APCA Annual Review 2016 The Payments Environment

Connections & Collaboration APCA Annual Review 2016

Australian Payments Clearing Association 1 APCA Annual Review 2016 Connections & Collaboration

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Chair and CEO Message 3 The Australian Payments Clearing Snapshot 4 Association has Highlights 6 been at the heart of the Australian The Australia Payments Environment 7 payments system for Driving Payments 10 close to 25 years. Evolution As a member organisation and industry association, we have grown to represent the needs of a diverse set of stakeholders, as the payments system itself has evolved. With a clear understanding of the requirements Positioned for 14 of a digital economy, we are the home for the Future collaboration and cross industry innovation.

In our role as self-regulatory body for payments, we bring rigour to the application of existing regulation and an inquisitive, front-footed Engaging with approach to supporting the requirements the Community 18 of the emerging payments landscape.

Decision Making 22

Glossary & Contact 29 APCA has 103 members including Australia’s leading financial institutions major retailers, payments system This Annual Review is designed to provide our members and stakeholders with a summary of what was achieved operators and other in financial year 2015-2016. References in this report to payments service providers. a year are to financial year ended 30 June 2016 unless otherwise stated. A full list of our members is available on page 28.

Australian Payments Clearing Association 2 APCA Annual Review 2016 Connections & Collaboration

Chair and CEO message

The Australian payments landscape has never been more vibrant and it’s for this reason that we have chosen the theme of ‘connections and collaboration’ for our annual report this year. As the number and nature of participants grows and diversifies, so does our role, requiring us to be nimble in outlook and collaborative in focus.

In the last 12 months we have laid the foundation for our more connected future through a number of important initiatives. Whether giving rise to Robert Craig, Chair Leila Fourie, CEO the next generation of commerce, shaping the , ensuring the next wave of innovation, Moreover, with a focus on integration, use. We developed our submission or supporting the Australian Payments we are looking at new application in consultation with a wide range of Council, APCA has been at the areas such as public transport, payment data stakeholders and our forefront of change. to support the growing desire for response was positive and forward seamless and secure payments. looking in approach. In addition to these high profile We are keenly aware that the projects, we are actively working on the customer experience is a strong We also sense a growing international evolution and smooth operation of our driver of change and that this relevance, as the payment habits of stalwart payment systems. Our working preference for integrated payments Australian businesses and consumers groups and forums are helping industry draws us away from hardware and become more digital, and we’re excited to manage the risks and opportunities devices to software and the cloud. about the opportunities that this associated with new technology, Accordingly, our policy and strategy presents. This year we’ve invested time new channels and new distribution teams are working to help shape understanding the potential that models. The recently formed Issuers the frameworks required to underpin technology such as blockchain and and Acquirers Forum is proving to be a our more connected future. This APIs present for integration, both locally productive venue for industry to tackle is well evidenced by our response and with global partners and we look a range of issues, from supporting the to the Productivity Commission’s forward to building on this groundwork. safe introduction of new point of sale inquiry into data availability and technology, to preventing card fraud. We would like to extend a heartfelt thanks to the APCA staff and the for their support and contribution to the milestones "On behalf of the Board of Directors, achieved over the past year. For those of you with whom we already I extend a warm welcome to Leila Fourie, work closely, thank you for another who joined us as APCA's new CEO on year of collaboration. If you’re one 12 September 2016. I would also like to of the organisations that we’ve yet to connect with, we look forward to thank Chris Hamilton for his contribution learning from you and to welcoming during his time as CEO." Robert Craig you to one of our programmes.

Australian Payments Clearing Association 3 Card use 2016 Card use 2015

2014

2015

APCA Annual Review 2016 Connections & Collaboration 2016

Millions 0 200 400 600 800 Snapshot

This has been a landmark year for Australia’s digital economy. With 2014 accelerated adoption of electronic payment methods, fewer cash and cheque transactions and increased support for Fintech organisations, we’re at the forefront of a global trend. 2015

Card use 2016 Australia is oneCard use of 2015 the most digitally active nations in the world. 2016 2016

2015 Millions 2014 0 50 100 150 200 Card use 2016 Card use 2015 Direct entry Direct entry 2015 transactions 2016 transactions 2015 2014 2016 2015 Millions Australians used their With 75% of face- 0 200 400 600 800 cards 12.1% more to-face transactions 2016 often, and spent estimated to be “tap Millions 6.7% more and go”, Australia 0 2002014400 600 800 on them than in 2015.1 leads the world in contactless uptake.2 2014 2015

2016 2015 2016

2015 Millions 0 50 100 150 200 2016 2016 2015 Direct entry Direct entry Millions 0 50 100 150 200 transactions 2016 transactions 2015 Direct entry Direct entry transactions 2016 transactions 2015

Direct entry transactions grew by Online spending by 3 7.2% in number and 2.6% in value.1 Australians grew by 13.5%

BUY NOW

On average, every Australian over There is 1 point-of-sale terminal for the age of 15 has 3 payment cards.1, 4 every 20 Australians over the age of 15.4, 5

BUY NOW BUY NOW Source 1 Reserve of Australia; 2 Visa; 3 NAB Online Retail sales Index; 4 Australian Bureau of Statistics; and 5 APCA

Australian Payments Clearing Association 4 Card use 2016 Card use 2015

2014

2015

2016

Card use 2016 Millions APCA Annual Review 2016 0 200 400 600 800 Card use 2015 Connections & Collaboration

