Topic: Payments

Payments
Photo: Berkah – Getty Images

Modernising Payments Messaging: The ISO 20022 Standard

Tarnia Major and Joseph Mangano

Electronic payments rely on the exchange of messages to instruct the flow of funds between financial institutions. The quality of payment messaging data is important as it determines what payment information is received by financial institutions and their customers. Worldwide, there is movement to develop new payment systems using the International Organization for Standardization (ISO) 20022 messaging standard, and to migrate some existing systems to the standard. In Australia, an industry-led project to migrate the High Value Payments System to ISO 20022 commenced this year. This will provide a number of benefits, including improved transfer of payment information to beneficiaries, better fraud and financial crime management for payments service providers and greater opportunities for straight-through processing.

banking, data, payments, technology
Payments
Photo: alengo – Getty Images

Retail Central Bank Digital Currency: Design Considerations, Rationales and Implications

Tony Richards, Chris Thompson and Cameron Dark

There has recently been increasing international focus on the possible issuance of central bank digital currencies (CBDC), or what might be considered a digital equivalent of banknotes. While the technical feasibility of such a new form of money is not yet established, this paper considers some issues around its possible design, the possible rationales for issuance, and the implications of issuance. Given the likely benefits and risks, at present there does not seem to be a strong public policy case for issuance in Australia. Nonetheless, it will be important to closely watch the experience of other jurisdictions that are considering implementing CBDC projects.

cryptocurrency, currency, money, payments, technology
Payments The hands of an older woman holding a few 50 dollar notes.
Photo: Toni Faint – Getty Images

Cash Use in Australia: Results from the 2019 Consumer Payments Survey

Luc Delaney, Nina McClure and Richard Finlay

The Bank’s 2019 Consumer Payments Survey (CPS) suggests that the use of cash for transactions has continued to fall alongside growing use of electronic payment methods. Despite this, a substantial share of consumers still use cash intensively, with this share having reduced only a little over recent years. These high cash users are more likely to be older, have lower household income, live in regional areas, and/or have limited internet access. The survey suggests that around one-quarter of consumers would face major inconvenience or genuine hardship if they could no longer use cash, although most respondents stated that their current access to cash was convenient. The survey was conducted before the emergence of COVID-19 and the associated social distancing measures, however, and so did not capture any change in behaviour that may have resulted from this.

payments, rba survey, data analytics, money
Payments A roll of Australian 50 dollar notes and some coins.
Photo: Vicki Smith – Getty Images

Bank Fees in Australia

Stephanie Crews and Michelle Lewis

The Reserve Bank’s 23rd annual bank fees survey shows that, overall, banks’ income from fees declined in 2019. Fee income from households decreased, largely driven by lower fees from deposit accounts. A number of reforms related to merchant services contributed to banks’ fee income from businesses growing at a slower pace than in recent years.

banking, fees, atm, rba survey
Payments Dollar signs emerge from a mobile phone held in a hand.
Photo: Sarinya Pinngam – Getty Images

Two Years of Fast Payments in Australia

Emilie Fitzgerald and Alexandra Rush

It has been two years since the public launch of the New Payments Platform (NPP) and the Fast Settlement Service (FSS). Together, the NPP and FSS now enable customers of more than 90 financial institutions to make fast payments 24 hours a day, every day of the week (‘24/7’). Customers can send detailed information with a payment and nominate the payment recipient in a simple way. While the rollout of the NPP has been gradual, usage grew rapidly over the second half of 2019 and compares favourably with other successful fast payment systems introduced overseas. With a range of new functionality under development, the NPP and FSS are well placed to deliver innovative new payment services to support the Australian economy into the future.

payments, NPP, technology
Payments A mobile phone with a blurred screen of transactions.
Photo: Carolyn Hebbard – Getty Images

Consumer Payment Behaviour in Australia

James Caddy, Luc Delaney, Chay Fisher and Clare Noone

The Reserve Bank’s 2019 Consumer Payments Survey has provided further evidence that Australian consumers are increasingly preferring to use electronic payment methods. Many people now tap their cards, or sometimes phones, for small purchases rather than paying in cash. Consumers also have an increasing range of options available for making everyday payments. Despite this, cash still accounts for a significant share of lower-value payments and a material proportion of the population continues to make many of their payments in cash.

payments, rba survey, data analytics, money
Payments A customer holds their credit card above an eftpos reader.
Photo: Hispanolistic – Getty Images

