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Optus15 February, 2019

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Optus15 February, 2019 15 February 2019 Robert Milliner Chairman Australian Payments Council Level 23, 3 International Towers 300 Barangaroo Ave SYDNEY NSW 2000 Dear Robert REVIEW OF THE AUSTRALIAN PAYMENTS PLAN Thank you for inviting Optus Business to participate in the triennial review of the Australian Payments Plan released in December 2015. As a longstanding member of the Payments Community, Optus Business is pleased to provide this submission on the critical technological developments shaping the future of the payments industry and wider ecosystem. In 2018 Optus Business' Centre for Industry 4.0 investigated how ready Australian industries, enterprises and executives are for the 4th Industrial Revolution, referred to as Industry 4.0 and how their enterprises are progressing with their current digital transformations. This was the largest study of its type conducted nationally. The report titled ‘Enterprise 4.0 – The Blueprint for Success in the Fourth Industrial Revolution1’ provides insights into: 1. The issues and technologies expected to have the biggest impact in the future; 2. How advanced enterprises are in their digital transformations; 3. The potential of Australian enterprises to perform exponentially, and; 4. What enterprises must do to succeed in the Fourth Industrial Revolution. In Enterprise 4.0, Optus Business found while many Australian enterprises recognise the impact Industry 4.0 will have, most are not yet strategically built to capitalise on it. Cyber/information security disruption tops C-executives list of disrupters. For half of the Australian executives surveyed, five other Industry 4.0 emerging technologies stood out: • Big Data, Analytics & Algorithms (82 per cent); • Artificial Intelligence (76 per cent); • Application Programming Interface (74 per cent); • The Internet-of-Things (57 per cent), and; • Advanced 5G Wireless Networks (45 per cent). Optus Business applies the label “Enterprise 4.0” to those enterprises that appropriately arrange their processes to capture the economic value of Industry 4.0. 1 https://www.optus.com.au/enterprise/industry-4-0 1 | P a g e Four distinct forces underpin the blueprint for Enterprise 4.0: • Multi-sided markets; • Hyper-scaled platform orchestration; • Network marketplaces, and; • Next generation software-defined networks. For Australian enterprises to unlock new economic value in Industry 4.0, they must transform their business design. In the past, business designs created value in a linear value chain flow. New business designs have now emerged that leverage the technologies of Industry 4.0 that enable producers and consumers to connect, interact and transact in ways not previously possible resulting in the creation of new economic value. They flow in an exponential way behaving according to a new economic physics. They are platform based, data intelligent and capital light in structure and operate predictively, are self-learning, self-provisioning and self-adapting to their ecosystem intelligently, autonomously and in a decentralised manner (see Figure 1). Figure 1: Enterprise 4.0 Blueprint Source: Optus Business – Centre for Industry 4.0 This submission therefore draws upon the key thought leadership insights of that study and provides perspectives of how some emerging technologies associated with the 4th Industrial Revolution may impact the Australian Payments ecosystem. Kind regards Rocky Scopelliti Director, Centre for Industry 4.0 Optus Business 2 | P a g e 1. 5TH GENERATION MOBILE NETWORKS (5G), HYPER-CONNECTIVITY AND THE INTERNET OF THINGS (IOT) 1.1. 5TH GENERATION MOBILE NETWORKS (5G) 5G will usher in an age of boundless connectivity and intelligent automation, changing the game for consumers, businesses and governments alike. Not only will they continue to facilitate the continued growth of Australia’s digital economy estimated to grow to $139 billion by 2020i, but enable new advanced use cases through the inclusion of factories, buildings, logistics systems, autonomous vehicles and many others into the ecosystems. The evolution of the Internet-of-Things, remote health monitoring, autonomous vehicles, home automation, virtual and augmented reality for education and healthcare etc. will lay the foundation for the next evolution of Australia’s digital economy (see Figure 2). Figure 2: Example use cases for 5G Source: Optus Business Many of these examples and use cases require features such as ultra-reliable low latency, security, network slicing for virtual private networks that 5G technology offers. Network slicing is where a network is split into separate sub-networks that enable these to be dedicated to users and applications (see Figure 3). 