Ellis Connolly, the Reserve Bank’s head of payments policy touched on every hot-button issue in online payments in a speech yesterday, one that foreshadows “a holistic review” on the Reserve Bank’s approach to payments regulation.
The RBA is collaborating with Treasury on the modernisation of the Payment Systems (Regulation) Act 1998 (PSRA), which is the legislation that contains the RBA’s regulatory powers Connolly said in a speech to the Merchant Risk Council Conference in Melbourne.
This legislation, Connolly explained, was established in the late 1990s, “when the payments ecosystem was much smaller and simpler than it is today.
“The reforms to the PSRA will update the definitions of a ‘payment system’ and ‘participant’ so that newer players can also be regulated if necessary.”
He said this “will include some systems and participants that are increasingly prominent in online retail payments, such as payment gateways, payment facilitators, digital wallet providers and buy now, pay later services.”
The RBA will continue to have a broad mandate to promote efficiency, competition and safety in the payments system.
“For issues beyond the mandate of the RBA, the reforms will also make it possible for the government to nominate a relevant regulator to use the powers under the PSRA in the national interest” Connolly said.
Once the reforms to the PSRA are in place, the RBA will launch what Connolly labelled “a holistic review of retail payments regulation.”
“It is good practice to review and reflect on current regulations. It will also enable us to consult widely on areas where regulation under the PSRA might be required to promote safety, competition and efficiency.
“This review will help us to set our regulatory priorities for the next few years” he said.
The RBA’s approach to achieving its mandate “will continue to focus on encouraging the payments industry to address efficiency, competition and safety issues itself” Connolly said.
“At the same time, the RBA will continue to stand ready to use its formal regulatory powers whenever necessary to achieve its mandate.”
He said the review will “focus on some specific issues”, including:
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mobile wallets – easily the hottest topic on the RBA’s checklist. “Consumers have embraced using mobile wallets for payments in recent years. They are benefiting from the greater convenience and enhanced security that mobile wallets can provide. At the same time, there are issues around the transparency of the fees charged by some mobile wallet providers to card issuers, and competition issues relating to restrictions on access to ‘near-field communication’ technology for third-party apps.”
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greater transparency in transaction fees, “to help merchants make informed choices and to promote competition between payment system operators and between payment service providers. Examples include the scheme fees levied by operators and the fees charged by providers.”
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merchant payment costs. “Service fees for small businesses are much higher than for larger merchants. In this context, the RBA has been strongly encouraging financial institutions to provide merchants with ‘least-cost-routing’ to enable them to route debit transactions to the lowest-cost card network. “We will be asking what more could be done to help lower payment costs for small businesses, particularly in a world where electronic payments are ubiquitous.”
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surcharging. “The payments landscape is very different to when surcharging was introduced. Many consumers have shifted from paying by cash to cards and there is increased public concern about payment surcharges. So, it is time to ask whether the surcharging framework is still fit for purpose and whether any changes need to be made.”
Connolly did not mention when he expects the government’s work on the modernisation of the Payment Systems (Regulation) Act will reach the point of Treasury publishing an exposure draft, but it seems a safe bet this will be pretty soon.
Amendments to the PSRA may need to pass the parliament before the Reserve Bank in turn embarks on its “holistic review”.