2014 2014 2015 2015 2016

Millions Card use 2016 The decline in cheques2016 and cash is accelerating. 0 2016200 400 600 800 Card use 2015 2015 Millions 0 50 100 150 200 Card use 2016 Millions 2014 2014 Card use 2015 Direct entry Direct entry Card use 2016 transactions 2016 transactions 2015 2015 2014 Card use 2015 2015

2015 2016 2016 2016 2014 2015 Millions2016 Millions 0 200 400 600 800 0 50 1002015 150 200 Millions Direct entry ATMDirect entrywithdrawals dropped by 0 200 400 600 800 Cheques use dropped by 17.2%, transactions 2016 transactions 2015 2016

6.6%, compared2014 to 4.9% in 2015. compared to 15.7% in 2015. Millions 2014 0 200 400 600 800

Source Reserve Bank of Australia2015­­­­­ 2015 2014 2016 2016 2016 2016 2015 2015 Millions Millions 0 50 100 150 200 2015 0 50 100 150 200 Direct entry Direct entry Direct entry Direct entry transactions 2016 transactions 2015 2016 2016 transactions 2016 transactions 2015 Mobile payments are on the rise. 2015 Millions 0 50 100 150 200

Direct entry Direct entry 100% transactions 2016 transactionsAustralia 2015 has one 100% Tablets are an

of the highest BUY NOW important part 80% 80% smartphone of the puzzle. Card use 2016 BUY NOW Card use 2015 60% penetration levels 60% 71% of Australians

2014 globally, and 59% over the age of 40% 40% 2015 of Australians with 18 have made a

2016 smartphones have payment using BUY NOW 20% 20% Millions 0 200 400 600used800 them to pay for a mobile phone goods or services. or tablet. 2014 BUY NOW

2015 Source PayPal Australia BUY NOW

2016 2016

2015 Millions 0 50 100 150 200

Direct entry Direct entry transactions 2016 transactions 2015 Investment in Fintech Australia is leading the world continues to grow. in blockchain technology

Fintech formed its industry peak body Fintech Australia and has over

BUY NOW members70

Investments in the Australian Fintech market totalled

438 Standards Australia is leading the global blockchain standardisation initiative.

million APCA is participating in an industry-wide shared ledger technology prototype. Source Fintech Australia­­­­­

Australian Payments Clearing Association 5 APCA Annual Review 2016 Connections & Collaboration

Highlights

We’re proud to have played a leading role in key industry initiatives this year.

The Australian Payments Council published the Australian Payments Plan to provide strategic direction for the payments industry. The industry is working collaboratively across three key areas: Trust and Security, Managing the Payments Mix, and Enabling the Future.

APCA’s Issuers and Acquirers The Reserve Bank of Community is tackling card- Australia is issuing new not-present fraud and is banknotes for the first working towards a consistent time in 25 years, with The New Payments Platform industry response. tighter security features, has moved from the “design and a tactile feature to help elaborate” stage to “build and the vision-impaired and internal test”. NPP Australia selected a world first design. BPAY to provide the first overlay service and appointed its inaugural CEO, effective September 2016.

A new set of voluntary industry guidelines helps card issuers manage security risks associated with mobile payments and digital wallets.

The NSW Government has announced a trial using contactless payment cards on public transport. The industry is developing Our submission to the a framework to support Productivity Commission the use of debit cards and Inquiry into Data Availability credit cards for transit. and Use highlighted the importance of a carefully designed framework to deliver trusted data sharing.

Australian Payments Clearing Association 6 APCA Annual Review 2016 The Australia Payments Environment

The Australian Payments Environment

The changing payments landscape is clearly reflected in our increasingly digital payments mix. This year, consumers and businesses have consistently chosen cards and electronic payment methods over cash and cheques.

Direct entry Number of Direct Entry Transactions The direct entry system supports electronic Direct Credits Direct Debits payments for millions of businesses and consumers. 2.5 2.5 Common examples of direct credits are salary payments, 2.0 2.0 wages and benefits. Direct debit is often used for 1.5 1.5 ongoing payments like mortgage repayments and 1.0 1.0 BILLIONS BILLIONS utility bills. 0.5 0.5 This year, there were over 3.3 billion direct entry 0 0 (direct debit and direct June June June June June June June June June June credit) transactions, a 7.2% 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 increase on the previous year. The total value of direct entry transactions grew 2.6% to $14.4 trillion. 5.6% 10.9%

Value of Direct Entry Transactions

Direct Credits Direct Debits

10 10

8 8

6 6

4 4 $ TRILLIONS $ TRILLIONS

2 2

0 0

June June June June June June June June June June 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2.2% 3.1% Source Reserve Bank of Australia­­­­­—www.rba.gov.au

Australian Payments Clearing Association 7 APCA Annual Review 2016 The Australia Payments Environment

Debit cards Number of Transactions Debit cards at point-of-sale in Australia continue to POS Terminal Transactions ATM Withdrawals grow strongly, with a 13.3% 5 900 increase in number, and 8.9% increase in value this year. 4

In contrast, ATM withdrawals 600 are in steady decline, likely 3 due to the strong use of “tap and go” cards at point- 2 BILLIONS MILLIONS of-sale. The number and 300 value of ATM withdrawals 1 dropped for the fourth consecutive year. ATM use 0 0 dropped by 6.6% and the June June June June June June June June June June value of withdrawals by 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2.4% on the previous year. 13.3% 6.6%

