andrew galvin, michael anastas and james moore, hwl ebworth: developments in the payments industry
TRANSCRIPT
[Insert Title]
Presented by [Insert Speaker]
[Insert date as: Day, # Month Year]
Developments in the payments industry 23rd Annual Credit Law Conference
Presented by Andrew Galvin, James Moore and Michael Anastas
3 October 2013
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Regulation of the Australian payments sector
Overview of regulation
Purchased Payment Facilities
Payment system policy and real time payments
Merchant pricing and surcharging
New Payments Platform - Real time payments
Emerging products and regulation
The main players
Innovation in the market
Where to from here?
Outline
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Regulation of the Australian payments sector
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A payment system board supporting the RBA
Payment Systems (Regulation Act) / Payment Systems and Netting Act
Consumer protection provisions of the ASIC Act
Non deposit-taking institutions eligible for ESAs and membership of card schemes
Functional definition of “banking business” in the Banking Act expandable by regulation
Regulation of interchange and the imposition of access regimes
Prudential regulation of open loop stored value cards and electronic cash
Payment reforms under Wallis
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Banking Act modifications
Payment Systems (Regulation) Act
Chapter 7 of the Corporations Act
EFT/ePayments Code
AML Act
Scheme Membership Requirements
The Regulatory Framework
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“banking business” is now defined – but has the meaning changed?
Regulations have been made to include credit card issuing and acquiring and the issuing of purchased payment facilities
APRA has issued prudential standards and authorisation guidelines for SCCIs and PPPFs
Banking Business includes the provision of a PPF if APRA determines the facility:
is of a type allowing payment to be demanded in Australian currency of all or part of the balance held by the HSV [ie akin to a deposit]; and
is available on a wide basis as a means of payment having regard to restrictions limiting purchasers or payees [ie open loop].
Banking Act modifications
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Part 4 – regulates non-ADI holders of stored value (HSVs) for PPFs
PPF: facility purchased by a person from another person
able to be used as a means of making payments
payments are to be made by the provider of the facility or by a person acting under an arrangement with the provider (rather than by the user of the facility).
UNLESS excluded by declaration (being Gift card facilities, loyalty schemes, road toll devices, prepaid mobile phones, limited value ($10M) facilities and limited participant (50) facilities) and Westfield Insurance Cards.
HSV: person who is to make the payments [even if they don’t hold the value and have no contractual obligation to make payments]
Unless one of the exclusions applies, an authority or exemption from the RBA is required. A general exemption has been issued for corporations guaranteed by an ADI or a Commonwealth, State or local government.
Payment Systems (Regulation) Act – Purchased Payment Facilities (PPFs)
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Financial product – includes non-cash payment facilities
single payee facilities are excluded
licensing relief applies if payees are all related companies
licensing relief applies for suppliers arranging or advising on direct debits
wire transfers and money remittance are exempt depending upon settlement time (reg 7.1.07G) – useful for non-prepaid payment services
For prepaid facilities, usually without an exemption, an AFSL alone will not be sufficient because of the Banking Act and PSRA.
Class order exemptions apply for:
gift facilities
low value non-cash payment facilities ($1000/person + $10M float cap)
Prepaid mobile facilities and toll road facilities
Corporations Act: Chapter 7
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Facilities which are not pre-funded are relatively unregulated (eg money transfer business. AFSL may be required depending upon settlement timeframe)
Closed loop facilities are relatively unregulated
Significant entry barriers remain for open loop (except where exemptions apply – eg gift cards) – ADI status and scheme membership may be required
Visa / MasterCard credit card business is heavily regulated – this might be eased – RBA Review of Card System Access Regimes: A Consultation Document
The impact of licensing requirements
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White labelling
Tripartite alliances
Even the card schemes need a sponsor
Specialist platform operators manage most prepaid card programs even for the big banks (eg FIS, eMerchants)
Pure BIN sponsorship (BIN sponsor has a passive role limited to settlement)
BIN sponsor acting as issuer (BIN sponsor assumes full regulatory responsibility but the distributor might need an AFSL)
The impact of licensing requirements – indirect approaches
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Account based stored value has emerged instead of electronic tokens of value
The legal characterisation is important to determine:
Whether banking business is conducted under the Banking Act
Whether it is a designated service under the AML Act, and if so, which type
Whether it is a financial product, debenture or managed investment scheme under the Corporations Act
Whether unclaimed money laws apply, and if so, which ones
Whether it benefits from the Financial Claims Scheme (depositor protection)
Whether the ePayments Code applies
Whether it is subject to unsolicited credit/debit card prohibitions
The legal nature of stored value
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The legal nature of Stored Value - Virtual currencies
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Payment system policy and real time payments
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March 2013 change - Merchant pricing standard – an indirect signal to merchants
Scheme rules must not provide that acquirer terms cannot forbid merchants from recovering reasonable costs of acceptance or pricing different cards differently
Before January 2003, scheme rules had a "no surcharging" provision. Consistently enforced?
