entry payments should be settled on the day payment instructions are exchanged by the end of 2013.
  • There should be the capacity for businesses and consumers to make payments in real time, with close to immediate funds availability to the recipient, by the end of 2016.
  • There should be the ability to make and receive low-value payments outside normal banking hours by the end of 2016. This would include availability of the Direct Entry system and any real-time system. Ideally it would also involve the capacity for the settlement of card payment receipts during weekends and public holidays, so that receipts can be posted to merchants without generating interbank credit risk.
  • Businesses and consumers should have the capacity to send more complete remittance information with payments by the end of 2016.
  • A system for more easily addressing retail payments to any recipient should be available. To the extent that this is provided by 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 seeking initial feedback on these strategic objectives in the coming months, as outlined in ‘Next Steps’ at the end of this paper.

5.1.1 Setting and monitoring strategic objectives

It would not be appropriate for the Board to determine industry strategic objectives in isolation, nor would it be appropriate for the Board to take no interest in how the industry chooses to meet the strategic objectives. This suggests a need for ongoing dialogue and consultation between the Bank, the industry and other interested parties. The Board's preferred approach is to inform the setting of objectives by a consultative process that allows the Bank and the Board to hear and weigh all points of view. Consultation with an industry body would be part of this process. Once again, a timetable and broad approach would be determined before the process is next entered into. The Board anticipates that a formal process of setting objectives would occur every three years.

A second element of interaction would be engagement with the industry after strategic objectives have been proposed. The release of proposed strategic objectives by the Board could be expected to initiate fairly intensive industry discussions on the approach to meeting those objectives. In the short term, it would be appropriate for the industry to provide some initial feedback to the Bank on those objectives, the timetable identified by the Board, and, if not the approach to meeting the objectives, then the process by which this would be determined. This might occur within the two to three months following the announcement of the objectives. Subsequently, the Board would wish to hear a well-articulated approach to meeting the objectives, along with the key milestones. Finally, during the implementation, the Board would wish to receive timely updates on progress towards those milestones. At each stage the Board might provide feedback to the industry on whether it thought the response was appropriate. The Board anticipates that this would form part of a more formal structure for engagement with the industry in the future.

As discussed below, the Board would like to see enhanced industry coordination arrangements, which would facilitate more direct engagement between the Board and the industry on these issues. However, dialogue on the initial strategic objectives will need to progress before those enhancements have been put in place. In the first instance, 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.

While the Board is optimistic that the approach outlined above is likely to lead to better cooperative outcomes, it acknowledges that there is a possibility that the industry will still not be able to reach agreement on a solution in every case. Given that the strategic objectives determined by the Board are matters that the Board considers to be in the public interest, it would then need to consider whether there is a case for meeting the objectives by other means. For instance, it might seek to establish infrastructure itself, or use its powers under the Payment Systems (Regulation) Act 1998 to require that the objectives be met. In doing so, the Board would of course need to follow the processes required by the legislation, including public consultation and assessment of policies against the criteria set out in the Act.

5.2 Enhanced Industry Self-governance

In the framework envisaged by the Board, industry-level governance will be important for two reasons. As discussed above, strong engagement between the industry and the Board will be crucial to identifying and achieving strategic objectives. In addition, while identification of strategic objectives is expected to help in overcoming the challenges of both incorporating public interest considerations in industry decision-making, and achieving coordination among disparate parties, those objectives will only cover a subset of issues where industry coordination is required. There will continue to be many other issues that are important, but not of the same strategic nature, that need to be coordinated at an industry level. If anything, the range of decisions open to this approach is potentially wider than those currently decided cooperatively and some of the decisions made cooperatively could benefit from a broader perspective. The Board is therefore proposing that an enhanced industry coordination body be constituted.

Currently the main body for industry coordination is APCA. While APCA's genesis is in governing the cooperative clearing and settlement arrangements (currently cash, paper, consumer electronic, bulk electronic and high value), it has been becoming increasingly clear that needs for coordination are broader. For instance, card schemes, online payment schemes and ATM deployers are significant players in the retail payments system, but are not generally decision-makers within APCA. The separation between clearing streams and coordination needs may increase over time as independent payment schemes play a greater role and settlement potentially becomes more separated from APCA streams.

