Payments in a Global, Digital World

THE AUSTRALIAN PAYMENTS COUNCIL STRATEGIC AGENDA Contents

Message from the Chairman 3

Australian Payments in 2025 4

Summary of Initiatives: APC and Ongoing Industry Work 6

Focus Area 1: Systemic Resilience 8

Focus Area 2: Combatting Financial Crime 10

Focus Area 3: Social Accessibility and Inclusion 12

Focus Area 4: Interoperability 14

Focus Area 5: Sustainable Innovation 16

Getting Involved 18

Concluding Material 19

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THE USE OF CHEQUES HAS -82% fallen by 82% OVER THE LAST 10 YEARS AND COULD REACH ZERO BY 2022:ii

ATM withdrawals have fallen by a third ATM WITHDRAWALSin the past ten years, HAVE from 889million to 605million. fallen by a third FROM 889 MILLION TO 605 MILLION.i

IN JUNE 2019, APC RELEASED A TrustID framework, TO IMPROVE CUSTOMER CONVENIENCE DOWN AND ENHANCE THE PRIVACY BY A AND SECURITY OF ONLINE THIRD TRANSACTIONS. 889 605 Million Million 2008 2018

2 / For more than three years, the APC’s Australian Payments Plan has The Australian payments provided strategic direction for the payments community to ensure system is a foundational that the payments system continues to meet the evolving needs of all users. During this period of rapid change, the APC has progressed component of our financial and finalised significant projects in a number of critical areas – the changing payments mix, digital identity and cyber-security, among sector, our economy others. and daily life. As such, Our new strategic agenda builds on that work, and also represents engendering trust and a step change in our approach. Our world is increasingly globalised, digitalised and inter-connected; our lives are increasingly shaped by confidence is critical. global platforms. Within this changing world, the payments system is rapidly becoming the point of integration for a range of services and products. This changing context points us towards the need for a new direction in our strategic thinking. The new strategic agenda was prepared by the APC, and informed by input from a public consultation process, to ensure that the payments system continues to meet the changing requirements of the Australian economy and community.

ROBERT MILLINER Chariman, Australian Payments Council

The NPP has seen a rapid rise in payments since launch, from 2.6million in March 2018 to 15.9million in March 2019.iv

THE NPP HAS SEEN A rapid 15.9 Million Payments rise in IS THE MOST IMPORTANT FINTECH payments iii CATEGORY BY ADOPTION RATE: SINCE LAUNCH.iv

1. MONEY TRANSFER AND PAYMENTS 75% 2.6 Million

March 2018 March 2019 2. INSURANCE 48%

3. SAVINGS AND INVESTMENTS 34%

4. BUDGETING AND FINANCIAL PLANNING 29%

5. BORROWING 27%

The Australian Payments Council Strategic Agenda / 3 Australian Payments in 2025

Our Vision

The 2015 Australian Payments Plan outlined a future in which digital payments would become integrated and, ultimately, embedded into our everyday lives.v In the three years since that original vision was laid out, this view has been borne out. The Australian payments system is increasingly a platform for innovation, supporting the digital economy. As a cornerstone of our financial system, the payments system underpins all facets of economic activity. Individuals interact with the payments system on a daily basis and, as rapid adopters of mobile and digital technology, consumers expect the payments system will simply work, in any context, at any time. This is a fair expectation; an effective payments system must meet the needs of all users, encompassing rapid adoption of new technology as well as providing appropriate support for customers who are more comfortable with traditional methods. The “always on” nature of the payments system is important for individuals and organisations. Further, the increasingly interconnected and digital nature of the payments system prompts us to look for strategic insight in areas outside of our traditional purview, to ensure continuous availability. This is because the resilience of the payments system is increasingly dependent on factors outside of the direct influence of the financial sector. The clearest examples of these are the dependencies on the telecommunications and energy sectors. Reliance on these core infrastructures brings with it exposure to the same disruptions that impact these services, such as investment in new technology, as well as broader environmental factors. Our industry is also affected by shifts in the global financial and economic centres of power. There are countervailing trends towards both globalisation and regionalisation of payments services. We have seen the emergence of social media platforms that operate at both the global and regional level, and a growing concentration of power around major technology hubs. Likewise, the growth of migration has heralded the emergence of global citizens, who are global consumers of payment products. Moreover, a renewed focus on social inclusion prompts us to consider our role in continuing to provide accessible and appropriate payment methods for all. Our vision for the future encapsulates a payments system that continues to inspire trust and confidence and is able to meet the changing needs of the economy, in this dynamic global context.