Value of Debit Card Transactions

POS Terminal Transactions ATM Withdrawals

300 160

250 120 200

150 80

$ BILLIONS 100 $ BILLIONS 40 50

0 0

June June June June June June June June June June 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Debit cards at point-of-sale continue to grow strongly, Increasing 8.9% 2.4% 13.3% Source Reserve Bank of Australia­­­­­—www.rba.gov.au

Australian Payments Clearing Association 8 APCA Annual Review 2016 The Australia Payments Environment

Credit cards Number of Credit / Value of Credit / and charge cards Charge Card Transactions Charge Card Transactions volumes increased by nearly 9.8% Purchases and Cash Advances Purchases and Cash Advances this year, the strongest increase in the last decade, 2.5 400 and a likely reflection of consumer confidence. 2.0 Similarly, credit card values 300 grew by 5% this year to 1.5 $310 billion, from $295 billion in 2015. 200 1.0 BILLIONS Card use 2016 $ BILLIONS Card use 2015 100 0.5 2014 0 0 2015 June June June June June June June June June June 2012 2013 2016 2014 2015 2016 2012 2013 2014 2015 2016

Millions 0 200 400 600 800

2014 9.8%2015 5.0% 2016 Source Reserve Bank2016 of Australia­­­­­—www.rba.gov.au

2015 Millions 0 50 100 150 200

Direct entry Direct entry transactions 2016 transactions 2015 Cheques Number of Cheques Value of Cheques The decline in cheque use is accelerating, dropping 250 1.5 17.2% this year, compared to 15.7% in 2015. Since 2006, 200 the number of cheques written annually has fallen 1.0 150 by 73%. Cheque values dropped by 1.8% this year, 100

compared to 0.9% in 2015. MILLIONS $ TRILLIONS 0.5 This is likely to recent 50 initiatives such as PEXA, for BUY NOW online property settlement, 0 0 and Superstream for June June June June June June June June June June superannuation payments, 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 which are replacing cheques for these payments. 17.2% 1.8% Source Reserve Bank of Australia­­­­­—www.rba.gov.au

Since 2006, cheques written annually have fallen by 73%

Australian Payments Clearing Association 9 APCA Annual Review 2016 TheConnections Australia &Payments Collaboration Environment

Driving payments evolution

In this rapidly changing environment, industry collaboration is pivotal to ensuring the evolution of a secure and convenient payments system.

Australian PaymentsPayments Clearing Clearing Association Association 10 APCA Annual Review 2016 Driving Payments Evolution

As a facilitator of group decision-making, APCA brings together a wide range of stakeholders on a daily basis. Together, we develop, implement and operate effective standards, policies and procedures to support innovation.

This year has seen significant consultation with regulators, financial institutions, domestic and international card schemes, technology providers and new entrants on a range of topics.

Digital Wallets Contactless Payment Supporting new technology Digital wallets are an emerging on Public Transport New technology is changing the payment method, and with Australia’s Many transport authorities worldwide purchase experience and APCA high prevalence of contactless are replacing their proprietary ticketing works with suppliers to ensure that payments and smartphones, usage cards (like ’s Opal system) payment acceptance devices meet is expected to increase significantly with contactless payment cards. best practice security requirements. in coming years. In May 2016, we The main benefit for commuters is For example, in December 2015, the published a set of voluntary industry convenience. With an “open loop” Issuer and Acquirers Community (IAC) guidelines to assist card issuers who system, commuters can use a card approved a secure ‘PIN on glass’ are considering offering third party they already own, their smartphone or mobile acceptance device; consumers services. The APCA Third a wearable to tap on and off transport. can tap their PIN into an approved Party Digital Wallet Security Guidelines This year, the NSW Government tablet style device to authenticate provide a statement of industry best announced it would begin trialling payment. The IAC is actively practice and a frame of reference for contactless payment cards on Sydney developing a process for evaluating managing potential fraud and data transport in 2017. APCA is developing innovative technologies to ensure security risks. These guidelines address an industry framework for how cards, timely and appropriately secure three key issues: security (customer phones and wearables can be used on support. APCA’s device evaluation identification and authentication), Australia’s public transport system. plays an important role in ensuring tokenisation, and compliance with the Once complete, the framework will be the security and integrity of ATMs, Privacy Act. shared with transport authorities to point-of-sale (POS) and other PIN assist their implementation. entry devices used in Australia.

Commuters will be able to use a card they already own, their smartphone or a wearable to tap on and off transport.

Australian Payments Clearing Association 11 APCA Annual Review 2016 Driving Payments Evolution

Fraud prevention Payments fraud prevention remains Card-not-present fraud Working closely with law enforcement a key priority for the industry. Major Similar to other jurisdictions, as Closer cooperation between law areas of focus involve chip technology, counterfeit fraud in Australia is enforcement and financial institutions card-not-present fraud and working becoming more difficult, criminals is also contributing to the drop in closely with law enforcement. are moving online. This year, domestic face-to-face fraud. APCA established card-not-present (CNP) fraud the Fraud in Banking Forum in 2014 for Chip technology increased by 38% to $136.7 million this purpose, and convenes quarterly Chip technology, together with the and now accounts for just over 70% meetings to promote dialogue on use of PIN, continues to provide strong of fraud by value on Australian cards. payments fraud issues. Sharing protection for face-to face fraud, with Combating CNP fraud in Australia information on emerging threats and domestic counterfeit / skimming fraud is a key focus for the IAC. The IAC is criminal methodologies is helping to dropping 10% in 2015 to $22.9 million. exploring a range of short and long identify and rendering ineffective Australia has had chip at point-of-sale term solutions to complement gangs operating in Australia. terminals and on most cards since 2014, existing prevention measures. and is now moving to chip-reading at ATMs. During the year, we continued to track the industry’s roll-out of EMV at ATMs ahead of the liability shift at the end of 2016. Full chip technology at ATMs will further close the loop on counterfeit fraud. Australians spent $689,470 million on their payment cards in 2015.

