Regulation Stifling Development of Digital Financial Services

Region: 
Australia
Digital financial services - including mobile money - could hold the key to improving financial inclusion however its growth in Australia has been stymied by complex regulation.
By international standards, Australia's retail payments system is reliable but expensive. In particular, Australia lags well behind other developed countries when it comes to growth and innovation in the purchased payment facility (PPF) market.
PPFs include stored value cards, mobile money and other non-traditional payment solutions that have the ability to disrupt the current system and make financial transactions faster, easier and less expensive for the benefit of all Australians. However, despite the PPF regulatory regime introduced following the Wallis Inquiry to encourage new payment methods, there is still only one authorised PPF provider in Australia, PayPal.
In contrast, PPFs are growing rapidly in places like Hong Kong. Hong Kong's Octopus-stored value card has a penetration rate of 99%, over 6,000 service providers and 15,000 retail outlets. With a robust financial system and burgeoning fintech industry, there's no reason why Australia should not be able to replicate the success of the Octopus system and give consumers more choice and freedom when it comes to payments. First, however, the current PPF regulatory regime needs to be overhauled.
The Murray report has proposed reforms to remove the complexities of the current regime but it does not go far enough to reform a system that has, to date, been regulated by exemptions, which have adversely impacted market development, innovation and growth.
We support the recommendations in the Murray report to strengthen consumer protection and promote technology neutrality. However, we recommend a much more aggressive suite of reforms to bring Australia up to world-standard in this area. Our recommendations include:
  •  Simplifying the current licensing/authorisation regimes from four to one;
  • Reducing the number of PPF supervisors from three to one, preferably a stand-alone regulator, but failing that, housed within the Reserve Bank;
  • Replacing the ePayments Code’s current prescriptive list of transactions with a broad principled provision – the e-Payments Code should not be mandated until it is made truly technology neutral;
  •  Data-Mining legislative provisions need to be consolidated and streamlined to give improve market conduct and consumer protection; and
  • Market information needs to be collected for all PPFs to identify risks, and to underpin future regulatory guidance and policy development.
We believe these five recommendations, particularly the establishment of a consolidated regulatory regime administered by a single regulator, will lay the groundwork for innovative disruption to support Australia’s prosperity while protecting the interests of consumers.

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