4 / Areas for Strategic Consideration

The Foundations Towards Our Next Strategic Agenda The 2015 Australian Payments Plan outlined a vision Following our 2019 consultation, and based on of a payments system that is resilient, efficient, community feedback, we are confident that this vision, accessible and adaptable and in order to ensure that based on the four key characteristics of Resilience, the payments system continues to meet these key Efficiency, Accessibility and Adaptability should characteristics, the APC has: continue to animate our strategic agenda. • Researched community attitudes towards the Our objective is to ensure that the Australian consumer led decline of cheques, and made payments system continues to engender trust and recommendations to make appropriate alternatives confidence by exhibiting these key characteristics, available, prior to the removal of cheques. notwithstanding the changing and increasingly fragmented landscape. Our strategic agenda builds • Coordinated 18 organisations, including the on the work undertaken over the last three years, Digital Transformation Agency (DTA), to create and outlines five key focus areas (see table below) to an open and contestable framework to support ensure we meet this objective. interoperable digital identity services, that will enable individuals and businesses to interact Additionally, during the consultation, several meta- conveniently and securely online. themes emerged. These included the impact of technology, such as 5G, the Internet of Things • Led early strategic thinking on data-sharing by and artificial intelligence, as well as the continued developing a set of high-level principles facilitating decline of cash and the potential use of shared international learnings and holding an open data infrastructure. Developments in these areas will be hackathon. taken into consideration as we progress our strategic • Identified cyber-security requirements and worked agenda. closely with Government to consider how these requirements could be jointly met.

Characteristic Relevant Focus Areas

Systemic Resilience Resilience Combatting Financial Crime

Efficiency Interoperability

Accessibility  Social Inclusion and Accessibility

Adaptability Scalable Innovation

The Australian Payments Council Strategic Agenda / 5 Summary of Initiatives: APC and Ongoing Industry Work

APC Focus Area

Area The APC will: Systemic Resilience Ensure that we have a design for a resilient payments system and lead a programme of work for the continuous identification, management and reduction of risks to payments system resilience.

Combatting Financial Crime Develop a two-pronged approach to combatting financial crime: based on prevention and detection and customer protection.

Scalable Innovation Ensure there are clear guidelines for innovation and auditable processes that allow a wide range of service providers to identify and appropriately manage risk.

Social Inclusion and Develop guiding principles for financial inclusion and technology impact Accessibility assessment guidelines.

Interoperability Deliver a vision and roadmap for increasing payments interoperability and reducing friction.

Other Work Affecting the Industry

Payment Rails Roadmap In parallel and informed by the APC’s work, AusPayNet is developing a roadmap for Australia’s payment clearing systems.

Card Not Present Fraud Developed by AusPayNet, the industry CNP Fraud Mitigation Framework defines an approach to reduce online card fraud in Australia.

RBA – RITS/ISO20022 Following SWIFT’s plans to cease ongoing support of some messages used for cross-border payments after November 2025, the APC and RBA are consulting to assist the industry in coming to agreement on key strategic decisions for an ISO20022 migration project. Consumer Data Right The Australian Government’s CDR is progressing, with consumer data for mortgage accounts, credit and debit cards, and deposit and transaction accounts currently slated to be made available by 1 February 2020.

6 / Moving Forward

In progressing this strategic agenda, the APC will • Provide an initial direction for financial inclusion undertake a sectoral assessment in the second half and accessibility by examining the current levels of 2019. This will create a comprehensive landscape and efficacy of existing disability, accessibility of all relevant work underway within the industry. The and useability guidelines for payment product and assessment will form the basis for a payments system service design across all channels. that continues to meet the four key characteristics. • Guide our work in by mapping It will also set the starting points for our initial focus interoperability current standards and global adoption, identifying areas and ensure that the APC’s work complements, market requirements and auditing global and and does not duplicate, existing initiatives. vertical interoperability. The assessment will: • Set a starting point for our consideration of • Identify current and future risks to systemic sustainable innovation, to allow the APC to resilience, including interdependencies as well as monitor and assess technological developments recommend mitigants. It will look at factors both and determine whether further strategic inside and outside the payments industry. collaboration is required. • To help combat financial crime, evaluate vulnerabilities in current and future payment journeys and identify behavioural patterns of customers that may make them more vulnerable to financial crime. Building on this, it will also audit current collaboration initiatives, both nationally and internationally.