In recent years, APCA has sought greater industry-wide coordination, for instance through the Australian Payments Forum, while the card schemes are becoming more conscious of the benefits of coordinating over security. APCA has also recently made public its proposals for new governance arrangements that would broaden membership. The Board welcomes these efforts, but considers that they should be built upon to encourage the broadest possible participation in, and coverage of, industry coordination arrangements. The Board supports constituting an industry-wide coordination body, building on APCA's arrangements, that is capable of dealing with the full range of cooperative issues that arise in the payments system, as well as being suitable for representing the industry directly in discussions with the Payments System Board (see below). The need to deal with a range of different issues suggests the body would need to operate through a number of subcommittees, similar to the existing APCA structure, but with a peak committee that has representation at a sufficiently senior level to take ownership of strategic issues and to engage directly on policy issues with the Payments System Board. These arrangements would also need to be able to take genuine account of end-users' views.

The Board proposes that the Reserve Bank work with the industry to constitute enhanced industry coordination arrangements, suitable to enable more direct engagement between the Payments System Board and the industry. Some additional views on aspects of the structure of self-governance arrangements are presented below.

Box F: Overseas Developments on Industry-level Governance

Payments system governance is also receiving a significant amount of attention in a number of overseas jurisdictions.

  • The Canadian Task Force for the Payment System Review has proposed a new governance and regulatory framework for the Canadian payments system. The Task Force proposes to establish an industry self-governing organisation (SGO), supported by legislative amendments, with responsibility for industry-level governance and strategic direction. Membership of the SGO will be mandatory for all payment service providers, networks and others in the payments chain. Members will be bound to the decisions of the SGO. A public oversight body (POB), reporting to the Minister of Finance, is proposed to protect the public interest by overseeing and assessing the SGO, and exercising regulatory powers if the SGO does not function effectively.
  • The European Commission (EC) has begun consultation – as part of a broader consultation on the card, internet and mobile payments markets – into governance of the industry and the Single European Payments Area (SEPA) initiative, and the efficacy of the European Payments Council (the industry body responsible for payment system coordination and decision-making). The SEPA Council, established and co-chaired by the EC and the European Central Bank to bring together the providers and users of payments, is also undertaking a review. Although both of these initiatives are still preliminary, one proposal is to give the SEPA Council the responsibility for setting strategic guidance, priorities and timeframes for the payments system.
  • The UK Government is considering undertaking a consultation on payments system governance and regulation to bring the UK Payments Council (the industry body responsible for payments system strategy and governance) under public oversight. This follows a report by the Treasury Select Committee into the Payments Council and its approach to cheques, which recommended a number of changes to the Payments Council, including that it be overseen by the Financial Conduct Authority.

5.2.2 Structure, governance and powers of the industry body

A number of important questions about industry governance arose during consultation for the Review. These included:

  • What are the appropriate representation and decision-making arrangements for an industry body?
  • Should an industry body have greater powers to compel participants to adhere to its decisions?
  • How should the need for an industry body to make cooperative decisions be balanced with competition law issues?

In relation to representation and decision-making, the Board believes that significant steps towards better cooperative outcomes, taking account of the public interest, will flow from the setting of strategic objectives and the formation of an enhanced industry body which is able to interact directly with the Board. It does not seek, at this stage, to dictate specific details of decision-making arrangements. It nonetheless suggests that the following criteria would be important in the design of governance arrangements for any enhanced industry coordination body:

  • 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' views should be represented either explicitly or through independent directors. Given the changing nature of the industry, the appropriateness of representation should be reviewed periodically.
  • The coordinating 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.

The Board is conscious that coordination in the payments industry has often been hostage to the lowest common denominator or the slowest mover. The Board believes that setting strategic objectives will help to overcome this constraint in respect of the areas that the Board chooses to take up. The question remains whether the industry body itself should have some formal recognition of its powers so that it can compel compliance by participants that might otherwise hold up desirable reforms. There are equivalents of this overseas, for instance in Canada, where the Canadian Payments Association can compel participants under the Canadian Payments Act 1980. The Irish Payment Service Organisation and the Payments Association of South Africa also have formal legal recognition. In other cases, powers to compel are contractually based.

