RBA seeks more resilient retail payment system

  • By Elizabeth Fry

The Reserve Bank of Australia has again signalled it will step in if local fintechs are denied sufficient access to the country’s new payment platform.

In a speech on Sunday, central assistant governor Michele Bullock said the central bank and other regulators  need to be mindful that new players need access to the underlying payments clearing systems, either directly or through a commercial agency agreement.

˜If incumbent financial institutions control access, they might seek to put up unreasonable barriers to entry,” she said. 

"Regulators will need to be alert to potential anti-competitive conduct."

Speaking at  the 5th Bund Summit on Fintech, in Shanghai, the RBA official said regulators are trying to balance change in the payments industry as as new players and new technologies emerge, while at the same time ensuring systems are safe for users.

“It is important that rules don’t prevent innovation,” she said.

Stored value

Although Bullock considers access for new payment service providers to be a top priority, she also listed ‘stored value’ as second area of regulatory concern.

In most countries, she went on to say, retail deposits would be protected if a bank were to fail.  But some of the new players are holding client funds on their books as stored value. 

In her view, this raises a number of policy issues such as the implications for systemic risk of such a market structure.

“Should the funds being held be treated like deposits? If not, do the firms holding the funds need to be regulated in some other way to protect consumers? 

“If the new entrants are very large, like the big technology companies, they could potentially hold substantial amounts of value in their closed systems.” 

Outage risks 

During her speech, Bullock claimed outages that disrupt commerce are causing regulators to focus on the operational risks associated with retail payment systems, and whether the operators and the participants are meeting appropriately high standards of resilience.

Australia’s financial regulators are trying to ensure payment systems that handle retail transactions are more resilient and secure as fewer people carry cash, Bullock told the audience.

Traditionally, she said, central banks and regulators have paid a lot of attention to the resilience of high-value payment systems because of the systemic disruption that would likely occur if such systems were to suffer from an outage. 

High-value payment systems are therefore subject to higher standards of operational resilience than retail payment systems.

"With electronic payments becoming increasingly important, "the resilience of the electronic retail payment systems is becoming quite critical to the smooth functioning of economies," the assistant governor added.

“With people carrying less cash, an outage in a retail payment system can mean that customers can’t undertake transactions.”