Modernising Australia’s Payments System | Speeches

Watch video: Speech delivered by Michele Bullock, Governor, Australian Payments Network Summit, Sydney

Thank you for the invitation to speak at AusPayNet’s annual summit.

The payments landscape is changing rapidly, with new business models and technologies entering the space.
The industry is also moving from legacy systems towards new platforms that can deliver payment services
that are faster, safer and more convenient. We therefore need to modernise our regulatory architecture
and payments infrastructure to support these innovations, and we have been working with the Government to
update the regulatory framework.

This morning, I will talk through how the Payments System Board is responding to this changing
environment. I will begin by highlighting the Board’s strategic priorities through this period of
change. I will then focus on three key issues for 2024:

  1. The RBA’s plan to conduct a comprehensive review of retail payments regulation under its
    expanded regulatory perimeter.
  2. How industry and government can work together to maintain access to cash.
  3. How to ensure a successful transition from BECS to modern payment systems.

The Payments System Board’s strategic priorities

The Payments System Board recently refreshed its strategic priorities given the changes in the payments
system and the regulatory landscape. These were set out in the Payments System Board’s 2023 Annual

The first priority is to strengthen the resilience of Australia’s payments and market
. Businesses and consumers are more reliant on electronic payment systems
than ever before, with outages becoming increasingly disruptive to everyday life. We are therefore
stepping up our oversight of these systems, particularly the New Payments Platform (NPP) and the card

The second priority is to advance and implement the Government’s payments reforms.
These reforms will modernise the regulatory architecture and ensure the RBA can continue to promote a
safe, efficient and competitive payments system.

The third priority is to promote competitive, cost-effective and accessible electronic
. Consumers and businesses are benefiting from new payments technologies that are
more flexible and easier to use. But greater use of these electronic methods is also adding to payment
costs for businesses. We expect payment service providers to help merchants lower their payment costs by
implementing least-cost routing. We also expect financial institutions to deliver more fast payment
capabilities to consumers and businesses through the NPP. In particular, the NPP’s PayTo service
will help to modernise how we make direct debits, giving customers greater visibility and control over
these payments.

The fourth priority is to enhance cross-border payments. Australia is working with other
G20 countries to make cross-border payments cheaper, faster, more transparent and more accessible.
One key initiative is standardising the messages associated with cross-border payments – what
information is mandatory for such payments, what is optional and how it is presented in the message. I
recently chaired an international working group that developed such harmonised messaging requirements for
cross-border payments. The aim is to implement these requirements globally by 2027. The operators of
systems processing cross-border payments in Australia have publicly stated their intention to meet these
requirements on that timeline. We expect financial institutions to also be ready to
use the standardised messaging by 2027 so that their customers can enjoy more seamless cross-border

Another key initiative is the NPP’s International Payments Business Service, which will allow the
Australian dollar leg of inbound cross-border payments to be processed via the NPP on a real-time 24/7 basis. This service was due to be implemented by all NPP
participants this month, but some of them are not ready, which is disappointing. We expect the Australian
payments industry to deliver on this commitment as soon as possible.

Our fifth strategic priority is to shape the future of money in Australia. This year, we
completed a research project that explored potential use cases for a central bank digital currency
(CBDC). Building on this, we are now planning a project that will examine how different forms of digital
money and infrastructure could support the development of tokenised asset markets in Australia. We are
looking forward to continuing our engagement with industry on this work.

We are also continuing to work closely with the Treasury in exploring the policy case for a CBDC in
Australia. We expect to release a joint paper in mid-2024 that will take stock of the CBDC analysis in
Australia so far and lay out a roadmap for future work.

Key issues for 2024

Within these strategic priorities, there are three key issues that will be particularly important in 2024
that I would like to highlight today.

Next review of retail payments regulation

One of the key projects under our second strategic priority – advance and implement reforms –
is a comprehensive review of our retail payments regulation. The RBA’s regulatory remit will soon be
expanded, as part of the Government’s payments reforms. Specifically, the Payment Systems
(Regulation) Act 1998
is being amended to ensure that newer players in the payments
system – including ‘buy-now- pay-later’ providers, payment gateways, payment facilitators
and mobile wallet providers – can be regulated by the RBA. We expect these reforms to be in place
sometime in 2024, at which point we intend to launch a holistic review of retail payments regulation.
This will be an opportunity to consult widely on current regulation as well as on areas where regulation
might be required in the interests of safety, competition and efficiency. This will help us to set our
regulatory priorities in the expanded regulatory perimeter.

