Strategic Review of Innovation in the Payments System: Issues for Consultation – June 2011 1. Introduction

Throughout their existence, payments systems have undergone gradual change, with occasional periods of more rapid innovation. The pace of change has undoubtedly accelerated over the past three to four decades as rapid technological advances have come to bear on what were previously largely manual processes. These changes have seen consumers gain 24-hour access to cash and ready access to electronic payments at the point of sale, from their homes and offices, and now on the move via mobile devices. Merchants, billers, businesses and government agencies have gained access to efficient means of collecting revenue and distributing payments, through a variety of payment systems offering different mixes of real-time confirmation, easy reconciliation and bulk payment capabilities. Clearing of payments has moved from paper exchanges to exchanges of magnetic tapes and now electronic exchanges, with clearing times shortened correspondingly.

The evolution of payment systems over recent decades has undoubtedly provided considerable public benefit and is continuing to do so. However, with the rapid pace of change that is occurring globally, a reduced willingness or capacity to embrace innovation in any country is likely to leave it lagging significantly behind other countries and failing to avail itself of the benefits that are achievable. It is the aim of the Strategic Review of Innovation first to identify any areas where the Australian payments system may not currently be meeting the needs of end-users or may be at risk of lagging behind other countries in the next five to ten years.[1] Second, it aims to identify factors that may affect the environment for innovation in the Australian payments system. In other words, if there are current or emerging gaps in the payments system, what factors are preventing the necessary innovation in these areas? The focus of the Review is on ‘retail’ payment systems, meaning those systems typically used by consumers and most businesses. It does not consider high value payments, such as those relating to financial market transactions, or large corporate payments directed through the real-time gross settlement (RTGS) system.

This paper sets out some of the issues that have been raised during the relatively informal consultations that the Bank has conducted over the period since the Strategic Review was announced. It also draws on the output of a study of consumer payments behaviour undertaken by Roy Morgan Research on behalf of the Bank in late 2010 and on information on payments innovation globally arising from work facilitated by the Bank for International Settlements.[2] The paper will form the basis of a more structured consultation to occur over the coming months, and to that end identifies a number of specific questions for discussion. Based on that consultation process, the Payments System Board anticipates issuing final conclusions around the end of 2011 or early 2012.

The remainder of this paper is structured as follows. Section 2 sets out the desirable attributes of retail payment systems and Section 3 provides a snapshot of Australian retail payments, based on the survey of consumer payments. Section 4 considers two areas where traditional payment methods are in decline. Section 5 examines the environment for innovation, with specific focus on governance in the payments system, followed by Section 6, which focuses on specific gaps that exist or may emerge in the payments system over the next five to ten years. Issues for discussion during the consultation phase of the review are presented in Sections 4 to 6. Section 7 outlines the early views and key priorities of the Board, arising from its discussions to date, and Section 8 sets out the next steps and provides information for those wishing to make a submission to the Strategic Review.


The Strategic Review of Innovation in the Payments System was announced by the Payments System Board on 28 May 2010 (Media Release 2010-10), with further detail on the objectives and a call for initial stakeholder views issued on 22 July 2010 (Media Release 2010-14). [1]

The study of consumer payments behaviour is published as a companion to this paper, see Bagnall, Chong and Smith (2011). [2]