Modernising the payments system for a more productive, competitive, innovative economy
Address to the Australian Banking Association, Sydney
Uncle Brendan, thank you for that generous welcome to country.
I also acknowledge the Gadigal people of the Eora nation –
And express my thanks to everybody here who has already joined the journey towards a Voice to Parliament – which is all about recognition, listening, and making a tangible difference to First Nations communities.
Ian – thank you for that kind introduction, and to Adam for guiding us through this morning.
To Anna, and Peter –
All the representatives of our banking, finance and legal community –
Thanks for being here with us.
I’m grateful for the constructive, collaborative, positive dialogue with you –
And with the Australian Banking Association.
Here, I especially wanted to especially thank Anna for her leadership and engagement over a number of years.
During government, but also before –
And for the opportunity she’s given me to speak at this conference for a second time –
But the first as Treasurer.
I’ll have an opportunity later today to speak about today’s national accounts, and the interest rates decision taken by the Reserve Bank yesterday.
So, in the time I have with you this morning I want to focus on your sector, and make some announcements about our plans to reform and modernise the payments system.
When I was here last, just a couple of months before the election, I spoke about some of the challenges facing the financial system –
And the need to build resilience in the face of new developments like the rise of digital assets.
It’s fair to say that in the fourteen months since, the outlook for the global financial system has only grown more complicated.
At the time of my last address, the upper limit of the Fed’s target range for the Funds Rate was 0.25 per cent.
Today, it’s at 5.25 per cent.
Everybody in this room knows that the scale and speed of rate rises around the world has increased volatility in the global financial system –
Contributing to the failure of SVB and Credit Suisse –
And that further tremors are possible, if not likely.
We aren’t, and won’t be unaffected by this, but our financial system is well‑placed, well‑capitalised and well‑regulated:
With capital requirements that put us in the top quartile of countries internationally –
Banks with strong liquidity coverages –
And world‑class supervisory frameworks.
APRA has played a big role in this, under the leadership of John Lonsdale and Wayne Byers before him.
I spent some time with John last week, comparing notes.
He’d be the first to say the strong position we find ourselves in is no reason for complacency.
And if there’s one word that characterises the approach of our regulators and your government, it’s vigilance.
Something that’s clear in the Government’s new Statement of Expectations for APRA – a document I’m pleased to be releasing today.
The Statement of Expectations outlines how we expect APRA to regulate banking, superannuation, and insurance.
In this version, we’re explicitly requiring our prudential regulator to factor risks related to climate into their work –
And we’re also asking APRA to make sure that when they apply their regulatory requirements, they’re mindful of your relative size and business models.
All this will help to make sure we maintain a stable and robust financial system for you and your customers –
While also fostering competition and innovation, in an evolving economic environment.
Creating a more modern payments system
The strength and resilience of our financial system is one of the big things that we’ve got going for us in an uncertain global economy.
But that doesn’t mean the system is perfect.
Let’s be blunt:
Our regulatory frameworks and infrastructure have not kept up with the big trends and transitions happening in finance –
Especially when it comes to the digital economy and payments.
Our policies and regulations predate the development of mobile payments –
The infrastructure that a lot of businesses and governments use for functions like payroll – the Bulk Electronic Clearing System –
Is clunky, inefficient, and cumbersome to maintain.
And we haven’t had a coherent, sensible strategy to phase out costly means of exchange, like cheques –
Something that’s already been achieved in other economies like ours.
Our strategy, our agenda, is to address and resolve these issues –
To remove the barriers that are inhibiting the development of a modern payments system.
But our plan for payments is about a lot more than triaging the problems we face now –
Or playing catch‑up and patch‑up –
It’s about setting us up for the future –
Recognising that the opportunities that exist at the intersection of the digital economy, payments, and your sector –
Represent a gateway towards the more efficient, competitive, productive and innovative economy we can build together.
Payments, digitalisation and growth
So, let me take a few minutes to first put today’s announcements into this broader context.
Four weeks ago yesterday, we handed down the second Budget of the Albanese Government.
