The Reserve Bank of Australia (RBA) plans to review regulations governing the country’s retail payments. The review is expected to create a new regulatory regime that directly addresses these payments by fixing problems and enhancing user security.
The RBA’s head of payments policy, Ellis Connolly, announced the review while speaking at the Merchant Risk Council Conference held in Melbourne, the nation’s capital.
According to Connolly, the government’s plan is centred around “encouraging the payments industry to address efficiency, competition and safety issues.”
Changing regulations to support retail payments tackles problems at the core.
A successful evaluation could see a proliferation of retail payments in several businesses, from e-commerce merchants to crypto casinos and fintech companies.
These players will likely benefit because the initial move is to update the current definitions of a payment system and other related terms. According to Connolly, this is necessary so that new players are easily regulated where necessary.
Connolly also explains that the review will include an assessment of conspicuous systems and participants in online payments.
These participants may include payment gateways, digital wallet providers, and companies that offer buy now, pay later (BNPL) services.
Following these exercises, the RBA will then fully engage in a “holistic” review of retail payments regulation.
The head of payments policy said that the central bank will spread its focus across mobile wallets and cross-border payments. The RBA will also assess the cost and transparency of payment services for merchants and users, as well as applicable surcharging frameworks.
Furthermore, Connolly specified policy issues related to card payments that the RBA will review.
On the cost of card payments for users, the assessment will cover international card transaction costs as well as scheme fees.
For merchants, the central bank will try to find the cheapest route for online debit card transactions to reduce costs. There will also be support for competition among payment providers, especially as they relate to e-commerce platforms.
Furthermore, the RBA will design and deploy tokenization standards for online card payments.
An expansion of applicable services and merchants and the deployment of tokenization standards could have advantages that benefit industries not directly tied to the finance sector, such as crypto gambling.
The regulatory review will amend the Payment Systems Regulation Act 1998 (PSRA), which specifies the RBA’s regulatory powers. Following an expansion of the agency’s powers, the central bank will tackle the existing surcharge issue affecting the BNPL sector.
Generally, businesses have the right to collect a surcharge from BNPL customers.
However, BNPL providers sometimes prevent businesses from implementing surcharges. Unfortunately, this means merchants accepting BNPL payments must incur transaction costs and cannot pass them to customers. Businesses decry this situation because of the high cost of handling BNPL services.
Connolly explained that the RBA believed merchants should be able to surcharge back in 2021.
He said that at the time, the RBA concluded that the cost of efficiency and competition in the payments system was higher than any benefit accruable from implementing a no-surcharge rule. The RBA now plans to reassess the issue.
According to Connolly: “It was not clear that the RBA had the power to require the removal of these no-surcharge rules.
After the reforms to the PSRA, the RBA plans to revisit this issue as part of a broader review of whether the RBA’s surcharging framework remains fit for purpose.”
Interestingly, the Australian Finance Industry Association (AFIA), which represents several BNPL providers, believes that competition will organically cause changes in the sector without regulatory interference.
The AFIA says these changes will result in greater value and lower costs for merchants and retailers alike.
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