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Payments transformation: Get ready for exponential change

There’s no time to lose with a new strategic plan for Australia’s payment system enmeshing all industry players in a seven-year transformation journey, but it’s just one of many forces to watch.

The payments landscape is moving at lightning speed as digital technologies foster new consumer behaviours and the push to support financial inclusion continues across the globe. 


From mobile payment adoption in Africa to instant payments by Federal Reserve Bank, USA with FedNow, to the interconnected Realtime payments between Singapore and India, these changes see no boundaries. 


Australia still faces a long road ahead towards modernising payments, but the direction is much clearer with the recent release of the Federal Government’s Strategic Plan for Australia’s Payment System.


Banks are already adapting to regulatory change while balancing customer demands for newer and better payment solutions. Fintechs are working hard to win parts of the payment value chain. Meanwhile, other participants in the payment ecosystem, including corporates and regulators, are catching up with new ways of experiencing payments. 


The government’s new roadmap marks a seven-year journey shaped by global payments trends and shifting consumer expectations. The direction we need to be heading in is clearer, but success hinges largely on how we plan to get there.


A roadmap for change

About 55 million payments worth close to AUD 650 billion are made in Australia every day. The new strategic plan, released on 7 June, outlines a vision for a system that is safe, trusted and accessible, while enabling greater competition, innovation and productivity across the economy. 


The plan outlines five key priorities:

  • Promoting a safe and resilient system
  • Updating the payments regulatory framework
  • Modernising payments infrastructure
  • Uplifting competition, productivity, and innovation across the economy
  • Maintaining Australia as a leader in the global payments landscape.


To keep pace with the rapidly shifting environment, the government will update the plan every 18 months, but a number of changes look certain.


Cheques, which have declined in volume by almost 90 per cent over the past decade, will be phased out by 2030. The plan also outlines initiatives for the future regulation of the payments system, including stronger regulation for technology companies providing payments services, such as digital wallets. 


We’ll also transition from the legacy Bulk Electronic Clearing System (BECS) to the New Payments Platform (NPP), which went live in 2017 to provide a range of real-time, data-rich payment services, such as PayID and PayTo, to consumers, businesses and government agencies. More than 100 payment providers now offer NPP services to almost 90 million customer accounts and the platform processed more than a billion transactions in 2021-22.


Global payment trends 

A number of global trends are shaping the payments landscape. Digital payments, for example, are continuing to support financial inclusion across the globe, providing further opportunities to promote the ‘S’ in ESG. 


Data from the 2021 World Bank Global Financial Inclusion Index, for example, shows that the pandemic expanded the access and use of digital financial services across the Asia-Pacific Economic Cooperation, particularly among women. Around 77 per cent of the region’s female population aged 15 years old and above made or received a digital payment in 2021. 


Among other global payment trends is the growing push for interoperability. This can be seen in the adoption of ISO 20022 across the global financial community, which is the standard for exchanging electronic messages used in financial transactions, including cross-border payments. 


We’re also seeing central banks connecting to build digital currencies, which represent universally accepted digital forms of money, as well collaborating on solutions to shared challenges like anti-money laundering, sanctions and fraud prevention. 


Ecommerce models that have developed across markets are also boosting the need for more transparent and frictionless payment systems around the world, and we can expect this need to grow.


Consumers expecting more

While global trends are at play, it’s tech-savvy consumers who are driving much of the change in the global payments. 


They’ve embraced the omnichannel payment experience, where transactions are made seamlessly across a variety of channels, from online to in-store or in-app. They expect automatic, secure ways to pay for goods and services, whether it’s riding hailing or food delivery. And they want their loyalty to be recognised – and rewarded – throughout their transactions. Examples include linking travel purchases with travel insurance rewards. 


Australian consumers are among the top users of cashless payments. A recent consumer trends report commissioned by the Australian Banking Association (ABA) and prepared by Accenture shows that digital wallet transactions increased from AUD 746 million in 2018 to more than AUD 93 billion in 2022, while the number of cards that were registered to digital wallets rose from just over 2 million to 15.3 million over the same period. 


The report also shows that 99 per cent of all bank transactions are now digital, and the majority of these are payments. These changes support the business case for banks and payment providers to invest more towards digital adoption. In fact, the ABA report shows an eightfold increase in banks’ technology investments since 2005 – from AUD 3.5 billion to AUD 28.5 billion. This includes digital infrastructure upgrades and payment innovations.


Opportunities ahead

The government’s Strategic Plan for Australia’s Payment System provides a new roadmap toward modernising payments and enabling greater competition, innovation and productivity across the economy. 


Australian Payments Plus, which was created via the merger of BPAY Group, eftpos and NPP in early 2022, is already bringing greater efficiency and accessibility to payments. Its PayTo solution, for example, allows retail bank customers to manage recurring payments in apps or internet banking and aligns well with the government’s Strategic Plan.


Along the road, banks must focus on getting the right domestic payment capabilities and the right level of customer integrations before transitioning from BECS to NPP payments. 


Modernising payments also presents huge opportunities for the public sector, given the significant payment volumes carried by governments to support citizens, whether through subsidies, revenue collections or tax payments.


As with many changes, there will be the early adopters of innovation. But as the velocity of change in the payments industry continues apace, market players must plan for the phase-out of cheques, changes to BECS and a boost in real-time payment volumes, all the while maintaining high levels of service to consumers and corporate customers.


There’s much to achieve in the next seven years as Australia seeks to reshape its payments landscape. And the clock is already ticking. All players – banks, non-banks, fintech and paytech – are on the journey together. 


While corporates stand to benefit through faster and more secure payment solutions, the ultimate winners will be consumers, with a seamless experience, integrated loyalty rewards and even more ways to pay.


See more on payments transformation from Nish at Sibos 2023 in the Sibos TV interview.

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