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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