Fraud accounted for 0.07% of this total.

Australian Payments Clearing Association 12 APCA Annual Review 2016 Driving Payments Evolution

Shaping industry standards Australia’s next APCA has an important role generation banknotes APCA is at the front line in the in representing the industry development of global standards to In addition to embracing new on domestic and global support secure innovation in payment payments technologies, Australians standards bodies technologies. These include key continue to use cash, for a variety Australian standards as well as global of reasons. In this context, the EMVCo Business Associate ISO and PCI standards for card and Reserve Bank of Australia (RBA) is PIN security, tokenisation and key introducing new banknotes with tighter ISO/TC68 management. In July 2016, PCI published security features to protect against a new device approval class for Key counterfeiting and a tactile feature to ISO/TC68 Financial Services/ Loading Devices (KLDs), based on help the vision impaired. To ensure a Working Group 7 – ISO 20022 APCA’s KLDs security requirements, coordinated industry approach and a ISO/TC68 Financial Services/ which have been in use since 2006. smooth transition, we set up the Next Technical Group 1 – ISO 20022 PCI adopted most of APCA’s security Generation Banknote Support Project in requirements following an extensive September 2015. The project has been ISO/TC68/SC2 Financial review by a PCI working group. monitoring the industry’s readiness for Services Security the new banknotes to ensure minimal APCA is looking to be an active disruption as each denomination is ISO/ TC68/SC2/Working Group 11 participant in the international ISO issued into circulation. The RBA issued working group that will develop the $5 banknote, the first in the new ISO/TC68/SC2/Working Group 13 Blockchain standards. In April 2016, series and featuring a world-first Standards Australia (SA) submitted a design, on 1 September 2016. ISO/TC68/SC7 Core Banking proposal to ISO for the standardisation of Blockchain technology to support ISO/TC68/SC7/Working Group 10 interoperability among users, APCA is at the applications and systems. Recent front line in the ISO20022 Payments Standards stakeholder consultations conducted Evaluation Group by SA had uncovered interoperability development of ISO20022 Registration as the key to unlocking Blockchain’s global standards Management Group potential. The proposal was accepted to support by ISO in September 2016, with SA to Standards Australia Committee IT/5 act as secretariat for this work. secure innovation in payment Standards Australia technologies Committee IT/5/3

Standards Australia Working Group IT/5/4

Standards Australia Working Group IT/5/8

SWIFT Australian National Member Group

SWIFT Australian User Group

Payments Card Industry Security Standards Council (PCI SSC) (Affiliate member)

PCI SSC PIN Transaction Security Working Group

Australian Payments Clearing Association 13 APCA Annual Review 2016 TheConnections Australia &Payments Collaboration Environment

Positioned for the future

Significant progress in the development of the New Payments Platform, as well as the Australian Payments Council, mean that Australia is firmly positioned to support the needs of an increasingly digital economy. APCA has played an important role in the success of both these major initiatives.

Australian PaymentsPayments Clearing Clearing Association Association 14 APCA Annual Review 2016 Positioned for the Future

Australia’s New Payments Platform

The New Payments Platform (NPP) is a major industry initiative to develop new infrastructure for Australian payments. It will provide Australian governments, businesses and consumers with a fast, versatile, data-rich payments system for making their everyday payments. The industry is taking a unique layered approach that separates the basic infrastructure, which connects all financial institutions, from “overlay” services – innovative, customised payment services.

APCA is providing corporate services to NPP Australia Limited, the company it established in December 2014 to oversee the build and operation of the NPP. A summary of this year’s key developments follows.

A new phase First overlay service NPP Members The NPP program moved into the In October 2015, NPP Australia reached “build and internal test” phase in agreement with Australia’s premier Australia and New Zealand August 2015, once the “design and bill payment system provider – BPAY Banking Group Limited elaborate” phase was successfully – to deliver the first overlay service completed. The current phase to use the NPP once it is operational Australian Settlements Limited involves SWIFT building the basic in the second half of 2017. This initial Bendigo and Adelaide Bank Limited infrastructure, participants focussing convenience service will let consumers on their internal build and links to back immediately transfer funds to and from Citigroup Pty Ltd office systems as well as internal their banking accounts via their mobile testing of all components. Following phone, tablet, or via the internet. of Australia completion in early-mid 2017, the Limited program will move to industry testing. New shareholder and The NPP is on track to become an inaugural CEO HSBC Limited operational in the second half of 2017. In May 2016, HSBC Bank Australia Indue Ltd Limited became a shareholder of NPP Australia Limited – the first new ING DIRECT shareholder to join the 12 founding member institutions. Macquarie Bank Limited

NPP Australia announced the Limited appointment of inaugural CEO, Reserve Bank of Australia Adrian Lovney on 14 June 2016, with effect from 6 September 2016. Banking Corporation

Australian Payments Clearing Association 15 APCA Annual Review 2016 Positioned for the Future

The Australian Payments Council

The Australian Payments Council was established in August 2014 by the payments community with the support of the Reserve Bank of Australia to foster the ongoing development of the Australian payments system. APCA plays a vital role in bringing members of the Council together and shaping the strategic agenda.