The Australian Payments Council Strategic Agenda / 7 Focus Area 1: Systemic Resilience

The average cost of a data center outage steadily increased by 38% THEbetween AVERAGE 2010 and 2016, COST OF A DATA CENTERfrom $USD505,502 OUTAGE to $740,357.vi STEADILY Overview increased by 38% BETWEEN 2010 AND 2016.vi As the payments system has become more digital, $USD it has developed a complex network of inter- dependencies that go beyond the boundaries of 740,357 2016 individual institutions. Indeed, many dependencies fall outside the traditional regulatory perimeter of $USD the payments sector – and into areas such as the

2010 505,502 telecommunications and energy sectors.

± Alongside the growth in network complexity, 38% consumer expectations have risen. Consumers expect that the payments system will be “always on”, work with a minimum of fuss and reliably support fast, digital payments. Systemic resilience also has an environmental and social context. With the frequency of extreme weather events expected to increase, our industry THE RBA IS faces the challenge to ensure availability in disaster- WORKING WITH THE struck areas. Likewise, a single missed payment can INDUSTRY AND APRA ON A significantly impact the livelihood of some individuals and businesses. standard set Resilience requirements have traditionally focused on individual entities and their suppliers. Given the of operational simultaneous rise in network complexity, consumer expectations and exogenous dependencies, this is no performance longer sufficient. Instead, strategic consideration must statistics.vii be given to the resilience of the payments system as a whole. The Australian payments system is world-leading in terms of innovation and the APC’s goal is to ensure the same for resilience.

IN 2018, blackouts affected 1.1m people IN AUSTRALIA AND NEW ZEALAND.viii

8 / Our Vision and Approach

The APC will undertake a programme of work to The vision will set aspirational and achievable ensure that we have a design for a resilient payments expectations for payments system resilience. The system, supported by the continuous identification, roadmap will identify appropriate mechanisms, management and reduction of operational risks. including governance, to support this vision. This will include policy recommendations for payments As part of the initial sectoral assessment, the APC will: regulatory authorities, including how they can • Identify current and future operational risks influence and mitigate risks that exist at a cross- industry level. • Identify system interdependencies • Recommend mitigants to the identified risks • Identify the extent to which risks and mitigants lie within the influence of the payments industry This will form the basis of a consultation with the full range of organisations involved in service provision, including the energy, telecommunications and technology sectors as well as domestic and global regulatory bodies. In turn, the consultation will lead to the development of a vision and roadmap.

The Australian Payments Council Strategic Agenda / 9 Focus Area 2: Combatting Financial Crime

In the 12 months to 30 June 2018, transactions made on Australian cards totalled more than $767 billion – up 5.1%. Card fraud grew at a slightly slower rate, increasing by 4.8% to $565 million. ix

otal Card TRANSACTIONS otal Card FRAUD Overview ± ± $767 5.1% $565 4.8% Billion Million

CRI CAR CRI CAR An effective payment system is one in which consumers know how to safely make payments, feel protected and know their options if something goes wrong. Over the last generation, the payments industry has invested heavily in protecting customers from fraud. IN THE 12 MONTHS TO 30 JUNE 2018, Key initiatives include the roll-out of chip technology, TRANSACTIONS MADE ON AUSTRALIAN CARDS development of sophisticated fraud-detection TOTALLED MORE THAN $767 BILLION – UP 5.1%. systems, creation of public-private collaborative CARD FRAUD GREW AT A SLIGHTLY SLOWER forums such as the Fraud in Banking Forum and RATE, INCREASING BY 4.8% TO $565 MILLION. ix Australian Financial Crimes Exchange (AFCX) and development of the CNP Fraud Mitigation Framework. As the digitisation of our economy and payments system has progressed, providers have looked for new ways to integrate payments into the customer $489.7m combined journey. The growing invisibility of payments has streamlined the customer experience, but also financial losses exposed security gaps. For example, we have seen FROM SCAMS WERE a growing reliance on non-secure communication REPORTED TO methods such as email, mobile applications and GOVERNMENT text messages. The increasingly interconnected AGENCIES.x nature of payments renders it less likely an individual organisation will have a complete view of the transactions it is party to. These developments point towards the need for effective collaboration at the strategic level, to help better deliver customer outcomes on monitoring and prevention. Financial crimes IMPACT GROUPS INCLUDING:

