Digital shift: Australia’s strategic plan for a future-ready payments system

The Australian Government has released a strategic plan for the country’s payments system, focusing on modernisation and resilience. The plan, titled “A Strategic Plan for Australia’s Payments System,” outlines the government’s vision of a modern, efficient and world-class payments system, and emphasises the importance of efficient cross-border transactions, competition and innovation.

A focus of the plan will be to establish a new payments licensing framework that aims to:

1. ensure consistent and appropriate regulation of payment service providers based upon the function they provide;
2. improve regulatory certainty for payment service providers;
3. support a more level playing field for payment service providers seeking access to payment systems;
4. better target regulatory obligations based on the level of risk posed to end-users;
5. streamline the process for businesses that require multiple licenses; and
6. better align Australia’s payments regulatory framework with international jurisdictions.

The plan contemplates a new payments licensing framework and coincides with the release of a consultation paper on the new regime. This consultation canvasses potential reforms for stored value facilities, including so-called “payment stablecoins”, and payment facilitation services. A second-round consultation will occur in late-2023 on the detailed obligations under the new regime before the introduction of legislation in 2024.

The Treasury has separately opened a further consultation on reforms to the Payment Systems Regulation Act 1998 (Cth) which would expand the regulation of emerging payment systems, including digital wallet providers, and could extend to “transfers of value” using digital assets (not just money). The changes would also introduce Ministerial powers that can be exercised in the ‘national interest’ to respond to issues beyond the remit of regulators. The government will develop exposure draft legislation for these changes by the end of 2023 subject to a consultation.

The Government is also proposing the establishment of a new Inter-Agency Payments Forum (IAPF) to strengthen collaboration and communication between payment system regulators.

The Strategic Plan recognises the potentially transformative role of digital currencies, specifically Central Bank Digital Currencies (CBDCs), and their potential future impact in the evolving payments landscape. The Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Centre (DFCRC)’s CBDC pilot project recently completed the first Australian CBDC transaction using eAUD.

The RBA and the DRCFC’s collaboration aims to explore the use cases for a Central Bank Digital Currency (CBDC) for specific scenarios (like international transactions). Concurrently, the strategic plan indicates that the Treasury is undertaking broader work to explore the policy framework related to CBDCs. The RBA and DRCFC report on the CBDC pilot is due by mid-2023, while Treasury will release a paper in mid-2024 taking stock of the work to date done by Treasury and the RBA relating to CBDCs in Australia.

While the Strategic Plan doesn’t explicitly detail a pathway for incorporating digital assets into Australia’s payment infrastructure, many of the stated goals – such as transaction transparency, efficient international transactions, and enhanced security – can be realised through the application of blockchain technology and the use of crypto assets.

With two new consultations underway and big reforms promised, payments remains an area of rapid regulatory change and innovation. Consistent with this dynamic, the Treasury has promised to update the Strategic Plan on a 18 month rolling cycle to ensure that it is responsive to advances in technology, competition and changes in consumer demand.