The Cost of Card Payments for Merchants

Kateryna Occhiutto

Data on merchants’ costs of accepting card payments show large differences in payment costs across both merchants and card systems. Smaller businesses typically face higher payment costs than larger businesses, credit card transactions are generally more expensive that debit cards, and debit card transactions tend to be more costly for most merchants when processed through the international card schemes compared with the domestic debit scheme. Overall costs of accepting card payments have nevertheless declined over the past decade, following the implementation of various reforms by the Bank.

payments, fees, retail
Payments Rolled-up banknotes, coins and desktop calculator are sitting on a desk.
Photo: Parinda Yatha – Getty Images

A Cost-benefit Analysis of Polymer Banknotes

Max Wakefield, Luc Delaney and Richard Finlay

Australia was the first country to issue a full series of polymer banknotes, completed over 1992–96. After 25 years, issuance of the second generation of polymer banknotes is well advanced. It seems appropriate, therefore, to revisit the financial savings resulting from the switch to polymer. Employing a cost-benefit analysis framework, we find that the switch to polymer has resulted in net savings of close to $1 billion over the past 25 years in inflation-adjusted terms. This does not take account of the benefits of reduced counterfeiting, which have also been substantial and were the original motivation for switching to polymer. We also discuss cost savings arising from outsourcing banknote distribution to the private sector, as well as seigniorage income which accrues from banknotes on issue and which ultimately flows to the Australian Government as non-tax revenue in the form of the dividend payment from the Reserve Bank.

banknotes, counterfeit, security features, modelling
Payments A digital butterfly emerges from a liquid.
Photo: BlackJack3D – Getty Images

Survival Analysis and the Life of Australian Banknotes

Shane Aves

The Reserve Bank is in the process of replacing Australia’s first full series of polymer banknotes – the ‘New Note Series’ – with the upgraded ‘Next Generation Banknote’ series. This presents a good opportunity to review our experience with polymer banknotes, and in particular, examine how they have worn in practice. To do so, I extend an existing survival modelling approach to estimate how long a given polymer banknote from the ‘New Note Series’ might be expected to last when in use by the general public. I find that $5 and $10 banknotes have tended to last for around 5 years on average, while $20 and $50 banknotes have lasted for 10 and 15 years on average, respectively. I have not modelled $100 banknotes as they are overwhelmingly used for store-of-value purposes and so do not tend to wear out.

banknotes, modelling
Payments Five dollar note with three tips on how to determine it is a fake banknote.
Photo: The Sunday Telegraph

A Brief History of Currency Counterfeiting

Richard Finlay and Anny Francis

The crime of counterfeiting is as old as money itself, and can be targeted at both low- and high-value denominations. In most cases, counterfeiting is motivated by personal gain but, at times, it has also been used as a political weapon to destabilise rival countries. This article gives a brief history of counterfeiting, with a particular focus on Australia, highlighting selected incidents through time and the policy responses to them. For source material on Australia, we draw on Reserve Bank archives dating back to the early 1900s.

banknotes, counterfeit, security features, law enforcement
Payments The hands of a woman holding a purse and a credit card
Photo: Astrakan Images – Getty Images

Cash Withdrawal Symptoms

Luc Delaney, Aidan O'Hara and Richard Finlay

Most Australians don't have to travel more than a few kilometres to deposit or withdraw cash. Cash use is declining, however, and with it the number of ATMs and other cash access points. This trend seems likely to continue. While it will probably have relatively little impact on those living in metropolitan areas, it is important that reasonable access to cash services is maintained for people in regional or remote locations as long as such access is needed.

banknotes, currency, banking, atm
Payments A young woman looks out across the water towards an illuminated city skyline.
Photo: SammyVision – Getty Images

Bank Fees in Australia

Susan Black, Dmitry Titkov and Lydia Wang

The Reserve Bank has conducted a survey on bank fees each year since 1997. Banks' overall income from fees was little changed in 2018. The removal of ATM withdrawal fees by a number of banks reduced total fees charged to households. However, this was largely offset by the continued increase in fee income from small businesses, reflecting strong growth in credit card and debit card transactions.

atm, banking, fees
Payments The symbol of Bitcoin is juxtaposed to an electronic circuit board
Photo: KTSDesign/Science Photo Library – Getty Images

Cryptocurrency: Ten Years On

Cameron Dark, David Emery, June Ma and Clare Noone

Ten years on from the creation of Bitcoin, the term ‘cryptocurrency' has entered the public consciousness. Despite achieving some name recognition, cryptocurrencies are not widely used for payments. This article examines why Bitcoin is unlikely to become a ubiquitous payment method in Australia, and summarises how subsequent cryptocurrencies have sought to address some of the shortcomings of Bitcoin – such as its volatility and scalability problems. It also examines the proliferation of new ‘coins' and concludes that, despite the developments in cryptocurrencies, none are currently functioning as money in the economy.

