Transcript of Question & Answer Session Panic, Pandemic and Payment Preferences

I thought I'd start with another of the RBA's payments focuses, which has been the NPP, the New Payments Platform. How is adoption of that going? Have we seen any change in trends of that through this COVID crisis, and are we seeing any evidence yet that that's fostering innovation and new entrants into the payment sphere?

When I've been asked this in the past, I've often said I've been a little disappointed with at least the initial months of the NPP, because some of the banks were a little slow to get moving. But I'm pleased to say that now the banks are all on board and in fact, if you look at how we're tracking relative to use in fast payment systems around the world, for example, the Swedish, the UK, we're actually tracking per capita ahead of them. So we're seeing the take up as going very, very well.

It's probably a bit early to see whether or not it's actually increased a lot of payments due to COVID-19. It may be that people have started to use it a little more to make payments to one another, rather than using cash payments. But in terms of innovation, I think already we are seeing some firms starting to use the real time payments capability to provide offerings, particularly to businesses who might be looking to receive payments in real time and businesses who might want to be making payments in real time. The other area where we're starting to see take up is the government. And in fact, some of the payments that were emergency payments getting out to people, have been made using the NPP. That's still an ongoing process of getting the government systems on board there, but that's all happening.

So in addition to that, NPP itself is starting to do some innovative things. They've got some plans to bring on a consent and mandate service, which will allow effectively pull payments. So merchants to pull payments from people in real time. So, there's a number of innovative things going on. I think the question will be whether or not in the operational challenges at the moment that many institutions are finding, whether some of these things get pushed a little bit back while they're dealing with the current operational challenges. But I think there's enough little lights on the hill there that people are starting to use the NPP for the sorts of purposes we were hoping they would.

Fantastic. And then every discussion on payments has to touch on the new trend of buy now, pay later schemes. So, the reports that we've had out do suggest that there has been an accelerated uses of those sort of schemes during this crisis. Obviously, some of that reflects the greater share of online. But do you think there's also an element that those businesses are providing something that traditional payment methods have not been to some degree?

It's a good question and flavour of the moment. It clearly is filling a niche. There's something there that people are valuing paying in instalments. I should point out that instalment payments are not new. Instalment credit is not new. What the new technology is allowing people to do is access it in a much more friendly way. So yes, it is providing something that people are looking for. You mentioned online, I think that is where it started. And I think the movement of people online has actually provided a bit of impetus to that. But as we know, it also had some point of sale penetration as well. The interest that we have in it, and we've mentioned this in our consultation document, is the no surcharge rules. And so there is a question that we've posed which we've asked people to provide feedback on. Many point of sale merchants in particular have pointed out that although they're allowed to surcharge for debit and credit cards, for example, they are not - in terms of the rules of the buy now, pay later schemes - allowed to surcharge for those services. So we're having an active discussion about that, with both the buy now, pay later schemes and the merchants and that'll be something that will be ultimately coming to some conclusion once we finalise the review.

Interesting. We might move to some of the audience questions here. I've got an interesting one here … looking at the PBOC's recent discussions about launching its own digital currency in coming months. Do you think central bank digital currencies will see adoption beyond China? And do you think there are implications for the payment system there?

This topic keeps coming up with Sweden and China, China's probably most far ahead, but Sweden also is reasonably advanced in thinking about central bank digital currencies. What we've said in the past about central bank digital currencies is that we don't feel there is a need for a retail central bank digital currency. Only around about 3 per cent of money out there in Australia, if you like, is central bank issued money, is cash. The rest of it is intermediated money. It's held in financial institutions. So we already have electronic money.

So the question is what additional purpose is a central bank digital currency is going to serve that electronic money from financial institutions is not already serving. And we're not really convinced that it does have a purpose in that way. Having said that, all central banks are looking at the issue actively. The Chinese, they have a different system over there in the sense that a lot of their electronic money, if you like, is in the Pays – WeChat Pay and Alipay. It's effectively in a three party system, so it's a little bit different to drawing money out of bank accounts like we tend to do in Australia.