The Australian Payments Plan As the Payments Council secretariat, Meet the Council The Council published the Australian APCA guides the programmes of work in each area. We draw on internal Payments Plan in December 2015. It was Mark Birrell – Independent Chairman developed in consultation with a wide expertise and consult with subject range of users of the payments system matter experts from organisations on Australia and New Zealand – from government and corporate the Payments Council and in the wider Banking Group Limited bodies to individuals. The Plan provides Payments Community. Australian Payments strategic direction for the payments Clearing Association industry. Its purpose is to ensure that Coordination with regulators as the future unfolds, the Australian Coordination of priorities is essential Commonwealth Bank of Australia payments system continues to meet to achieving payments system the needs of the economy. improvements. The Payments Council Coles Financial Services meets jointly with the Payments The Plan identifies three key areas that Payments Australia Limited System Board of the RBA on an annual will require industry collaboration to lay basis. The inaugural meeting held in HSBC Bank Australia Limited the groundwork for a more connected, August 2015, the first anniversary of integrated and competitive payments the Payments Council, focussed on MasterCard Asia/Pacific landscape. These are: the consultation process to inform (Australia) Pty Ltd development of the Plan. The August • Trust and security – focusing on National Australia Bank Limited digital identity and cybersecurity. 2016 meeting covered industry initiatives undertaken by the Payments Council PayPal Pty Ltd • Managing the existing following publication of the Plan in payments mix – ensuring that all December 2015. Reserve Bank of Australia businesses and consumers have Suncorp-Metway Limited access to convenient payment methods in the digital economy. Limited

• Enabling the next wave of Westpac Banking Corporation technology innovation – evaluating new technologies as they emerge and leading discussion on how they can improve the payments system.

Australian Payments Clearing Association 16 APCA Annual Review 2016 Positioned for the Future

Shaping the future of payments regulation

An important way APCA contributes to improving the payments system is by participating in the development of public policy. We formally advocated for the payments industry on the following matters.

Card payments regulation The RBA released its Conclusion Paper on the Review of Card Payments Regulation in May 2016. This saw the cap on interchange fees remain at 50 basis points, card regulation extend to American Express, and new measures to ensure that the fees merchants charge consumers more accurately reflects the interchange costs of different payment services. The new rules, which are enforceable by the Australian Competition and Consumer Commission, came into effect on 1 September 2016. As part of the changes, financial institutions have to provide clear information to merchants about the costs of processing credit card transactions. APCA has developed a standardised approach to assist financial institutions with compliance.

Outcomes of the Financial System Productivity Commission Inquiry New measures Inquiry Final Report into Data Availability and Use ensure that the The Financial System Inquiry concluded APCA lodged its submission – Trusted in December 2014 and the government Data Sharing, Now and in the Future – fee merchants released its response to the final to the Productivity Commission Inquiry charge consumers report on 20 October 2015, supporting into Data Availability and Use on more accurately most of the recommendations. The 29 July 2016. The submission highlights Government is now in the process of that trust is the cornerstone of data reflects the cost implementing these. APCA has been sharing arrangements in place within of acceptance an active participant throughout the the payments industry today. Data FSI process and continues to engage sharing must align five key elements: with government in delivering outcomes security, privacy, compliance and that will benefit the payments industry. liability, consumer interests and These include recommendations commercial incentives. relating to a graduated regulatory framework and the introduction of measures to make the e-Payments Code compulsory.

Australian Payments Clearing Association 17 APCA Annual Review 2016 TheConnections Australia &Payments Collaboration Environment

Engaging with the Community

As the payments system evolves and becomes more complex, the range of stakeholders widens. Interacting with everyone is vital for promoting collaboration to support the evolution of payments.

Australian PaymentsPayments Clearing Clearing Association Association 18 APCA Annual Review 2016 Engaging with the Community

APCA’s communications and engagement activities are primarily targeted at supporting our thought leadership, policy and advocacy roles.

Annual Conference Industry events The ICPACE organisations meet APCA held its annual conference on This year, APCA actively participated annually to share information, 21 October 2015. The half-day event in more than 40 member and industry explore emerging payments issues brought together over 100 attendees conferences and events. We presented and learn from each other’s from across the payments landscape on a broad range of current topics experiences. This year’s meeting was including financial institutions, card including digital identity, payments hosted by Payments Canada in June schemes and service providers. fraud and new and emerging 2016. Topics of discussion included Participants heard from industry technologies. In August 2016, we hosted developments in regulatory settings, experts on public policy and industry a “Women in Payments” event. The payments system enhancements agendas, the new payments platform “Connections and Collaboration” panel underway and strategic industry and what’s driving innovation. The discussion included the importance of planning. APCA will host the next strong themes of innovation and collaboration and how regulators might ICPACE meeting in February 2017. collaboration dominated discussion be positioned as collaborators in the APCA regularly hosts international throughout the afternoon. rapidly changing environment. visitors and actively participates We were delighted to have fintech International Liaison in overseas payments events. In February 2016, we welcomed visitors hub Stone and Chalk join our line of APCA participates in the International from the Reserve Bank of Chicago industry experts giving them a platform Council of Payment Association and from the Monetary Authority to engage with Australia’s payments Chief Executives (ICPACE), along with of Singapore in June 2016. APCA decision-makers. The intention is to payment associations from Canada, also presented at the Federal build on this event next year as part of Ireland, New Zealand, South Africa, Reserve Bank of Chicago Payments APCA’s 25th anniversary. United Kingdom and the United States. Symposium in September 2015 and the Payments Canada’s Payments Panorama in June 2016.