The Board believes that members should join the industry body on the understanding that they would be tied to the decisions of that body. While there would be a strong presumption that stakeholders would be members and therefore tied to the body's decisions, the Board does not see a need for the body's powers to be supported by legislation. The Payments System Board of course has powers to regulate on matters that are in the public interest, supported by the appropriate checks and balances, including accountability to the Parliament.

The Board notes the suggestion that it be able to provide greater legal certainty to cooperative decisions by the industry that are in the public interest, without regulation. Some decisions otherwise may be counter to elements of the Competition and Consumer Act 2010 (CCA). This highlights complications of payments system competition falling under the auspices of both the Payments System Board and the Australian Competition and Consumer Commission (ACCC) – something that is recognised in the MOU between the two.

The intention of the legislators in enacting the Payment Systems (Regulation) Act was that industry-based solutions should be preferred to regulation.[3] This has often resulted in the Bank encouraging the industry to voluntarily take action to address concerns in a particular area. However, some cooperative actions taken in response may nonetheless be counter to provisions of the CCA. As it stands, there are two possible means of giving an agreement of this type legal certainty. The industry can seek authorisation from the ACCC, which it will grant if it considers the agreement to provide a net public benefit. Alternatively, legal certainty can be provided where the Reserve Bank regulates; for instance, section 15A of the Payment Systems Regulation Act provides relief from Part IV of the CCA for actions taken in accordance with an Access Regime set by the Reserve Bank.[4]

The former approach means that the industry may need to deal with multiple regulators in relation to a single issue. Regulation by the Bank can avoid the need for authorisation by the ACCC and so provide a single regulatory process, but regulation where a voluntary agreement might have been possible is counter to the intent of the Payment Systems (Regulation) Act. The Board considers that this issue would benefit from further discussion with the government.

5.3 Payments System Board Engagement with the Industry

The Board believes that fostering cooperative innovation of the type discussed in this paper will require a constructive partnership between the Payments System Board and the industry. As discussed above, the Board believes that ongoing liaison, feedback and reporting will be important in working towards implementation of the strategic objectives. However, it also believes that greater direct interaction between it and the industry is warranted in general. This is a point that has been raised by a number of parties, both in the context of the Strategic Review and elsewhere.

Should a suitable industry body be constituted, the Board proposes to engage directly with that body, both on the setting and implementation of strategic objectives and the more regular activities of the industry body. In the case of the latter, it would be appropriate for the industry body to: report on its activities; seek input from the Board on priorities; report on issues on which the industry has not been able to reach agreement; and make recommendations to the Board on areas where it considers regulatory change may be appropriate. In turn, the Board would use this as input to its own deliberations; provide feedback as appropriate; and indicate to the industry body issues that it thinks should be on the industry body's agenda.

The Board does not believe that progress on addressing the strategic objectives should wait for the process of reforming governance to be completed. There therefore needs to be continued engagement between the industry and the Bank during this interim period. The Board does not wish to dictate how this should occur; key players will need to decide whether they wish to act through APCA or by some other means. Longer term, the Board is hopeful that an enhanced industry body will have a clear mandate to engage with the Board on these issues on an ongoing basis.


Similar concerns have arisen overseas, for instance this has been identified as a factor in the decision by the European Commission to regulate direct entry systems – see European Commission (2012), ‘Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros and Amending Regulation (EC) No 924/2009’, December – and in delays in implementing mobile payments in the United Kingdom – see Cave M (2012), ‘Independent Review of Governance and Performance of the Payments Council 2009-11’, January. [1]

See, for instance, ANZ (2011), ‘Strategic Review of Innovation in the Payments System: Issues for Consideration’, ANZ Sumbission to the Reserve Bank of Australia, August. Available at <>. [2]

See Payments System (Regulation) Bill 1998, Explanatory Memorandum. [3]

By ‘specifying’ and ‘authorising’ for the purposes of subparagraph 51(1)(a)(i) of the Competition and Consumer Act actions by a participant in a designated payment system that are in accordance with an Access Regime. Subparagraph 51(1)(a)(i) requires that anything specified and specifically authorised by an Act must be disregarded in deciding whether a person has contravened Part III of the Act. [4]