Public Policy and the Payments System

Stevens devotes much of his speech to a fascinating analysis of classic market failure due to competition among the Australian banks’ bilateral payments networks. He also gives a practical example—relevant to the Rudd ‘stimulus’ payments—of the benefits of enforcing ahigher degree of collaboration where competitive market incentives are slowing the pace of innovation.

“[S]some have suggested that the Reserve Bank could play a role in the further development of the EFTPOS system. The system was designed originally to transfer money from consumer accounts to merchant accounts. These transfers are initiated when an EFTPOS card is swiped through a merchant’s terminal and the impact on the customer’s account is immediate. In recent years, however, there has been demand to use the system in a different way, to send payments into consumers’ accounts in real time. These demands flowed initially from the government looking to ensure benefit payments reach recipients as quickly as possible – for example, when providing emergency funds after a natural disaster. The EFTPOS system at present can accommodate these sorts of payments only in a limited way.

While some participants in the industry have seen benefit in expanding the EFTPOS message format to enable such transactions, there has been limited progress. A requirement by the Reserve Bank that all participants in the industry be able to accept instructions conforming to a common message standard would facilitate access by new entrants, and thus competition. If the Reserve Bank chose to require use of an international standard, that could also facilitate more competition from overseas providers of payment related services. A mandate from the Reserve Bank that EFTPOS message formats must be able to support credit transactions might likewise lay the foundation for innovation in the EFTPOS system based on these transactions more quickly than the industry might be able to achieve by itself.”Extract from Glenn Stevens on ‘Policy and the Payments System’

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