This year, APCA actively participated in more than 40 member and industry conferences and events.

Australian Payments Clearing Association 19 APCA Annual Review 2016 Engaging with the Community

Stakeholder engagement This year, we expanded our activities to include regular relationship meetings with members and other stakeholders. This holistic approach is helping to better support APCA’s extended community of payments organisations – financial institutions, specialist payments companies and system operators – and their affiliates.

Keeping the community informed APCA plays an important role in information sharing, which improves understanding of how payments support the economy.

The digital economy APCA releases regular Milestones reports to track Australia’s transition to digital payments. The April 2016 report shows that in 2015 Australians used 16.3% less cheques than in 2014, card Improving public understanding Payments developments and insights use was up 11.3%, and direct entry transactions grew by 6.3%. APCA publishes payments fraud data In addition to digital payments and According to a 2015 Deloitte twice-yearly to help inform consumers fraud trends reports, APCA publishes report, Australia is the sixth most and businesses about payments fraud a quarterly newsletter – Payments concentrated smartphone market issues and to assist the industry in Monitor – to keep stakeholders and in the world, and Australian Bureau monitoring fraud trends and targeted interested parties informed. This is of Statistics data shows that mitigation strategies. This year’s report complemented by our “Views and 86% of Australian households are shows that, in line with global trends, News” blog which provides insights now online. The Milestones report fraud on Australian cards is increasing on topics that have international also highlights industry initiatives online, as chip technology continues to as well as local relevance. The APCA to support the digital economy prove effective in tackling counterfeit website is a key component of our including the New Payments fraud. A key focus for the publication communications activities; this year, Platform and the Australian is providing information on the simple the website had more than half a Payments Plan. steps consumers can take to help stay million visitors, up 48% on last year. safe online.

The APCA website had more than half a million visitors, up on last 48% year.

2016 2015

Australian Payments Clearing Association 20 APCA Annual Review 2016 Engaging with the Community

OUR WORLD

The payments system connects everyone in the digital economy. APCA works with a wide range of stakeholders to promote industry collaboration.

Vendors, Suppliers, Consumer Representative Financial Institutions, Bodies, Merchants, Card Schemes, Government Departments, Major Retailers & Fintech & Industry Bodies Service Providers

Consumers RBA, ASIC, & Businesses ACCC, APRA & Treasury

Australian Payments Clearing Association 21 APCA Annual Review 2016 TheConnections Australia &Payments Collaboration Environment

Decision Making

APCA plays a pivotal role in the governance of payments systems.

Australian PaymentsPayments Clearing Clearing Association Association 22 APCA Annual Review 2016 Decision Making

APCA is the self-regulatory body and industry association for Australian payments. Our role continuously evolves in line with the changing needs of the payments community.

We bring industry stakeholders APCA’s decision-making processes • High Value Clearing System (HVCS) together to help shape the future Part of APCA’s role is to manage for settlement of high value, direction of payments. We provide non-competitive clearing systems real-time payments. insights on how the payments system and frameworks through management • Issuers and Acquirers Community is evolving, regulatory perspectives committees established by the Board. and likely outcomes and opportunities (IAC) for non-commercial aspects of for collaboration. These clearing systems provide rules debit and credit card transactions. for the exchange and settlement of • Australian Cash Distribution and APCA also plays an important role in funds among financial institutions and Exchange System (ACDES) for trading promoting collaboration across the other payments providers. They are: Australian Payments Council and its of bulk cash between . Payments Community, and NPP Australia • Australian Paper Clearing System • The COIN infrastructure system Limited, the company overseeing the (APCS) for cheques. provides connectivity for APCS, development of the NPP. • Bulk Electronic Clearing System BECS, IAC, BPAY and other (BECS) for direct debit and direct payments traffic. credit payments.

Board of Directors

APCS BECS HVCS ACDES Issuers and COIN Management Management Management Management Acquirers Forum Infrastructure Committee Committee Committee Committee Management (Cards) (Cheques) (Direct Entry) (High Value) (Cash) Committee

Australian Payments Clearing Association 23 APCA Annual Review 2016 Decision Making

Board of Directors

The APCA Board has 13 members. Led by an independent chair, the Board comprises independent directors, the APCA CEO and There were a number of changes to the Board during the year, and up to non-executive directors which September 2016. Brett Watson resigned from the Board in April 2016 and was are either elected or appointed replaced by Rosanna Fornarino. APCA CEO Chris Hamilton resigned in May 2016 after being in the role and an executive director for 10 years. Andy White, APCA’s by APCA members. The General Manager Payments Community, was appointed Acting CEO. Craig Kennedy independent directors have joined the Board in August 2016, following Adrian Lovney’s resignation. APCA’s substantial voting rights longest serving director, Paul Inglis, resigned in September 2016, after being on the to ensure public interest and Board for 18 years. He was replaced by Anne Collard. Leila Fourie was appointed APCA CEO and executive director, effective 12 September 2016. broader community benefits are effectively represented. The names of the directors in office as at 30 September 2016 follows:

Robert Craig, Chair Stuart Woodward, BSc (Hons), BCA, MAICD Deputy Chair BA (Hons), F Fin, GAICD Chief Strategy and Transformation Officer at and Care NSW General Manager, Payments Representation, Cash-Flow Mr Craig was appointed in and Transaction Services, January 2014 as an independent Institutional Banking and Markets, director and Chairman. He serves Commonwealth Bank of Australia as: Chairman and member of the Remuneration Committee. Mr Woodward was appointed as a non-executive director by the CBA in February 2005. He serves as: Chairman of the Fraud in Banking Forum and Chairman of the Nomination Committee.

