Strategic Review of Innovation in the Payments System: Issues for Consultation – June 2011 7. Early Views and Priorities

This paper sets out a wide range of issues related to innovation and the Board welcomes input on all of them. However, in order to focus discussions, this section identifies some of the key priorities from the Board's perspective and some early views on approaches that might be useful in some areas.

In the Board's view, a key priority is ensuring that the governance structure for the industry is one that supports innovation. An important consideration is the role the Reserve Bank and the Payments System Board should play in these arrangements. The Board is seeking views on the capacity of industry-driven governance to produce the level of innovation that is in the public interest. If this capacity is currently deficient, it is interested in whether broader representation in governance arrangements could overcome these constraints, and how, and through what body, this representation could occur. The Board also sees some justification for considering the current structure of rules for clearing and settlement given the evolving landscape for retail payments.

The Board sees a second important area as the provision of payments infrastructure. An important question is whether the current structure of Australia's main payments networks best serves the public interest, acknowledging that centralised arrangements typically prove to be more conducive to innovation. This paper has raised the potential benefits that hubs can provide and seeks views on whether and how they might be used to greater advantage in the Australian payments system. Separately, with the speed of retail payments in mind, it has raised the possibility of real-time (or close to real-time) settlement arrangements for low-value payments. The Board does not, at this point, have a position on either of these issues, but acknowledges the contributions both could make, which of course need to be weighed against implementation costs. It seeks views on both the benefits and costs of these approaches.

While the Board is open-minded about how innovation gaps identified in Section 6 should be addressed, it nonetheless sees a number of obvious constraints on development of some of the desirable solutions. Key examples are:

  • next-day settlement of retail transactions is an impediment to more efficient retail payment systems, for instance the provision of faster access to funds for payees. The Board sees a strong case for a move to multiple same-day settlements of low-value transactions. The Board believes that consideration should also be given to ways in which better payments access can be provided over weekends and public holidays;
  • the capacity of financial institutions' systems to uniformly make funds available in a timely fashion is also a constraint on the provision of more efficient retail systems and should be addressed. One question is whether a move to same-day settlement of retail transactions, combined with transparency of the timing of availability of funds, would apply sufficient competitive pressure to provide faster availability of funds, or whether other measures would be necessary to achieve this end;
  • the Board is concerned that the industry to date has not been able to provide for additional data to be carried with payments, despite a clear demand from businesses for this service. It believes that providing this capacity should be a priority; and
  • closely related to this is the adoption of ISO 20022 message standards. While the Board acknowledges that the industry is working on the specification of ISO 20022 compliant Australian standards, it believes that the Australian industry should make the transition to such standards as soon as practicable.

Finally, the Board is conscious that the major banks and BPAY have been working for some time on a new, hub-based retail payments system, referred to as MAMBO. For commercial reasons, relatively few details of the MAMBO system have been made publicly available, but the system is expected to be able to address a number of the gaps identified in Section 6. The Board welcomes the implementation of systems such as MAMBO that address some of the unmet needs of end-users. It does not, however, see MAMBO as a substitute for all the changes discussed above. In fact, in some cases they will clearly be complementary.