header

CEO's
CORNER

Payments System Self-Governance: striking the balances

The payments system is built on networks, which means that a certain amount of coordination and collaboration is essential for it to function and develop over time. The challenge is to encourage stakeholder collaboration that supports innovation and competition while discouraging collective or individual behaviours that are detrimental to payments system users.

No one at APCA wrote this paragraph - it comes from the final report of the Canadian Government's Payments System Review. The thing is, we could have written it. It expresses APCA''s philosophy as the payment system self-regulatory body.

The networked nature of payments gives APCA its reason for being. We help competitors coordinate to deliver the payments network the economy needs as it evolves. The faster the payments landscape changes, the harder this becomes.

The paragraph quoted above wraps up three difficult and shifting balances that must be struck if APCA is to do its job well:

  • Promoting aggressive competition amongst payment providers and schemes versus promoting industry-wide coordination when it is needed;
  • Encouraging innovation and evolution versus ensuring safety, reliability and stability;
  • Maintaining the engagement of big, mainstream players in system evolution versus recognising the interests and contribution of newer, smaller and alternative players.

Chris Hamilton APCA CEOThere are no right answers here, and each country is likely to strike the detailed balances differently. South Africa has passed legislation requiring payment participants AND schemes to be licensed by the local payments industry association. The Canadians are proposing a separation of powers between an industry body that owns and operates basic payments infrastructure, and another, new industry body that sets industry policy and strategy. Both would be subject to a new government oversight body. The United Kingdom has established self-regulatory bodies, such as the UK Payments Council, with informal public oversight, and the United States has no general governance framework for payments issues at all.

Here in Australia, we have already done a lot of work on overall system governance.

APCA has existed as a general industry coordinating body since 1992, and in 1998 the Payments System Board was established within the Reserve Bank with extensive powers to promote public policy outcomes in payments. But the world has changed a lot since 1998. The biggest change has been that payment networks and schemes have evolved from largely domestic utility services into increasingly global, competing and commercialised organisations.

APCA has been working on reform of its own membership and decision-making for some time. We have a conviction that as the payments industry self-regulator, we can serve the industry, and the broader community, better by being more inclusive, and by more transparently striking the three balances mentioned above.

In payment system governance, the devil is absolutely in the detail. The Reserve Bank and the industry need to work together to come up with a model that will work, not just for today's known challenges, but for the unknown challenges of future years. APCA has put forward its proposal, but many others will have a view. Most important, the Payments System Board needs to express its opinion. This next opportunity for this is the conclusions of their Strategic Review of Innovation, due in June 2012. We look forward to this important milestone.

Full Story

Industry
News

APCA's proposed new governance structure

GovernanceAPCA's submission on systemic governance issues to the Reserve Bank's Strategic Review of Innovation in the Payments System provides the background to the need for holistic reform of payments system governance. There has been structural change in the payments system since the basic model for current arrangements was proposed in 1997 by the Wallis Committee. The payments system is now much more diverse, complex and competitive.

In February 2012, APCA wrote to the Reserve Bank outlining the proposed new governance structure.

The main features are:

  • membership will be open to all those who participate in or operate a payment system in Australia from time to time - Participant membership (comprising compliance obligations, voting rights and funding burden) will be offered to participants in any Australian payment system (defined in accordance with the Australian payments legislation). Operators and administrators will be offered Operator membership. This will give them speaking and consultation, but not voting, rights and not bind them to comply with Participant member obligations;
  • Participant members will be bound to transparently and fairly developed rules, with meaningful compliance and enforcement arrangements - the model proposes Self-Regulatory Frameworks (SRFs) that will bind Participant members based on their payments activities and be supported by meaningful compliance and disciplinary arrangements. Ultimately APCA believes it would be valuable to amend payments legislation to give public regulatory support and recognition of SRFs if they have been approved by the Reserve Bank;
  • the views of payments system users and the interests of the broader community will be given an authoritative voice in system decision-making - three independent directors will collectively exercise 20% of all Board votes. Independent directors will be appointed through a transparent nominations committee process, and one will always act as chair of the Board; and
  • the interests of smaller, newer and alternative participants will be balanced with the interests of participants with large systemic investments - this is addressed by ensuring that there are always as many directors representing smaller participants as there are representing larger participants, by holding open elections amongst smaller participants to select their directors, and by ensuring that all member directors have meaningful voting rights - probably at least 5% each, no matter who they represent. We will ensure that no one constituency can ever force a resolution through without the support of others.

APCA plans to put the proposed new governance structure to member vote later this year.

Full Story

Industry
News

APCA endorses three same day settlements for direct entry

Direct entryAPCA has adopted an industry policy on the evolution of settlement for low value payments in Australia. Originally identified in APCA's Low Value Payments Roadmap, the APCA-endorsed model envisages three same-day settlements in the direct entry system by 2014. Currently, the direct entry system settles at 9.00am the next business day.

This reform will enhance a critical element of the Australian payments system. Moving value during the day will mitigate counterparty and operational risks as well as create a platform for innovation. The three same-day settlement model moves the system forward, takes advantage of the functionality provided by the Reserve Bank of Australia's Low Value Settlement Service, currently being implemented, while balancing operational and risk issues.