Older Australians

losing $24.8m Australians with a disability or chronic illness Indigenous xi losing Australians $8.7m losing $3m

10 / Our Vision and Approach

The APC will develop recommendations for • Research the role of personal data in facilitating collaborative action to combat financial crime. The financial crime initial sectoral assessment will examine current • Recommend collaborative action to prevent and future payment journeys for weaknesses. This financial crime will inform a two-pronged approach to combatting financial crime: based onprevention and detection To better protect customers from financial crime, and customer protection. the APC will: To better prevent and detect financial crime, • Identify behavioural patterns of customers that may the APC will: lead to vulnerabilities to financial crime • Audit current national and international initiatives to • Create an ongoing awareness programme to identify any weaknesses educate customers about vulnerabilities • Identify minimum in-house standards for financial • Ensure there are appropriate mechanisms to institutions protect customers from financial crime • Distil best practice from other jurisdictions (for example, examine the benefit of shared KYC utilities)

The Australian Payments Council Strategic Agenda / 11 Focus Area 3: Social Accessibility and Inclusion

THE AUSTRALIAN PAYMENTS SYSTEM MUST CONTINUE TO SUPPORT A WIDE Overview VARIETY OF USERS:

The Australian payments system touches everybody, everyday. Australians need access to appropriate payment options as a core component of their daily lives. As such, the accessibility of the payments AB 2 system is a core characteristic of its effectiveness. The trend towards digital payments opens up positive c3 opportunities for payments system accessibility. For Australians over 85 1 example, internet banking has improved accessibility A 2 by allowing customers to perform financial ARE THE FASTEST GROWING AGE COHORT,B xii transactions from their home. INCREASING BY 125% SINCE 1998. c3 The last five years have seen a growth in diversity 1 and competition within the payments industry. This is a positive trend, providing access to a range of X payment options, devices and integrated customer experiences. As the process of diversification continues, there is a clear strategic role for the APC in working to ensure a consistent, coherent and best- X practice standard of accessibility across all payment options. The decline of traditional payment mechanisms poses a challenge to ensure that all users of the payments 18% of Australians system retain consistent access to appropriate payment options. On current trends, cheques will live with a disability vanish from the Australian payments landscape by THAT AFFECTS THEIR DAILY ACTIVITIES. xiii 2022. Likewise, the use of cash as a payment method is continuing to decline. In response to similar trends, some international jurisdictions have responded with ad hoc mandates, requiring merchants to continue to accept cash. AB 2 c13 Many Australians struggle with literacy and numeracy 44% OF AUSTRALIANS HAVE A LOW LEVEL OF LITERACY, AND 55%X HAVE A LOW LEVEL OF NUMERACY. xiv

12 / 

Our Vision and Approach

The APC will develop guiding principles for financial Alongside the guiding principles, the APC will create inclusion and technology impact assessment (TIA) TIA guidelines. Based on the guiding principles, the guidelines. TIA guidelines will provide a practical tool to identify where the application of a particular technology or The guiding principles will outline a consistent best- business model may lead to inequitable outcomes in practice approach to accessibility. This will ensure the payments system. that payment services are made available on a non-discriminatory, equitable and efficient basis and that all customers have access to payment services that engender trust and confidence. To develop the guiding principles, the APC will: • As part of our initial sectoral assessment, examine the current levels and efficacy of existing disability, accessibility and useability guidelines for payment product and service design across all channels • Consult with consumer groups and other relevant stakeholders to better understand and document consumer disability and accessibility needs • Assess and recommend improvements to financial institution training and user guides • Identify any required policy changes • Make recommendations for the implementation and management of the pinciples.