The RBA’s payments regulation over the past couple of decades has been shaped by some key principles
that help to promote safe, efficient and competitive markets. These include:

  • The cost of payment services should be clear for businesses and consumers, because transparency helps
    to promote competition.
  • Businesses should be free to choose which payment methods they accept.
  • Businesses should be able to pass on the cost of the payment methods chosen by end users.

Some initial questions for the review are whether these principles are still sufficient and how to apply
them to the wider range of payment systems and participants that will fall within the RBA’s expanded
regulatory perimeter.

The review will also focus on some specific issues, including:

  1. Least-cost routing (LCR) – This is important because it puts competitive
    pressure on card payment schemes to lower fees to merchants. But while some progress has been made to
    enable LCR for businesses, it has been slow. So formal regulation may be required to get acquirers
    and other service providers to deliver the full benefits of LCR to businesses.
  2. Mobile wallets – Usage of mobile wallets has grown rapidly, but the costs
    associated with these services remain opaque and payment service providers can face barriers to
    access. We will need to consider whether regulatory action is needed in this area.
  3. Buy-now-pay-later (BNPL) services – In previous reviews, we have concluded
    that merchants should have the right to surcharge BNPL services, which are expensive means of
    payment, just as they have the right to surcharge card payments. The right to surcharge for payment
    methods provides an important incentive for payment schemes to keep their fees low. Formal regulation
    may be required to allow this.

As part of the review, we look forward to engaging constructively with industry on these issues.

Maintaining access to cash

We also remain focused on access to cash for Australians. This issue has received some attention in the
media recently and I would like to provide some context and discuss the work that is underway.

The use of cash for payments has been in decline for many years as consumers have switched to digital
payments. The share of consumer payments made using cash declined from 70 per cent in 2007 to
13 per cent in 2022 (when our latest consumer payments survey was conducted) (Graph 1).
Despite this decline, cash remains an important means of payment for some people and is widely held for
precautionary or store-of-wealth purposes. Cash is also an important backup method of payment during
system outages or natural disasters, when electronic payments might be unavailable.

For these reasons, the RBA places a high priority on the community continuing to have reasonable access to
cash withdrawal and deposit services. The Government also highlighted the importance of maintaining
adequate access to cash services as a key priority in its Strategic Plan for the Payments System.

Graph 1

The challenge we face is that as the transactional use of cash declines, it is affecting the economics of
providing cash services and putting pressure on the cash distribution system. These challenges prompted
the RBA to launch a Review of Banknote Distribution Arrangements in 2021, which sought to identify
changes to make the distribution system more effective, efficient, sustainable and resilient. The
review made recommendations, focusing on areas where the RBA has a direct relationship with the industry
to improve transparency and support industry input into distribution arrangements. However, it also
acknowledged that the changes, in themselves, would be unlikely to fundamentally reshape the medium-term
economics of the industry.

The challenging economics of cash distribution was one of the main factors behind the recent merger of the
two largest cash-in-transit (CIT) providers, Linfox Armaguard and Prosegur, which the Australian
Competition and Consumer Commission (ACCC) approved earlier this year. The merger was approved subject to
a three-year undertaking from the firms regarding pricing and service levels. As part of this, Linfox
Armaguard gave an undertaking to continue supplying CIT services to existing customers until 2026. The
merger was intended to address the structural decline and overcapacity in the CIT industry and reduce the
risk of one or both of the CIT companies suddenly exiting the industry, which would cause disruption to
the availability of cash in the economy. Despite the merger having taken place as proposed, Linfox
Armaguard is now indicating that its CIT business continues to be unsustainable.

Given these issues, the RBA recently convened a roundtable discussion with industry participants to
discuss what more could be done to promote the sustainability of the cash distribution system. These
discussions are ongoing, and industry, regulators and government will need to continue to work together
to put in place sustainable arrangements for cash distribution.