A set of initiatives to deal with our immediate challenges while laying a foundation for future growth.
We found a way to do this in the context of some significant headwinds –
Inflation, falling from its peak but expected to remain higher than we’d like for longer than we’d like –
An economy due to slow substantially over the next year because of higher interest rates – including another yesterday – and difficult global conditions –
And persistent structural pressures on the Budget.
It’s why we put such a premium on responsibility –
And our efforts mean that we’re expecting the first surplus in 15 years, then smaller deficits and less debt than forecast in the March Budget last year.
Just as important is the strategy we put in place for growth –
To expand our productive capacity through investments in the energy transformation, skills, housing, small business –
And the opportunities of the digital economy.
Digitisation and new developments in technology like AI have the potential to unleash a new wave of productivity improvements.
It’s why our strategy is about embracing this shift in ways that contribute to strong, sustainable and inclusive growth.
That stretches across government, which you saw in the last Budget:
Through initiatives to build trust in the adoption of AI –
A set of policies to encourage small businesses to adopt and adapt to technology –
All underpinned by investments in a developing skills base – so that the shift to digital works for, not against our people.
But we recognise that all of this will be incomplete unless we get the policy and regulatory settings right in finance – and especially in payments.
That’s because payments are the tracks on which our economy runs.
Which means that improvements here make everything move more efficiently:
Reducing costs for households and businesses, freeing up resources that can be used to grow the economy –
Encouraging the trade of more goods and services –
And fostering competition between payments providers that can lead to further innovation and better service offerings –
Something that we’re already seeing the benefits of, with Australia taking to cashless and mobile payments faster than almost any other country.
All this means that a more modern payments system also means more innovation, more productivity, and more growth –
And with the plan I’m releasing today, our policy settings will now reflect that opportunity.
Our plan for the payments system
Our vision is to create a modern, world‑class, and efficient payments system –
That is safe, trusted, and accessible –
And enables greater competition, innovation and productivity across the economy.
Our five‑point strategic plan to realise this ambition is as follows:
First, promoting a safe and resilient system by reducing scams, strengthening cyber‑security, and updating the RBA’s supervision frameworks.
Second, making changes to the payments legislation, a new licensing framework, more competition and transparency across systems and more collaboration amongst regulators, plus steps to reduce small business transaction costs.
Third, modernising payments infrastructure by phasing out cheques and supporting the industry’s transition from the old clearing system known as BECS to the New Payments Platform.
Fourth, uplifting competition, innovation and productivity by aligning payments reform with other parts of our agenda for the digital economy including the Consumer Data Right, Digital ID, skills, and AI agendas.
Fifth, leading in global payments, including through our work in the G20 and the Pacific to improve the availability of fast, low‑cost international transfers and piloting a central bank digital currency.
With the rest of my time here this morning, I’d like to take you through these five things in a little more detail.
Promoting safety and resilience
First, we’re pursuing a range of initiatives to promote a safe and resilient payments system –
Building on our National Anti‑Scams centre with new industry codes for banking, telcos, and digital platforms –
Updating our National Cyber‑Security Strategy, with the goal of becoming the most cyber‑secure nation by 2030 –
While the RBA will be adjusting its supervision of the payments system to account for new developments in technology – with consultation due to start later this year.
Updating regulatory frameworks, improving transparency and reducing small business costs
Second, we’re going to update our regulatory frameworks, improve access to the payments system –
And take steps to reduce small business transaction costs.
On the legislative front, we’ll be making changes to the Payments System Regulation Act – to make sure we’ve got the powers to respond to emerging challenges –
And we’ll be pursuing a new licensing framework too – so that payments providers are treated consistently, no matter the technology they’re using.
There’s some complexity here, so we’ll be consulting with you on the details –
And to make sure that these frameworks are implemented consistently.
Treasury will be leading work here to improve co‑ordination amongst regulators –
With a particular focus on making sure that new entrants have clear, transparent direction on what they need to do to access the system.