Full Story

Industry
News

Australia's payments migrated to next generation connectivity

Common payments networkIn February 2012, APCA announced the completion of a major industry undertaking - the migration of Australia's low value payments traffic from legacy network connectivity to the Common Payments Network. The two-year project, which was coordinated by APCA and the Reserve Bank, involved migrating some 90 bilateral links between Australia's largest payments participants.

The Common Payments Network was established by the payments industry in 2010 to provide next generation connectivity for Australia's low value payments. It replaces multiple links between individual participants with a single physical connection to the payments network "cloud". In addition to eliminating the costs associated with maintaining many links, a single connection enables significantly faster file transfers. Some participants have reported that file transfer times have been cut by up to 90% - from one hour to 6 minutes - since migrating to the CPN.

The Common Payments Network (CPN) comprises APCA's COIN, SWIFT's FileAct Service and the Reserve Bank's Clearing Interconnector. APCA's COIN provides connectivity for domestic eftpos and ATM, direct debit and direct credit, cheque payments and the BPAY bill payments service. SWIFT's FileAct Service provides services for direct debit and direct credit as an alternative to the APCA COIN. The Reserve Bank's Clearing Interconnector enables payments traffic to pass between the COIN and SWIFT.

Click here for more information on the CPN.

Full Story

Industry
News

APCA releases voluntary ISO 20022 schema

ISO 20022APCA has released a voluntary ISO 20022 schema for Australian payments to promote a uniform approach to future payment message development. The schema incorporates business and technical details for the core Credit Transfer and Direct Debit messages sets that could be exchanged between Australian financial institutions. It also provides high level descriptions and examples of the flow of payment information from customers to financial institutions using the ISO20022 schema. APCA has made the schema widely available in order to improve and refine it.

ISO 20022 is an international framework for financial messaging standards. It is gaining use and recognition around the world as a vehicle for data-rich payments messaging. Given the complexity and diversity of payments infrastructure globally, developments are evolutionary and long-term.

The ISO 20022 standard was identified in APCA's 2008 Low Value Payments Roadmap as a possible solution to the demands of Australian payment system users for additional reference data with payments and to facilitate globally interoperable straight-through-processing.

Work on the APCA schema has been carried out by a group of experts drawn from the payments industry and the Reserve Bank. In line with a commitment to open standards, APCA has publicly announced that the schema is available to the broader Australian payments community for review, and as a value-add to those planning and developing future services.

Click here for more information on APCA’s ISO 20022 schema.

Full Story

Industry
News

APCA makes submission on RBA merchant surcharging consultation

EFTPOS terminalOn 10 February 2012, APCA made its submission to the Reserve Bank of Australia’s “A Variation to the Surcharging Standards: A Consultation Document”.

The RBA consultation document, released in December 2011, outlines how the RBA intends to address the issue of excessive merchant surcharging on payment cards through variations to the existing surcharging standards. This would enable the card schemes to impose requirements through their scheme rules that would limit merchants to surcharges that are related to the “reasonable cost of acceptance”.

The APCA submission welcomed that the RBA had decided to not pursue some of the more interventionist and potentially burdensome proposals raised in the earlier June 2011 Consultation Paper such as requiring disclosure of merchant services fees and a fixed cap on surcharges.

However, in pursuing its proposed way forward, APCA noted that care was needed in defining the “reasonable cost of acceptance” and to ensure that no unreasonable compliance regime was imposed on acquirers.

The APCA submission also identified that more robust and comprehensive self-regulation could provide a means to deal with cross-scheme issues in the future and that the issue of surcharging of other payment instruments requires regulatory clarity.

Click here to access APCA’s submission.

Full Story

Regulatory
Reforms

RBA announces consultation on eftpos designation

Reserve Bank of AustraliaIn March 2012, the Reserve Bank of Australia released a consultation document on designation of the eftpos system.

The eftpos system was first designated under the Payment Systems (Regulation) Act 1998 in 2004. This enabled the imposition of an interchange fee standard and an access regime in 2006.

Since then, the eftpos system has changed significantly, in particular, the establishment of eftpos Payments Australia Limited (ePAL) in 2009 and ePAL's decision to introduce multilateral interchange fees.

Given these changes, the RBA has commenced a public consultation on the most appropriate form of designation for the system prior to commencing a consultation on issues such as interchange and access. The two proposed options for designation include one based on the current ePAL membership and rules or a "broader definition" which would also encompass other as-yet-undefined arrangements.

Submissions are due to the RBA by 20 April 2012.

Click here for more information.

Full Story

Regulatory
Reforms

RBA on retail payments system resilience

Following the Payments System Board (PSB) meeting held on 17 February 2012, the PSB announced that the RBA would be putting in a more systematic reporting regime for retail outages.

As well, the PSB announced that it would open a dialogue with ADIs with a view to developing proposals and launching a formal consultation on major retail payments system resilience. This comes, according to the PSB, following a number of disruptive retail payments operational incidents.

