Payments System Board Update: November 2022 Meeting

At its meeting today, the Payments System Board discussed a number of issues, including:

• The technology outage at the Reserve Bank on 12 October that disrupted the payments system. The Board has requested that the Bank commission a wide-ranging and comprehensive external review of the incident and the Bank’s operational risk environment with respect to the Reserve Bank Information and Transfer System (RITS). The Board also supported the Bank’s plans to publish the full incident report that has been provided to the industry and to publish quarterly operational reliability statistics for its retail payment settlement services. In addition, as supervisor of systemically important payment systems, the Bank’s Payments Policy Department will undertake a targeted Assessment of RITS to determine whether further actions are necessary.
• ASX’s decision to pause and reassess all aspects of the CHESS replacement project. Members discussed the serious shortcomings of ASX’s management of the project and emphasised the importance of ASX developing a safe and reliable clearing and settlement system for Australia’s cash equities markets. The Bank is actively engaged in discussions with ASIC about a joint regulatory response to the issues highlighted in the independent report. The regulators expect ASX to maintain and support current CHESS so that it continues to operate reliably until a new system is put in place.
• Cyber resilience at payments and market infrastructures. Members discussed the recent high-profile data breaches in the Australian corporate sector, and the various initiatives underway to strengthen the cyber resilience of Australia’s financial institutions.
• Payments system regulatory reform. Members discussed the development of a set of common access requirements to help facilitate payment service providers’ access to payment systems, while promoting the safety of those systems. The common access requirements could form part of the licensing framework for payment service providers seeking direct access to payment systems.
• Competition in the debit card market. The Board strongly supports making the debit card market more efficient and competitive through the least-cost routing (LCR) of dual-network debit card transactions. Following the Bank’s discussions with industry participants, the Board considers it to be both feasible and desirable for the industry to deliver LCR functionality for mobile wallet transactions by the end of 2024. It is requesting that the mobile wallet providers inform industry of the designs of their LCR solutions as soon as possible. The Board also expects that merchant choice of debit network would be the default setting in the mobile environment, although it has a strong preference for consumers to also have some ability to choose their preferred debit network.
• Card payments regulation. Members reviewed the compliance of card issuers and the designated card schemes with the Bank’s interchange standards and access regimes in 2021/22. Overall, there was a high level of compliance with the Bank’s regulations.
• The ‘Instalments’ services being proposed by the international card networks. These services would enable buy now, pay later transactions to be processed through the card networks. The Board expects that from the launch of these services, merchants will be provided with: (1) a choice of whether to accept Instalments transactions; (2) clear information about the costs of accepting Instalments transactions; and (3) the ability to fully surcharge these transactions if a merchant wishes to recover the costs they incur. If these expectations are not met, the Board would consider the merit of taking regulatory action including on the issue of ensuring merchants have choice of which products to accept. The Bank will continue to monitor closely the implementation of these services.
• Enhancing cross-border payments. Members discussed the work that is underway in Australia to make cross-border payments faster, cheaper and more transparent. The Board emphasised the importance of the industry adopting new functionality and messaging capabilities for cross-border payments over the coming years. It expects that NPP participants meet their commitment to deliver the NPP international payments business service by December 2023. This will help speed up cross-border payments coming into Australia, by enabling the final Australian dollar leg to be processed via the NPP.
• Research on central bank digital currency (CBDC). The Board discussed progress with the research project exploring use cases for a CBDC in Australia. The Board welcomed the significant interest from industry in participating in the project, with a large number of use case submissions having been received. The project is in the process of selecting use cases to take forward to the pilot early next year.