Banks back Josh Frydenberg’s overhaul of payments system

The country’s largest banks say they are supportive of the federal government’s proposed payment systems overhaul – the biggest in more than two decades.

CBA chief executive Matt Comyn has long been at loggerheads with Apple over restrictions on bank access to iPhone chips, which interact with merchant payments terminals. Picture: Adam Yip

The country’s largest banks say they are supportive of the federal government’s proposed payment systems overhaul – the biggest in more than two decades.

It is Matt Comyn who is most supportive; the Commonwealth Bank boss has long been at loggerheads with Apple over restrictions on bank access to iPhone chips, which interact with merchant payments terminals.

“We are particularly supportive of changes that will help ensure the system remains fit for purpose, safe and aligned to the national interest, while providing new opportunities to innovate and updating consumer protections to keep pace with the development of the digital economy,” Mr Comyn said on Wednesday.

The changes, announced by Josh Frydenberg, would attempt to force Apple and other technology companies such as Google to join the banks in investing in the $650bn-a-day payment system.

The government has been planning on legislating a broad definition of what a payment system is.

Almost half of Australians use their phones to make payments, including with products such as Afterpay – there are more than five million active buy now, pay later accounts and the global crypto assets market is worth more than $2.8 trillion.

Westpac chief executive Peter King said modernising payments infrastructure and its regulation would strengthen the system and improve consumer protections.

“Australia’s payments system must be fit for the digital age, so today’s announcement is good news,” Mr King said.

Despite the growth in the mobile payments sector, the regulatory framework had been largely untouched for 25 years.

The Treasurer said if reforms were not made, Silicon Valley would determine the future of our payments system.

The government’s plan, Mr Frydenberg said, was informed by three recent reports: the Farrell review, a Senate inquiry into Australia’s future as a technology and financial centre, and a separate parliamentary inquiry into mobile payments and digital wallets. The reforms would progress in two phases, with consultation for the most urgent changes in the first half of next year and the remainder by the end of the year.

Advice on the feasibility of a retail central bank digital currency would be provided by the end of 2022.

By the middle of next year, there would be a longer-term plan for the payments system, developed in partnership with industry and reviewed annually, with details to emerge of additional powers for the Treasurer to set payments system policy.

Under the powers, the treasurer would be able to designate new and emerging platforms, which Mr Comyn has supported to ensure that Apple Pay is held to the same rules as the banks.

Westpac CEO Peter King: ‘Australia’s payments system must be fit for the digital age.’ Picture: Jonathan Ng

Necessary changes would also be determined to accommodate new payments systems, including buy now, pay later and digital wallets.

Local buy now, pay later giant Afterpay, which has agreed to a $39bn takeover by US digital payments group Block, has successfully maintained it is not a credit provider and therefore exempt from much of the current regulatory framework.

The group said in a statement that it welcomed recognition from the government that a more holistic approach was needed on payments policy.

“We support any approach that takes into account customer benefits from the innovation and competition Afterpay has brought to the market, including enabling a free instalment service to customers who pay on time,” the statement said.

“We look forward to the Treasury and the government taking a greater role in payments policy and to participating in the consultation process.”

On crypto assets, Mr Frydenberg said the government would complete consultation by next year on a licensing framework for digital currency exchanges to provide “greater confidence” in the trading of crypto assets.

It would also finalise consultation on a custody or depository regime for businesses that hold crypto assets on behalf of consumers so investors have greater confidence in the safekeeping of these assets.

Advice would be received from the Council of Financial Regulators, working with other agencies, on the underlying causes and policy responses to the complicated issue of debanking of crypto traders, and there would be a mapping exercise of cryptocurrencies and tokens to inform consumers of risks and benefits.

BTC Markets chief executive Caroline Bowler said the reforms amounted to a “major step forward” to upgrade the nation’s one-size-fits-all regulatory framework in real time.

“The Australian cryptocurrency and blockchain industry has been working away for the guts of a decade to build it to where it is now,” she said.

“It would be a crushing shame to not have our regulation keep pace with international peers such as Singapore, Canada and Britain.”

Digital trade in Australia, she said, was estimated to grow to $192bn by 2030, with digital goods and services our fourth largest export sector.

Consumer Action Law Centre chief executive Gerard Brody said there was an opportunity to regulate BNPL consistently with other credit products to address the “significant” risk of financial stress.

On crypto exchanges, Mr Brody said there was no doubt they should be regulated more like banks.

“These entities are now holding significant sums of people’s money and investments, and there needs to be accountability,” he said.

Originally published as Banks back Josh Frydenberg’s overhaul of payments system