Media Release Strategic Review of Innovation in the Payments System

The Reserve Bank has released the conclusions of its Strategic Review of Innovation in the Payments System. The Review was announced in May 2010, with the aim of identifying areas in which innovation in the Australian payments system may be improved through more effective cooperation between stakeholders and regulators. It has taken a medium-term perspective, looking at trends and developments overseas in payment systems and at possible gaps in the Australian payments system that might need to be filled over a time horizon of five to ten years.

The Bank has concluded that removing some of the barriers to cooperative innovation has the potential to deliver significant public benefits over time. To this end, it proposes two broad approaches to improving cooperative outcomes.

First, the Payments System Board of the Reserve Bank will from time to time set out strategic objectives for the payments system that take into account the interests of all stakeholders, including end users of the payments system. These will identify services or attributes that the Board believes the payments system should be able to provide by a specified time. In general, the industry would be expected to determine how those objectives could be met most efficiently. The Board is providing an initial set of strategic objectives as part of the conclusions of the Strategic Review (see below).

Second, the Bank will establish a more direct dialogue between the Payments System Board and the industry. As part of this effort, the Bank will work with the industry to constitute an enhanced industry coordination body that is suited to engaging in this dialogue. The Bank anticipates that this body will build upon the existing Australian Payments Clearing Association structure.

Initial Strategic Objectives

The initial strategic objectives established by the Board reflect the potential gaps in the payments system identified during the course of the Strategic Review. The Board has identified target dates for these objectives, though it does not rule out the possibility that some could be delivered sooner. The initial strategic objectives are:

• same-day settlement of all Direct Entry payments (by end 2013)
• the ability to make real-time retail payments (by end 2016)
• the ability to make and receive low-value payments (Direct Entry, real-time payments and crediting of card payment receipts) outside normal banking hours (by end 2016)
• the ability to send more complete remittance information with payments (by end 2016)
• the ability to address payments in simple manner (by end 2017).

A key objective is the establishment of a system that would provide real-time retail payments, with real-time funds availability, by the end of 2016. This type of system has been a focus of innovation in a number of other countries.

The Bank believes that a real-time retail payment system would best be delivered by the establishment of a real-time payments hub, rather than a web of bilateral links. It is also prepared to consider helping to facilitate these payments by providing a system for real-time interbank settlement via the Reserve Bank's RITS system, which currently provides real-time settlement for high-value transactions.

Next Steps

The Bank is now seeking feedback from the industry on the initial strategic objectives, along with the suggested target dates. It is also seeking views from the industry on the approach to delivering real-time retail payments, with a view to having a clear path determined by late 2012. In both cases the Bank is seeking responses by end August. Further details are provided in ‘Strategic Review of Innovation in the Payments System: Conclusions’.

The Bank will also begin a dialogue with the industry on constituting an enhanced industry coordination body, which will engage more directly with the Payments System Board on innovation and other matters.