The Reserve Bank of Australia (RBA) has announced a “holistic review” of the country’s retail payments regulation, aiming to increase transparency in fees and promote competition for services, according to Ellis Connolly, the RBA’s head of payments policy.
Buy now, pay later services are among the targets of this review, but any changes will take time to emerge.
The review will commence once the federal government completes its current reforms to modernize the Payment Systems (Regulation) Act 1998, which encompasses the RBA’s regulatory powers.
Connolly explained in a speech in Melbourne on Tuesday that the reforms will update the definitions of a ‘payment system’ and ‘participant’ so that newer players can also be regulated if necessary.
"This will include some systems and participants that are increasingly prominent in online retail payments, such as payment gateways, payment facilitators, digital wallet providers, and ‘buy now, pay later’ (BNPL) services."
"The RBA will continue to have a broad mandate to promote efficiency, competition, and safety in the payments system. For issues beyond the mandate of the RBA, the reforms will also enable the government to nominate a relevant regulator to use the powers under the act in the national interest."
Connolly said the policy issues that the central bank will focus on include the cost of card payments for users, lowering merchant costs, promoting competition for payment services on e-commerce platforms, and introducing more standardization for tokenization in online card payments.
He hinted at a potential crackdown on buy now, pay later operators, which may force them to allow retailers to pass the cost of the service on to customers. Connolly outlined plans to launch a review of payment regulations as soon as the RBA is granted stronger powers.
Connolly noted that buy now, pay later was “typically an expensive way for merchants to accept payments.” The average fee on purchases made through buy now, pay later is 3.5% of the cost of the goods, compared to 0.4% for debit cards and 0.8% for credit cards.
The RBA will also address other issues such as merchant payment costs generally (beyond BNPL): "We will be asking what more could be done to help lower payment costs for small businesses, particularly in a world where electronic payments are ubiquitous.”
"We welcome views on whether there have been developments that justify reconsidering whether BNPL providers should remove no-surcharge rules," he said.
"One key development has been the government recently introducing legislation to Parliament to bring the regulation of BNPL in line with other types of credit. Under the reforms, BNPL providers will be required to hold an Australian credit license and be subject to regulation by the Australian Securities and Investments Commission. They would have to comply with requirements on product disclosure and take steps to ensure they are lending responsibly."
Surcharges on payments will be another area of focus for the inquiry, specifically whether the surcharging framework is still fit for purpose and if any changes need to be made.
Mobile wallets, such as those promoted by Apple, will also be examined. Connolly highlighted issues around the transparency of the fees charged by some mobile wallet providers to card issuers, and competition issues related to restrictions on access to ‘near-field communication’ technology for third-party apps.
Another issue of concern for consumers is the cost and transparency of cross-border payments. "Despite some improvements over recent years, the cost of cross-border payments continues to be very high relative to domestic payments."
"We will be asking whether there is a case for policy action to lower the cost and increase the transparency of cross-border payment services for consumers and merchants and, if so, what form such action should take,” Connolly explained.