In advancing this matter, the PSB announced that it is seeking industry views on issues such as:

  • sources of vulnerability in ADIs' retail operational processes;
  • existing controls, safeguards and contingencies in ADIs' retail operations; and
  • ADIs' existing plans for upgrade and enhancement of the technology supporting retail operations and the objectives of these plans.

Click here for more information.

Full Story

Regulatory
Reforms

RBA explores policy implications of credit card market developments

The March 2012 RBA Bulletin includes new research on the Australian credit card market. Entitled "The Personal Credit Card Market in Australia: Pricing over the Past Decade" by Iris Chan, Sophia Chong and Stephen Mitchell, the article explores some recent developments in the Australian cards market and their policy implications.

The authors affirm the RBA's views that, as a result of regulatory interventions on credit cards, the effective price to cardholders for using a credit card has increased while the cost to merchants of accepting credit cards has declined. Evidence for this includes the diminishing attractiveness of reward programs. For example in 2004, a cardholder on average had to spend $14,400 to get a $100 shopping voucher. In 2011, $18,400 of expenditure was required to obtain the same reward.

The article further explores the implications of a number of recent market developments in particular the introduction of ‘companion' American Express cards, a substantial increase in the number of platinum cards, and the introduction of ‘super-premium' cards.

The observable outcomes related to these developments include an increasing number of interchange fee rates and an ever-widening gap between the highest and lowest interchange fees offered by the major four-party schemes. The authors also identify the increasing market share for American Express and Diners Club as related to these developments.

Though the authors suggest that these market developments may place upward pressure on merchant service fees, they note that evidence to date has been that these fees have not risen.

An inference one can take from the article is that if merchant service fees do rise in the future, then the RBA, as the payments regulator, may become even more interested in these market developments and potentially explore a regulatory response.

Click here for more information.

Full Story

Regulatory
Reforms

RBA appointments

Tony RichardsDr Philip Lowe's commencement as Deputy Governor of the Reserve Bank of Australia has seen a number of key personnel changes at the RBA.

Dr Chris Kent, who has held the position of Head of Payments Policy since December 2010, has been appointed to the role of Assistant Governor (Economic). Following Dr Kent's appointment, Dr Tony Richards has been appointed to the Head of Payments Policy from his previous position of Head of Economic Analysis.

APCA would like to congratulate Drs Lowe, Kent and Richards on their new appointments.

Global
round-up

European Parliament agrees end date for migration to SEPA

International PaymentsOn 14 February 2012, the European Parliament passed legislation that established 1 February 2014 as the legally-binding deadline for migration to the new SEPA system.

The regulation also eliminates multilateral interchange fees on cross-border direct debits as and will replace domestic identifiers with IBANs after a lengthy transitional period. As a result, existing national euro credit transfer and direct debit schemes will be replaced by SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) within two years.

Click here for more information.

Global
round-up

US Federal Reserve releases new research on mobile banking

The Federal Reserve Board of the United States has released new research on mobile banking and payments, notably results from an online survey, conducted in December 2011 and January 2012. The survey examined consumers' use of mobile technology to access financial services and make financial decisions.

Currently, 87% of the US adult population has a mobile phone and approximately half of those phones are "smartphones" with Internet access.

According to the survey, 21% of mobile phone users have used mobile banking. The most common activity is to check account balances, though the second most common activity, undertaken by half of those who do mobile banking, is transferring money from a bank, credit card or PayPal account. Not surprisingly, 18 to 29 year olds were the most likely to undertake mobile banking and payments, though interestingly, women were slightly more likely to make mobile payments than men.

The survey also found that smartphones were changing how people shopped. Nearly one-fifth of all mobile phone users had used their phones to comparison shop - using barcode scanning and product reviews to find better deals nearby while in store.

Though mobile banking and mobile payments are increasingly popular, the survey also found there remained significant concerns amongst consumers, particularly about security of financial and personal data either held on, or transmitted to and from, the phone.

Click here for more information.

Full Story

Global
round-up

Celebrating 20 years of APCA

APCA is celebrating its 20th anniversary as the payments industry’s self regulatory body with a number of initiatives and events during 2012. The launch of APCA's new website in February - the anniversary month - was the first of these. The real celebrations kicked-off with a special dinner for staff, directors and long-term member representatives – past and present – on 23 February 2012 in Sydney.


The evening’s 85 attendees spanned members of Reform of the Clearing System Steering Committee (whose deliberations led to the establishment of APCA) through to today’s directors and staff.

Following a warm welcome from APCA chair Russell Rechner, guests heard about APCA’s earlier years through the entertaining recollections of three past directors: Ralph Spring, Leslie Martin and Michele Bullock.

The evening’s festivities were highlighted by special award presentations:

  • Peter Smith – APCA’s first and longest-serving CEO
  • David Leong – longest-serving staff member
  • Paul Inglis – longest-serving current director

In the last speech of the evening, CEO Chris Hamilton looked to APCA’s future. The evening’s formalities were concluded with a toast to APCA, led by Mr Rechner.

For information on APCA’s achievements over the past 20 years click here.
APCA 20th anniversary media release is available here.

Full Story