Australian Payments Clearing Association 24 APCA Annual Review 2016 Decision Making

Paul Apolony Lindsay Boulton Chris Campbell F Fin, FAIM, FIPA, GAICD BA (Soc. Sc.), B Ec (Hons), GAICD B Ec, M Bus (Finance), MAICD

Deputy General Manager, Head of Banking, Head of Payments Policy and Operations – Oceania, The Bank Reserve Bank of Australia Strategy, Westpac Group of Tokyo – Mitsubishi UFJ, Ltd Mr Boulton was appointed as a Mr Campbell was appointed as a Mr Apolony was appointed as a non-executive director by the RBA non-executive director by Westpac non-executive director in June 2007 in June 2013. He serves as: Member of in April 2003. He serves as: and elected by Electing Members in the Audit, Risk and Finance Committee, Chairman of the COIN Management June 2014. He serves as: Chairman the Nomination Committee, and the Committee, member of the Audit, of the Australian Cash Distribution Remuneration Committee. Risk and Finance Committee, and and Exchange System Management the Remuneration Committee. Committee and the Next Generation Banknotes Support Steering Committee.

David Carter Jennifer Clark Anne Collard B Com, GDip App Fin and Investment, FAICD B Ec (Hons), MAICD CPA, F Fin, GAICD Deputy Chair of the Australian Head of Payments Industry & Chief Executive Officer, Banking Maritime Safety Authority and Chair Capabilities, Wholesale Digital and Wealth, of a number of Government Audit & Transformation, Australia and and Risk Committees New Zealand Banking Group Limited Mr Carter was elected by Electing Members as a non-executive director Ms Clark was appointed as an Ms Collard was appointed as a in June 2014. He is a member of the independent director in June 2014. non-executive director by ANZ in Australian Payments Council. She serves as: Member of the Audit, September 2016. She serves as: Risk and Finance Committee and the Member of the Nomination Committee. Remuneration Committee.

Australian Payments Clearing Association 25 APCA Annual Review 2016 Decision Making

Leila Fourie Rosanna Fornarino David Jay PhD Economic and Financial Sciences MBA, MAICD B Ec, MBA, FCPA, F Fin, FAMI, MIIA, GAICD

Chief Executive Officer, APCA General Manager Payments, Chief Executive Officer, Reconciliations and Logistics, Australian Settlements Limited Dr Fourie was appointed as chief National Australia Bank Limited executive officer of APCA on Mr Jay was appointed as a 12 September 2016. She serves as: Ms Fornarino was appointed by non-executive director by Building Member of the Audit, Risk and Finance NAB as a non-executive director in Societies Members in August 2010. Chairman of the Audit, Committee, the Remuneration April 2016. She serves as: Chairman of He serves as: Risk & Finance Committee, member of Committee, and the Australian the Australian Paper Clearing System the Remuneration Committee and the Payments Council. Management Committee. Nomination Committee.

Craig Kennedy Kate Mulligan MBA (Heriot Watt, Edinburgh), GAICD BA, LLB (Hons), MAICD

Managing Director, Cuscal Limited Managing Director of King Irving

Mr Kennedy was appointed as a Ms Mulligan was appointed as an non-executive director by Credit independent director in June 2014. Unions Members in August 2016. She serves as: Chairman of the Issuers He serves as: Chairman of the and Acquirers Forum. Bulk Electronic Clearing System Management Committee.

Australian Payments Clearing Association 26 APCA Annual Review 2016 Decision Making

Governance

The APCA Board is responsible for setting the company’s strategic direction and corporate governance. It is made up of an independent chair, the chief executive officer, non-executive directors appointed by APCA members and two additional independent directors. The current chair, Robert Craig, was appointed in January 2014 and is an independent voting director. The CEO is a board-appointed, non-voting, executive director.

Board committees Board charter Ethics, policies and procedures The Board has established a The Board carries out its functions and APCA promotes a high professional management committee for each exercises its powers in accordance with and ethical standard. Management APCA framework including its the board charter, which sets out its policies cover human resources, clearing systems and infrastructure role, responsibilities and functions. technology, external matters, system (COIN). Acting under The Board reviews the charter annually. finance and general management. delegated authority from the Board, management committees Reserve Bank of Australia liaison Risk management are responsible for the efficient arrangements APCA has put in place a risk operation and management of Senior staff of the RBA and APCA management framework which the each framework. The Board has consult on a regular basis on issues of Board oversees. Key risks and risk also established the following industry policy. The RBA has automatic appetite are regularly reviewed and the committees to assist in managing rights to appoint representatives risk framework is submitted to both the company’s affairs: to the Board and management internal and external audit review. • Audit, Risk and Finance committees, and currently has Committee – reviews the a representative on the Board. company’s internal financial practices, budget and audit Code of Conduct results and monitors the All directors, management committee effectiveness of the company’s members and senior executive staff financial controls and must comply with a Directors’ and administrative policies. Officers’ Code of Conduct.

