Payments System Board Update: August 2024 Meeting

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

• The annual Assessment of the ASX clearing and settlement facilities against the Financial Stability Standards. Members discussed the critical importance of ASX delivering its major technology transformation projects, including CHESS Replacement. Members also discussed the fundamental importance of strong risk management. The Board endorsed the RBA’s Assessment, which will be published after it has been provided to the Treasurer and the Australian Securities and Investments Commission.
• The RBA’s oversight of international financial market infrastructures including LCH SwapClear, CME, Clearstream Banking, Euroclear Bank, CLS and Swift. The Board noted that financial market infrastructures are increasingly outsourcing core services and discussed the risks associated with this trend. Members also discussed the importance of effective processes for managing operational incidents.
• Competition in the debit card market. The RBA remains strongly supportive of merchants having the ability to choose their preferred debit card network through least-cost routing (LCR). The RBA has published LCR reporting from large providers for end June 2024, which indicates that 70 per cent of their merchant customers had LCR enabled for in-person transactions. For online transactions, 6 out of 12 providers have made LCR available to all of their merchants. While progress has been made over the past year, some providers still have much more work to do. As part of the upcoming Review of Retail Payments Regulation, the RBA will seek stakeholder views on the effectiveness of LCR and whether further regulatory intervention is appropriate. In the meantime, the Board expects providers to continue enabling LCR for in-person transactions for merchants that could benefit from it and pass the savings on to merchants. The Board also expects providers, including payment gateways, to accelerate progress on making LCR widely available for online transactions and enabling LCR for merchants that could benefit from it. The Board continues to expect the industry to deliver LCR functionality for mobile-wallet transactions by the end of 2024.
• Review of Retail Payments Regulation. The Board agreed to commence consultation on merchant card payment costs and surcharging.
• The future of cash distribution arrangements in Australia. Members discussed the challenges in the cash distribution system and the need for industry cooperation to formulate a more durable future distribution system. While the use of cash for everyday payments has declined in recent decades, members noted that cash remains a very important means of payment for some members of the community and is also held for precautionary purposes, including as a backup to electronic payments. Consistent with the Government’s strategic priority on maintaining adequate access to cash services for the public, the RBA places a high priority on banknotes being available for those who want and need to use them, including for rural and regional Australia.
• International and domestic work on central bank digital currency (CBDC). Members discussed the ongoing program of international and domestic research on CBDCs. They discussed a draft paper, to be jointly published with the Australian Treasury in September, that will provide a stocktake and roadmap on domestic CBDC research priorities. Members were supportive of the plan for the research program to take into account a wide range of views and perspectives on the future of money. As part of its research program, the RBA is exploring different settlement models for tokenised assets. This work on wholesale tokenised markets is now moving into a more applied phase and is likely to involve the development and testing of prototypes with industry partners.
• The development of the New Payments Platform (NPP). Members noted that NPP usage has grown significantly since it was launched in 2018. A number of new payment capabilities have also been added – in particular, PayTo and the International Payment Service – although their delivery and adoption has generally been slower and more uneven than anticipated. The Board expects payments service providers to accelerate their rollout of these new services. The RBA is engaging with industry participants to understand the opportunities for, and barriers to, the further development of NPP functionality. As part of this engagement, the Board met this afternoon with a group of fintech firms to discuss innovation and access issues relating to the NPP.
• Amendment to the policy on conflicts of interest to support oversight of the industry-led migration away from the Bulk Electronic Clearing System (BECS). The Board approved an amendment to the RBA’s policy on Managing Potential Conflicts of Interest Arising from the Bank’s Commercial Activities to allow staff from Payments Policy Department to gather information from Banking Department and jointly participate on working groups related to the migration away from BECS to modern payment systems. This will allow Payments Policy Department and the Board to better oversee risks and issues posed by the BECS migration, especially those related to government payments.