cryptocurrency, currency, money, payments
Payments Various new Australian banknotes are laid out, with the ten-dollar banknote being prominent.
Photo: Reserve Bank of Australia

Recent Trends in Banknote Counterfeiting

Meika Ball

Law enforcement intervention has shut down several large counterfeiting operations and led to a decline in counterfeiting rates over the past couple of years. At the same time, the increased availability of low-cost, high-quality printing technology has meant that the quality of counterfeits has improved. This article discusses trends in banknote counterfeiting in Australia and the impact of counterfeiting on different stakeholders.

banknotes, counterfeit, security features, law enforcement
Payments A man pays cashless by holding his phone over a scanner.
Photo: zoranm – Getty Images

New Payments Insights from the Updated Retail Payments Statistics Collection

Stephen Mitchell and Hao Wang

The Reserve Bank has significantly expanded the retail payments data that it publishes from 61 to around 300 series. This followed a project conducted in consultation with the industry to update the underlying statistical collection. The new data provide additional insights into Australians' payment behaviours, particularly in the context of the shift towards electronic methods of payment away from cash and cheques. This article discusses some of the new series being published by the Bank.

payments, statistics, npp, rba survey
Payments
Photo: RBA

Understanding Demand for Australia's Banknotes

Max Wakefield and Richard Finlay

As the sole issuer of the nation's banknotes, the Reserve Bank knows how many banknotes it prints, issues to the public and destroys. However, much less is known about how these banknotes are used. This is particularly true for the $50 and $100 banknotes, which, by value, account for more than 90 per cent of banknotes on issue. To help address this, we describe in this article the various components of Australian cash demand and use a range of techniques to estimate how much each category contributes to total demand. Our key findings include that non-transactional demand for cash (e.g. hoarding for store-of-value purposes) has likely been the driving force of recent growth in the value of outstanding banknotes, and that a small but non-trivial portion of cash demand comes from the shadow economy.

banknotes, money
Payments
Photo: mediaphotos – Getty Images

Payment Surcharges: Economics, Regulation and Enforcement

Cameron Dark, Chay Fisher, Kim McBey and Ed Tellez

The Reserve Bank's new rules on surcharging, which are enforced by the Australian Competition and Consumer Commission (ACCC), allow businesses to recover the cost of accepting different payment methods but prevent them from surcharging excessively. This article discusses the economic reasons for allowing businesses to surcharge, how the rules work to prevent excessive surcharging, the effect of these rules since their introduction, and how the ACCC enforces them.

payments, regulation, banking
Payments
Photo: Monsitj

The New Payments Platform and Fast Settlement Service

Alexandra Rush and Riaan Louw

A significant advance in the Australian payments system occurred in February 2018 with the public launch of the New Payments Platform (NPP). The NPP enables customers of financial institutions to make immediate payments 24 hours a day, every day of the week (‘24/7’). In conjunction with the development of the NPP, the Reserve Bank developed new infrastructure, the Fast Settlement Service (FSS), which provides for settlement of NPP transactions between financial institutions on a 24/7 basis across their Exchange Settlement Accounts (ESAs) at the Reserve Bank. These new systems have brought fast payment services to Australians in line with similar initiatives that have been undertaken or are underway internationally. The initial adoption of the NPP has been gradual, reflecting the staged introduction of services by financial institutions, as well as the time taken for customers to assess and adjust to the new services being offered.

npp, payments, technology
Payments Banknotes from England, Canada and Australia are lying on a flat surface
Photo: Gangliu Maogg Tatomm – Getty Images

High-denomination Banknotes in Circulation: A Cross-country Analysis

Gordon Flannigan and Stephanie Parsons

In Australia, Canada and the United Kingdom, the number of high-denomination banknotes in circulation has increased at an above-trend rate in recent years. Evidence suggests that overseas demand might be a common driver of this elevated growth. Increased domestic demand for both transaction and store-of-value purposes may also have contributed, as well as responses to changes in government and central bank policies. This research was undertaken with assistance from members of the Four Nations Distribution Working Group, in line with the group's objective to explore banknote-related topics that are directly relevant to the member central banks.

banknotes

The graphs in the Bulletin were generated using Mathematica.

ISSN 1837-7211 (Online)