Many other countries are facing similar challenges associated with declining transactional use of cash.
There has been a range of policy and legislative responses contemplated overseas, including measures to
maintain cash access and acceptance, and to shore up wholesale cash distribution arrangements. We
continue to closely monitor developments overseas, though the diversity of policy options being
considered suggests that solutions tailored to Australian circumstances will be required.

In terms of wholesale distribution arrangements, one model that has been considered in some countries is a
utility in which a number of organisations form a single entity to carry out wholesale cash distribution
functions. Utility models aim to share fixed costs among the participants and achieve efficiencies,
though cooperative arrangements can also be challenging to implement. There are examples overseas where
industry was unable to reach consensus on moving to a utility structure, and legislative options to
address risks to cash access have therefore been pursued. Nevertheless, it may be worth exploring the
merits of a cooperative model in Australia.

To facilitate the development of options to put the cash distribution system on a more sustainable
footing, the Australian Banking Association (ABA) recently applied to the ACCC for authorisation to
develop in-principle solutions to the challenges facing the cash distribution industry. The ACCC has
granted interim authorisation for the ABA and other stakeholders to discuss these issues. The RBA will
also be involved in these discussions.

The declining use of cash is also challenging the provision of retail cash services. This has been evident
in the significant reduction in the number of cash access points over recent years, including ATMs and
bank branches (Graph 2). Despite this, the distance people need to travel to access cash services
has been little changed in recent years. But this may not be the case in the future if access
points continue to decline.

Graph 2

Graph 2: Cash Access Points

ATMs remain the preferred means for accessing cash for most Australians. The RBA regulates pricing aspects
of the ATM industry via an Access Regime. These regulatory arrangements were introduced in 2009 to
promote competition in the ATM industry at a time when cash was much more heavily used. We recently
consulted industry participants on the future of the access framework given the substantial changes in
the industry since 2009. The feedback was that the Access Regime still plays a useful role in protecting
fair access and promoting competition in the industry. Based on this, we have decided to retain the
Access Regime. However, we recognise the ongoing challenges the industry faces from declining cash and
ATM use and the rising costs of deployment. We are keen to see the industry maintaining a broad coverage
of ATMs at reasonable prices, particularly in regional and remote areas. We will continue to engage with
industry participants to determine whether any changes are required to the RBA’s regulation of the
ATM industry to facilitate this.

Supporting the Transition from BECS to Modern Payment Systems

The final issue I would like to discuss is the industry’s plan to transition from the Bulk Electronic
Clearing System (BECS, also known as Direct Entry) to more modern payment systems. BECS has been a
low-cost and reliable workhorse of the Australian payments system for decades, processing salary and
welfare payments, recurring payments to merchants and other account-to-account transfers. In 2022/23, BECS processed around three-quarters of non-cash payments by value
and is still heavily relied on by many businesses and government agencies. Since the NPP was launched in
2018, account-to-account transfers have been migrating across to the fast payment system, with around
30 per cent of account-to-account transfers now made over the NPP (Graph 3).

Graph 3

Graph 3: NPP Share of Account-to-Account Transfers

The payments industry, through AusPayNet, has been discussing whether to transition away from BECS and has
recently decided to retire the BECS framework with a target end date of 2030.

We understand the reasons why the industry wants to wind down BECS. Apart from the cost of maintaining the
system, it has limitations compared with more modern alternatives such as the NPP:

  • It processes payments in batches only on business days, compared with the 24/7 operation of the NPP with funds transferred in close to real
  • BECS is not able to send complete remittance information. As many of you know, the limited number of
    characters stems from the number of characters that could be carried on a punch card! Decades on,
    this is no longer fit for purpose. It prevents automating the reconciliation of payments and makes it
    harder to screen for financial crimes. The NPP uses the data-rich ISO 20022 messaging format, which
    is the new global standard for payments systems.
  • Payments through BECS can only be addressed using BSB and account numbers. By contrast, the NPP
    incorporates the PayID addressing service, allowing payments to be addressed to an email address or
    phone number, and it also provides a confirmation of payee service. These features help to reduce
    mistaken payments and combat some scams.