Consumer campaign and other regulatory action (ie Victorian Cabcharge ruling) may have more direct effect.
6 April 2013: UK took direct action under Consumer Protection (Payment Surcharges) Regulation, which directly prevents a merchant from charging fees in excess of "costs borne by the trader" for a particular payment method
Merchant pricing standard and surcharging
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Payment system changes around the world
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Overview
Payments System Review
Initial Strategic Objectives
Progress so far
Timeline and next steps
New Payments Platform - real time payment reforms
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Payments System Governance
Existing impediments to innovation: market forces may not be sufficient
PSB sets high-level strategic objectives
Enhanced Industry Governance through co-ordination body to assist in achieving objectives
Payment system review - conclusions
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Payment system review: initial objectives
PSB objective APCA response
Ability to make real-time retail
payments by end 2016
Supportive: see later slides
Same-day settlement of all DE
payments by end 2013
Supportive: Plan for 5 settlements
each business day
Ability to make and receive low-value
payments outside normal banking
hours by end 2016
Mostly supportive: Develop through
real-time payment system, not change
existing systems
Ability to send more complete
remittance information with payments
by end 2016
Supportive: To be considered as part
of the New Payments Platform (real-
time payment system) development
Ability to address payments in a
relatively simple way by end 2017 if not
earlier
Supportive: Industry approach to be
discussed and developed
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Real time payments: businesses and consumers making payments in real time between ADI accounts, near-immediate funds availability to payee
RBA proposal: payments messaging hub + RBA-provided settlements hub
System to be assessed against RBA's "Core criteria", released November 2012, consisting of:
10 program governance criteria (G1-10);
15 criteria for the real time payments solution (S1-15); and
7 criteria for the ongoing operation of the solution (O1-7)
Solution to be delivered in accordance with the timetable proposed by the RBA
In February 2013, RTPC submitted a proposal for the project and basic structure for the solution, which was endorsed by the PSB
Payment system review: Real time payments
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RTPC proposed solution
Source: Source: Strategic Review of Innovation in
the Payments System – RTPC Proposal to PSB 20
RTPC proposed solution
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RTPC was to become RTP Programme Steering Committee (+ RBA reps), has now become New Payments Platform Steering Committee
Proposal included project management overview, including:
Project management roles (KPMG appointed following tender);
Stakeholder and expert groups;
Project streams
Clearing switch and network and simpler addressing will be put to tender, with the vendor providing progress reports to the programme director.
Expressions of interest will be invited for entities wishing to provide the Initial convenience service, with timing and resources to be included in the project management.
Settlement hub project to be implemented by RBA, with progress reports to the programme director
RTPC solution: governance
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RTPC program - timeline
PSB timeline RTPC proposal
PSB consult/report key findings: by Q1 2013 N/A
Tender process to construct payments hub:
mid - end 2013
RFT process early 2013 - early 2014 …
Industry connectivity requirements: mid 2014 Requirements development: early 2013 …
RITS capability for high speed / high volume
settlements: end 2014
Broad timeline: industry testing early 2015 …
Real time retail payments hub - external
testing: end 2014
Broad timeline: industry testing early 2015 …
All ADIs can receive RTP: end 2015
Out-of-hours service, better remittance data:
mid 2016
Basic RTP: ADIs can send and receive fast
message and value, near 24/7, ISO 20022 message
format: end 2016.
Convenience service or other overlay service"
launch simultaneously: end 2016
…
Simpler addressing: end 2017 Sending ADI can identify payee a/c no. (eg
by mobile number): end 2017 … 23
Project definition and planning underway
Solution to be selected and build to commence in H1 2014 (testing Q2 2015)
Implement in Q4 2015
New Payments Platform program: next steps
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Emerging Products and Regulation
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1) Are we seeing changes in the payments
framework or simply new devices with the
same framework?
2) What impact does regulation have on the
new players?
Two important questions
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The main players
Merchants
Financial Institutions
Telecommunications Network Providers
IT/Software/Application Providers
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A number of different
options or is it a
combination of all?
Financial Institutions
Technology Companies
TelCo Providers
Merchants
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Innovation in the market
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Innovation in the market
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• Consumer facing opportunities
• Merchant facing opportunities
• Integrated smartphone and payment technology
• Purchases of goods and services
• Third party payments
Where to from here?
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A number of different
options or is it a
combination of all?
Financial Institutions
Technology Companies
TelCo Providers
Merchants
Andrew Galvin James Moore Michael Anastas
T +61 2 9334 8502 T +61 2 9334 8686 T +61 7 3020 2833
[email protected] [email protected] [email protected]
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