3 | P a g e Figure 3: Illustrative 5G network slicing Source: ITU News 4G has changed the way we communicate, with significant data transfer speed increase over 3G network. With the production launch of 5G in Australia in 2019, telecommunication providers are set to reshape many industries. 4G network delivered 50 millisecond response between device and a server, with 5G reducing this to one millisecond. This will bring lighting real-time experience to the service provided. 5G will mean “near zero” waiting time. Building on the generation over generation improvements of mobile networks, 5G introduces the concept of network slicing, which allows network operators to split a single physical network into multiple virtual networks. In a single 5G network, network slicing will cater for reliable connectivity for smart parking meters and connected cars, which connects Internet-of-Things devices with a high reliability data only service with a guaranteed low latency, data rate and security characteristics. At the same time, another network slice will be catering for an ultra-high definition personalised TV service and an augmented reality. Optus Business expects its 5G network to fuel the revolution in machine to machine communications, bringing significant advances to both human and machine to machine digital payments and transactions. With the volumes of electronic payments transactions increasing through innovations such as contactless, and the increasing mix of mobile connected acceptance devices in merchants, the questions for the payments industry to consider in relation to 5G, hyper-connectivity and IoT are: 4 | P a g e 1. Will a 5G network slice dedicated to payments traffic, improve the performance and resilience resulting in increased consumer confidence, experience and in reduced technological risk, of consumer-based payments? This question needs to be considered whether those payments are originating from Automated Teller Machines (ATM) for cash dispensing at merchant mobile connected points of service or mobile connected ATM cash dispensing machines respectively. 2. Will a 5G network slice dedicated to financial institutions, retailers, government agencies, others, stimulate innovation of value-added applications augmented with a payments transaction at merchant mobile connected acceptance devices in merchants or ATM cash dispensing machines respectively? 3. Have mobile EFTPOS device or ATM cash dispensing machine manufacturers incorporated e-Sim with remote provisioning capabilities that promote competition and choice of communications providers within their product roadmaps? 1.2. HYPERCONNECTIVITY AND THE INTERNET-OF-THINGS (IOT) Increasing affordability of sensors and other wireless technologies, all connected to the internet, introduced a range of services to consumers, including smart appliances, energy meters, wearable devices, connected cars, smart healthcare devices and many more. IoT proliferation or hyper- connectivity will have an enormous impact on the consumer payment’s ecosystem, with increasing machine to machine communication and decision point moving from humans to the machine itself, automated, even algorithmically initiated. This scenario exists today in use cases such as high frequency algorithmic trading between institutions and financial markets. IoT can be thought of as the enabler of the consumerisation of this use case into micropayments. A common example reported is where an internet connected fridge can initiate an automated workflow based on a predetermined set of rules to re-stock the goods, or a car that automatically pays for the fuel at the petrol service station, with no need for the driver to physically use payment terminals. With a burst to micro transactions from IoT devices, augmented with lifestyle use case experiences, a whole new world of innovation is anticipated to open centered on the experience economy2. For example, platforms such as Uber disaggregated the payments element from the user experience which leverages a central storage of payment methods, linked to the user account. Hypoconnectivity will be a catalyst for a completely new digital eco-system of accepting and providing payments for those user accounts. All services in the system will most likely be accessible via programmable interfaces (API) and have seamless, possible token based, but string security mechanisms, allowing for instant authentication and authorization. Furthermore, with introduction of open data for banking systems, previously closed financial payment systems can now be accessed by more 3rd parties, which will be augmenting payment services within lifestyle processes, further stressing the need of digital API enabled eco-system. 2 The experience economy is the idea that products and services can outcompete by creating an experience that customers value. In an economy where many products and services
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