Payments System Board Annual Report 2021

Over the past year there has been a further shift to electronic payments, including payments made online and using mobile devices, as well as strong growth in new payment types, such as ‘buy now, pay later’ services. The COVID-19 pandemic has reinforced the long-run shift towards electronic payments. While cash is being used less often for transactions, it is still important for some people, which underscores the importance of maintaining broad access to cash services. Innovation and the application of new technologies is having a significant impact on the payments landscape, leading to the emergence of new payment services and business models offering those services. The Bank is devoting considerable time to understanding these changes in the payments landscape and the implications for payments policy and regulation.

Australia's payments system is evolving rapidly, with the use of electronic payments continuing to grow. This has been driven by ongoing advances in technology and changing expectations of end-users for convenient and safe payments. The Bank has an important role to play in ensuring that payment services remain efficient, reliable and secure, while also making sure the needs of all users of the payments system are adequately met.

The Bank will continue to investigate the case for a central bank digital currency and to explore the technical, operational and policy implications. This will involve engaging with a wide range of stakeholders and participating in collaborative projects. The Bank will also undertake work to understand other technology-driven changes to payment systems and FMIs, including the implications for competition, efficiency and financial stability.

The Bank will engage with new players in the payments system to better understand how the landscape is changing and identify and address concerns relating to access, competition and efficiency. The Bank will continue to work with the government to ensure that the regulatory environment remains accommodative of new players in the payments system. This will include responding to recommendations stemming from the Treasury Payments System Review.

The Bank supervises infrastructure that is critical to the stability of the financial system. The Bank will focus on the efforts that FMIs are making to manage cyber threats and minimise disruptions to financial markets from operational incidents. Retail payment services also play an important role in supporting economic activity. The Bank will monitor the reliability of these services and consider whether further measures are needed to enhance operational resilience.

The Bank is working with the government on implementing reforms to the regulation of FMIs, including stronger supervisory powers and a crisis management regime for Australian CS facilities. These reforms will help to maintain the stability of the financial system, by ensuring that the Bank and ASIC have the powers to respond appropriately and quickly to a crisis involving the potential failure of a CS facility.

The Bank is close to completing a comprehensive review of its retail payments regulation, which has particularly focused on competition in the card payments market and reducing payment costs for merchants. The ongoing transition away from cash has prompted a continued focus on policy issues associated with access to cash services. The operational resilience and security of Australia's electronic payments services has also been a focus area given the increased reliance on electronic payments. The Bank has been cooperating with other central banks to enhance cross-border payments. The rapid pace of innovation in the payments system has also raised policy issues for the Bank, including issues associated with new players in the payments system, and new forms of money such as central bank digital currencies and stablecoins. The Bank has also been engaging with Treasury on its recent review of the payment system regulatory architecture and governance arrangements.

FMIs are critical to the smooth functioning of the financial system. The COVID-19 pandemic generated significant strains in financial markets, highlighting the importance of monitoring FMIs' financial risk management. The Bank has also focused on FMI's governance and their operational resilience to market pressures and external threats, such as cyber attacks. Serious operational incidents have occurred at some FMIs over the past year, and the Bank is monitoring their efforts to ensure that such incidents do not reoccur.