The Australian Payments Council Strategic Agenda / 13 Focus Area 4: Interoperability

Overview

IN JUNE 2018, 88% of online Increasingly, payments services are called upon to operate seamlessly across platforms, and across consumers borders. IN AUSTRALIA USED Improved telecommunications technology, platforms xviii SOCIAL MEDIA. and transportation have heralded a growth in global migration. As a vibrant, multicultural society, almost half of Australians have at least one parent born overseas, and many retain close personal and financial ties to other countries. 21% of the Australian Global remittances to low-and-middle income countries grew from $470bn in 2010 to $689bn in 2018. xix population speaks a language other than English at home. Many individuals will move back and forward between countries across the course of their lives, $689 and require payment services that support efficiency, Billion 2018 choice and transparency. Likewise, payments are becoming the point of $470 integration for customer services. Social media and 2010 Billion tech platforms boast global user bases that number in the billions. The ISO20022 messaging standard has the potential to become the common language for payments. In line with the timeline established by SWIFT, the global banking sector will progressively adopt this standard over the next five years. This presents a significant Global remittances to opportunity to drive greater levels of interoperability low-and-middle income across both borders and platforms. Common data standards and APIs are also a countries grew significant enabler of interoperability. In assessing the FROM $470BN IN 2010 TO $689BN IN 2018.xix landscape, the APC is confident that existing work will deliver a relevant foundation for wider interoperability requirements.

Global platforms HAVE BECOME A SIGNIFICANT FORCE IN PAYMENTS.xx

14 / Our Vision and Approach

Building on current foundational work, and at an appropriate point in time, the APC will deliver a vision and roadmap for increasing payments interoperability. This vision and roadmap will be developed in consultation with national and international payment system regulators, standards bodies and industry associations, as well as corporate, public sector and retail payment system users to understand long term goals and system requirements. The APC will: • Map current standards and global adoption • Identify market requirements and audit global and vertical interoperability • Identify new requirements (eg. data dictionaries or the establishment of a global payments council) required to support interoperability demands • Make recommendations for implementation and governance of new requirements to support domestic and global interoperability

The Australian Payments Council Strategic Agenda / 15 Focus Area 5: Sustainable Innovation

AUSTRALIA’S FINTECH ADOPTION RATE IS 58%, UP FROM 13% IN 2015. GLOBALLY THE FINTECH ADOPTION RATE IS 64%.xxi Overview

2019 Innovation is key to enabling competition and choice, 58% it touches on all aspects of an effective payments system. Importantly, it underpins the development 2015 of new products and services that lead to improved 13% customer outcomes. The payments system is impacted by the network effect. This means that, as a product or service gains additional users, it simultaneously becomes more useful to existing users. As users adopt a payment method, it becomes increasingly viable for merchants Fintech is a global to accept it. In turn, greater merchant acceptance will WITH MANY FINTECH drive additional consumer take-up. industry, 100 FIRMS BASED IN EMERGING MARKETS:xxii Given this, there is a strong imperative to ensure that the pace of technology and business model innovation does not outstrip regulation and 12 IN 30 IN compliance. In other words, to ensure that innovation 27 IN THE AMERICAS THE UK ASIA is sustainable. AusPayNet has already begun the work of enabling a wide range of participants in the payments value chain to take a more active role in addressing this challenge. Given that AusPayNet is currently leading work within this area, the APC will continue to monitor and assess technological developments in innovation, to determine whether further strategic collaboration is required.

23 IN EUROPE, THE MIDDLE-EAST 8 IN AUSTRALIA/ AND AFRICA NEW ZEALAND

February 2020 PROPOSED START-DATE FOR THE CONSUMER CDR DATA RIGHT

16 / Our Vision and Approach

The APC will ensure there are clear guidelines for innovation and auditable processes that allow a wide range of service providers to identify and appropriately manage risk. The APC will ensure there are: • Principles and guidelines for secure innovation • Clear guidance regarding waivers and risk management expectations for products and services that follow non-standard processes • Clear guidance regarding the management of liability (where applicable) for the deployment of waiver products • Test tools and reference implementations to support safe introduction of new technology • Appropriate certification mechanisms to “passport” products and services that meet the agreed innovation design principles and guidelines • Ongoing governance for the guidelines and tools.