These reforms will make sure that payments providers know their obligations, and their rights –
And will support the roll‑out of least cost routing across the economy – lowering the costs of small business.
The RBA has already made clear that it expects full implementation by 2024 –
And we stand ready to intervene if necessary.
Modernising payments infrastructure
To maximise the benefits of this modern regulatory framework, we will work with you on the transition away from cheques and BECS – the third part of our plan.
We know that the usage of cheques has been declining –
With a 90 per cent decline in volumes over the last ten years alone –
And this is largely because digital transactions are easier, cheaper, and more accessible.
In fact, currently, 98 per cent of retail cheques could be serviced through internet or mobile banking –
And 100 per cent of those used in institutional and commercial settings.
All this means that leaving cheques in the system is an increasingly costly way of servicing a declining fraction of payments.
That’s why we want to systemically transition these transactions to digital –
Improving the efficiency of your sector –
And getting Australians their money faster.
Today, we’re signalling an intention to wind‑down the cheque system by no later than 2030 –
Leading the way, by moving Commonwealth government departments to new forms of payments by 2028.
This transition will be gradual, co‑ordinated and inclusive.
Public consultation with the whole community will take place before the end of the year – including with the states and territories –
And we will work with you to make sure that every Australian gets the assistance they need to make this important change to other forms of payment in good time.
The second piece of legacy infrastructure we’re focused on replacing is the Bulk Electronic Clearing System (BECS).
Consultation on BECS is currently being led by AusPayNet –
And we will partner with you to make sure that following this, the transition to the NPP is as streamlined, and inclusive as possible –
Leaving nobody in the lurch.
Uplifting competition, innovation and productivity
I’ve already explained how payments fits into our broader growth strategy –
And we’re confident that further innovation and productivity gains will be unlocked at the intersection between fast payments, AI and a growing digital skills base.
There are also some other specific things that we’re going to partner with you on to uplift productivity, innovation and competition across the economy – which is the fourth part of our plan.
For example, Katy Gallagher is getting to work on improving and expanding Digital ID –
So that you can approve financing for your customers, faster –
And today, Stephen Jones is announcing our plan for the Consumer Data Right.
Our goal here, is to support take up and deepen CDR’s place in the sectors where it is already operating–
Working with you, and other impacted industries, to make sure that it can fulfil its promise of promoting competition that’s in the best interests of consumers –
Before we expand it to other areas.
Leading in global payments
All this work will inform the fifth part of our plan –
To take a leadership role in global payments.
Something we will achieve by enabling smoother international transactions through the NPP –
Hosting an industry roundtable to understand where we can build international competitiveness –
Working with the RBA on a central bank digital currency pilot –
And pursuing all this in the context of a dedicated effort through the G20 to make progress –
With a particular focus on what we can do to enable more efficient, low‑cost transfers between Australia and the Pacific.
The last time I spoke to this forum, I ended by outlining three goals for the financial system:
The creation of a fit‑for‑purpose regulatory framework –
Maintaining strong, resilient banks –
With more innovation and competition across the sector.
In our first year, we’ve acted on all three –
Through Stephen Jones’ work on Buy Now Pay Later, superannuation, and financial advice –
Our efforts to strengthen the competition framework and infrastructure underpinning our capital markets –
And now, a strategic plan for payments.
In the next twelve months, we will introduce legislation to update the Payments System Regulation Act –
Make further progress on a new licensing regime –
And partner with you on a transition plan for legacy systems.
Beyond payments, we’ll also be consulting on a licensing and custody framework for crypto assets –
Progressing mandatory climate risk disclosure –
And undertaking new consultation with you on a comprehensive sustainable finance strategy.
All this – the breadth of what we’re doing with your sector –
Reflects an understanding that our efforts to grow the economy rely heavily on our ability to realise our vision for a modern, world class and efficient payments system –
That is safe, trusted and accessible –
And enables greater competition, innovation and productivity across the economy –
As part of a more future‑focused banking sector.
It’s why I so value the opportunity to speak with you today –
And look forward to the discussion.
Thanks very much.