The limitations of BECS are becoming more significant as users expect fast payments and the economy
becomes increasingly digitised. But there are some significant challenges that will need to be overcome
for the industry to successfully transition all BECS payments to more modern payment systems.

Financial institutions will need to connect all relevant accounts that currently send and receive
payments via BECS to the NPP
. Some financial institutions are not yet connected to the NPP,
while others that are connected have not yet made all their accounts reachable. Until all accounts are
connected, it will be difficult for companies and governments to migrate existing payments such as
payroll to the NPP. Completing this will take considerable investment and time. It is important that work
begins now to ensure that end users are not disrupted when BECS is retired. We are monitoring industry
progress on making accounts reachable via the NPP. We are also engaging with institutions that are not
yet connected to discuss their plans to make NPP services available to their customers.

Another key issue is cost. We hear from users that processing payments through BECS is
significantly cheaper than processing them through the NPP, especially for regular payments such as
payroll. Employers are typically making such payments every couple of weeks, sometimes for thousands of
employees, and so the cost of each individual transaction can really add up. We expect that as the volume
of payments processed by the NPP rises, the per transaction cost will come down. It is also important to
recognise that there are some less visible costs associated with BECS payments. These include manual
reconciliation and managing mistaken payments, given BECS’ limited messaging and addressing

Given the mandate of the Payments System Board to promote safety, efficiency and competition in the
payments system, we plan to undertake a review of end-user costs of account-to-account payments through
BECS and the NPP to provide greater transparency.

Financial institutions will also need to ensure that their NPP services can reliably handle the
full range of payments that are currently processed by BECS.
An important milestone has been
the launch of NPP’s PayTo service as a modern alternative to direct debits. Most NPP participants
have now enabled PayTo for retail (payer) customers, but there is more work to do to make the service
widely available to business (payee) customers looking to use PayTo as an alternative to direct debits.

Another important BECS use case is bulk payments, such as salaries and welfare payments, which are
currently processed as batch files through BECS. The industry will need to find a way to efficiently
process bulk payments through the NPP, which operates on a line-by-line rather than batch basis. Many
businesses and government agencies have bulk payment capabilities, and it will take time and effort to
enable these payments to be processed via the NPP.

Given the common challenge here, there may be value in developing a standardised industry approach to
processing bulk payments through the NPP. This could promote interoperability, efficiency and competition
in processing bulk payments and give businesses and government entities more time to transition their

Financial institutions will also need to uplift their processing capacity to ensure that BECS
payment volumes can be reliably processed through the NPP.
Australian Payments Plus has
built capacity uplift into their roadmap. Further capacity upgrades are likely to be required in later

Another challenge is the reliability of NPP services provided by financial institutions.
We collect data from financial institutions on the reliability of the various retail payment services
they provide. These data show a substantial rise in the number and total duration of operational outages
in recent years, with NPP services being the least reliable (Graph 4).

Graph 4

Graph 4: Downtime per Service Provider

As more volume shifts from BECS to the NPP, it is important that providers improve the reliability of
their NPP services. Decommissioning BECS should reduce the costs and complexity involved in running two
account-to-account payment systems in parallel. But it would also mean that BECS is not available as a
backup option when NPP services are down. There will be even less tolerance from the community for
outages to NPP services when most wages and benefit payments start going through the NPP. Improving the
reliability of NPP services across the industry will be a major focus of the RBA over the coming years.

Notwithstanding the various challenges I have outlined, it is appropriate that the industry has set a
target end date for the BECS framework. This will help focus industry attention and effort on the
migration process. Given the significant opportunities and challenges associated with the BECS migration,
we will be closely monitoring industry efforts in this area.


The payments landscape is changing rapidly, and we have a lot of work to do to continue modernising the
payments system. The Government’s reforms will enable us to promote safety, efficiency and
competitiveness across the payments ecosystem. At the same time, industry, government and the RBA will
need to work together on maintaining access to cash and transitioning from BECS to more modern payment

I look forward to continuing the cooperation between AusPayNet and the RBA as we navigate these challenges
in the interests of the Australian public.

Thank you for listening and I am happy to answer some questions.

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