The Australian Payments Council Strategic Agenda / 17 Getting Involved

Acknowledgements Next Steps

This strategic agenda was developed by the APC This document is a starting point for our vision and through discussion with a wide range of stakeholders, roadmap to ensure an effective payments system. including individuals and organisations from inside Over the next three years, the APC will progress the and outside of the payments community. During initiatives outlined in this document. This may involve our 2019 consultation, we received input from 34 additional consultation with relevant stakeholders. organisations including the telecommunications Where this occurs, we encourage all stakeholders and sector, payment services providers, the fintech members of the community to get involved. community, disability and consumer advocates, as well as consultancy firms and payment schemes. Membership to the Payments Community is open to any organisation with a significant interest in the Australian Payments Council 2019 Australian payments system. For further information on joining the Payments Community please contact • American Express the APC. • Australia and New Zealand Banking Group • Australian Payments Network • Commonwealth Bank of Australia • Cuscal • National Australia Bank • NPP Australia • Optus • Quest Payment Systems • Reserve Bank of Australia • Westpac Banking Corpora-tion • Woolworths Ltd

Feedback was also received from the following organisations: • Australian Banking Association • AT Kearney • BeemIt • BPay • Customer Owned Banking Association • Deloitte • Digital Gap Initiative • Eftpos Australia • FinTech Australia • Fundraising Institute of Australia • G+D Mobile Security • Goldfinch Advisory • HSBC • Mastercard • Paydock • Payments People • Rambus • SWIFT • ThreatMetrix • UL Identity Management and Security • Visa • Volt Bank

18 / Concluding Material

Glossary

• AFCX Australian Financial Crimes Exchange • ISO International Organization for Standardization • APC Australian Payments Council • NPP New Payments Platform • API Application Programming Interface • RBA Reserve Bank of Australia • APRA Australian Prudential Regulation Authority • RITS Reserve Bank Information and • AusPayNet Australian Payments Network Transfer System • CDR Consumer Data Right • SWIFT Society for Worldwide Interbank • CNP Card-Not-Present Financial Telecommunications • DTA Digital Transformation Agency • TIA Technology Impact Assessment

References

More information about this consultation, and our work, is available at: www.australianpaymentscouncil.com.au

References xiii Australian Bureau of Statistics, Disability, Ageing and Carers (October 2016). i Reserve Bank of Australia, Payments Statistics (accessed June 2019). xiv Australian Bureau of Statistics, Programme for the International Assessment of Adult Competencies ii Reserve Bank of Australia, Payments Statistics (February 2013). (accessed June 2019). xv International Organization for Migration, World iii Ernst & Young, Global FinTech Adoption Index Migration Report, (2018). (June 2019). xvi Australian Human Rights Commission, Face the iv Reserve Bank of Australia, Payments Statistics Facts: Cultural Diversity (Feb 2015). (accessed June 2019). xvii Australian Bureau of Statistics, Census Reveals a v Australian Payments Council, Australian Payments Fast Changing, Culturally Diverse Nation Plan (December 2015). (June 2017). vi Ponemon Institute, Cost of Data Center Outages xviii Sensis, Yellow Social Media Report, (June 2018). (January 2016). xix World Bank, Migration and Remittances (April vii Payments System Board, May 2019 Meeting 2019). Update (May 2019). xx Australian Payments Network, AT Kearney, viii Eaton, Blackout Tracker Report (March 2019). Towards an Internet of Payments – Global ix Australian Payments Network, Fraud Statistics Platforms Redefining the Payments Landscape July 2017 – June 2018 (December 2018). (December 2018). xxi x Australian Competition and Consumer Ernst & Young, Global FinTech Adoption Index Commission, Targeting Scams (May 2019). (June 2019). xxii xi Australian Competition and Consumer KPMG, FinTech 100: Leading Global Fintech Commission, Targeting Scams (May 2019). Innovators (October 2018). xxiii xii Australian Bureau of Statistics, Australian The Hon. Josh Frydenberg MP, Treasurer, Press Demographic Statistics, June Quarter 2018 Release: Consumer Data Right Rules, Standards (December 2018). and Timelines (December 2018).

The Australian Payments Council Strategic Agenda / 19