• Nomination Committee – supports the Board on matters relating to the eligibility, appointment and election of directors.

• Remuneration Committee – establishes remuneration policies and practices for the company generally and recommends remuneration levels and contractual arrangements for the CEO.

Australian Payments Clearing Association 27 APCA Annual Review 2016 Decision Making

Membership

As the industry association for Australian payments, APCA has some 121 member organisations including APCA Participant Members and Operator Members (103), additional infrastructure system (COIN) members (8), and affiliates (10). Details of the membership categories are available on the APCA website.

APCA Members Citigroup Pty Limited Mastercard Asia / Pacific Taiwan Business Bank, Sydney (Australia) Pty Ltd * Branch Agricultural Bank CLS Bank International of China Limited Mega International Limited Limited # Co, Ltd American Express The Rock Commonwealth Australia Limited * Members Equity Bank of Australia # Tyro Payments Limited # AMP Bank Limited Bank Pty Limited Community First UBS AG, Australia Branch Mizuho Bank, Ltd Australia Limited Limited United Overseas * myMOVE Austraclear Limited Credit Union Bank Limited Australia Limited National Australia Australia and New Zealand Uniting Financial Services # # Bank Limited Banking Group Limited Cuscal Limited # Victoria Teachers Newcastle Permanent Australian Military Bank Ltd Defence Bank Limited Mutual Bank Ltd Australian Delphi Bank Visa AP (Australia) Pty Ltd * Settlements Limited Oversea-Chinese Banking AG Corporation Limited Warwick Credit Union Ltd Auswide Bank Ltd ECU Australia Limited PayPal Australia Pty Ltd * Westpac Banking Corporation # B&E Ltd eftpos Payments Police & Nurses Limited Woolworths Limited # Bananacoast Community Australia Limited * # * Operator Member Credit Union Ltd Police Bank Limited # G&C Mutual Bank # Also a COIN member Bank Australia QT Mutual Bank Ltd Gateway Credit Police Bank of America, Union Limited COIN Members National Association Credit Union Limited Limited Adyen Australia Pty Limited , Australia Branch Limited (Co-Operative Centrale Cabcharge Australia Limited Bank of China Heritage Isle Raiffeisen-Boerenleenbank Cardlink Services Limited (Australia) Limited B.A.) Credit Union Limited First Data International Co., Holiday Coast Rabobank Australia Limited Ltd Sydney Branch Fiserv Solutions of Credit Union Limited Australia Pty Ltd Limited Hong Kong and Shanghai # Reserve Bank of Australia Fuji Xerox Australia Bank of Sydney Ltd Banking Corporation Limited Royal Bank of Canada Pty Limited Bank of Tokyo-Mitsubishi UFJ, Ltd - Australian Branch Royal Bank of Scotland N.V., Property Exchange HSBC Bank Australia Limited BankVic (Australia) Branch Australia Limited Limited Barclays Bank plc Royal Bank of Scotland plc, Transaction Network Bendigo and Adelaide IMB Ltd Australia Branch Services Australia Pty Ltd Bank Limited Indue Ltd Select Encompass Industrial and Commercial Credit Union Ltd Affiliate Members Big Sky Building Bank of China Limited Southern Cross Banktech Society Limited Credit Union Ltd ING Bank (Australia) Limited DC Payments BNP Paribas Standard Chartered Bank ING Bank NV (Sydney Branch) Diebold Nixdorf State BNP Paribas JPMorgan Chase Bank, Giesecke & Devrient Securities Services National Association State Street Bank and IBM Australia Limited BPAY Pty Limited * LCH Clearnet Trust Company Ingenico Capricornian Ltd Macquarie Bank Limited Sumitomo Mitsui Banking Corporation, Sydney Branch NCR Cashcard Australia Limited Maitland Mutual Building Summerland Credit Union Ltd China Construction Bank Society Limited # Thales Corporation, Sydney Branch Maritime Mining & Power Suncorp-Metway Limited UL Transaction Security N.A. Credit Union Limited Sutherland Credit Union Ltd

Australian Payments Clearing Association 28 APCA Annual Review 2016 Connections & Collaboration

Glossary

APCS Australian Paper Clearing System FSI Financial System Inquiry

ATM Automatic Teller Machine IAC Issuers and Acquirers Community

BECS Bulk Electronic Clearing System ISO International Organization for Standardization

Blockchain A distributed ledger NPP New Payments Platform

BPAY See www..com.au OPAL NSW public transport ticketing system

CECS Consumer Electronic Clearing System PCI Payment Card Industry

COIN Community of Interest Network PCI SSC PCI Security Standards Council

Direct Payments system for direct debits and direct PIN Personal Identification Number Entry direct credits POS Point-of-sale EMV Europay, MasterCard, and Visa RBA Reserve Bank of Australia Fintech Collaboration between financial services companies and technology innovators SWIFT Society for Worldwide Interbank Financial Telecommunications

contact

Australian Payments Clearing Association Limited

Registered Office Level 6, 14 Martin Place, Sydney NSW 2000

Postal Address GPO Box 4893 Sydney NSW 2001

Telephone +61 2 9216 4888 Email [email protected]

ABN 12 055 136 519 apca.com.au

Australian Payments Clearing Association 29 APCA Annual Review 2016 The Australia Payments Environment

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