It's also true that in China, and this is the niche that the Pays filled, is they didn't have as wide access to electronic payments as we had in Australia. We've had electronic terminals in Australia, practically universally for a long time. So the question for many central banks, including ours, is what purpose does it serve? And I think that still, we remain to be convinced that there is a purpose for retail central bank digital currency that isn't actually served by private sector money.

That makes sense. Another question here from the audience, I think potentially following up from one of our earlier sessions on the global payment side. One of the things that an earlier session flagged around the trends that Visa and MasterCard are flagging at this moment during this crisis is a lot more resilience and stronger recovery in debit cards over credit cards. Is that something we're seeing in Australia? Do you know? And do you have any thoughts on why we might be seeing that divergence?

It's not just related to COVID though, we've been seeing this for some time in Australia as well. Credit card accounts are declining, the amount outstanding on credit cards is declining. Credit cards tend to be held by older people, people of higher incomes. Most younger people and I can speak from the perspective of my own children here, they don't have credit cards and they don't want credit cards. They've got debit cards. So I think this has been a trend for some time and we spoke earlier about buy now, pay later, those that do want a little bit of credit might find that they have a debit card and if they need credit, they can use a buy now instalment sort of credit process.

Why is this? I think possibly it reflects the fact that people that are borrowing on credit cards are paying an awful lot of money for it. They have very expensive interest rates. Those that pay them off on time, of course, don't pay anything, and people with higher incomes tend to be what we call transactors, that's what they do. But people that have been borrowing on credit cards were actually paying a lot of money for it. So I think what's happening and has been happening for some time is that people are waking up to that. They're increasingly deciding to use their own money possibly with buy now, pay later if they need some instalment credit. And credit cards are increasingly the domain of people that are paying them off rather than borrowing the money. That's not exclusive, that's a big generalisation, but that's a trend we've been seeing for some time.

So it would fair to say, you'd see it as a trend that is going to continue.

I would see it as a trend that's potentially continuing, yes.

Interesting. Just following up on the commentary around the review into the payments regulations, obviously that's now being pushed back to next year. Just wondering what about the disruption in the past couple of months? Is there going to be any change in focus around that review. You mentioned resiliency in the payment system, I'm guessing that's probably going to be something that maybe has more prominence? Are there any other areas that have more or less focus now?

I don't think the issues that we'll be examining are changing. At the margin, there may be a little bit of a change in prominence. Certainly, the cost of electronic payments and resilience were important, but I think they're more important now. The issues of buy now, pay later and surcharging will also be something that is always on the radar but it might be becoming more important. And depending on what happens with mobile payments and different form factors, if you like, for presenting cards, that might be marginally a little more up the list.

So it won't change the topics but I think emphasises some of them are even a bit more important than they were when the trends were a little bit more slow moving.

That makes sense. Fantastic. Well, there's one more audience question here, that's talking around, I guess, cross-border payments. What are the recent trends we're seeing there particularly in terms of charges? Are we seeing any developments and what are you sort of expecting going forward?

So cross-border payments I would have to say is one of the most challenging areas in payments. When I first started in payments in 1998, cross-border payments were on the radar and I have to say I'm pretty disappointed that we haven't made much more progress on that in many years. They still seem to be very expensive but there have been some changes there though. And again, technology is helping here as well. So there have been some new players coming into the market here, which are offering much cheaper options than particularly the major banks. I expect that sort of thing to continue. Of course, there is the foray that Facebook through Libra are attempting to make into this area as well. So I'm reasonably confident that technology is going to help us here because the traditional banking system through their correspondent banking arrangements, hasn't managed to solve this problem. But I'm increasingly confident that there are new technologies and new players in here that are going to help make real time or very close to real time and cheaper cross-border payments.

So it's not just the cost, it's actually the time it takes to get the payments anywhere. So, I'm increasingly confident that there are changes going on in technology and new players that are going to help lower the costs and increase the speed of cross-border payments over the coming year.

Yeah, there's plenty gains to be made. Fantastic. Look, we're, we're running up against the end of the time here now, so I think I'll bring this session to a close. I'd like to thank Michele for a really interesting presentation and a pretty wide range of questions and topics. It's been very interesting. This is the end of our banking and payments webcast series for the morning.