1 Margaret St GPO Box 4720 TEL (02) 8299 9000 Sydney NSW 2000 Sydney NSW 2001 FAX (02) 8299 9600

12 March 2019

The Australian Payments Council Level 23, Tower 3 International Towers Sydney 300 Barangaroo Avenue SYDNEY NSW 2000

c/o Merric Foley

Dear Merric,

RE: Cuscal response to the triennial review of the Australian Payments Plan

Background

Cuscal Limited (Cuscal) appreciates the opportunity to respond to the Australian Payments Council’s (APC) triennial Review of the Australian Payments Plan.

Cuscal is an end-to-end payments provider that services more than 100 established and challenger brand clients within Australia's financial system and payments landscape, including the majority of the mutual banking sector. We are an Authorised Deposit Taking Institution and also hold an Australian Financial Services Licence and Credit Licence

Our services that we provide to our client institutions include: card scheme sponsorship, card issuing, card production services, merchant acquiring, ATM fleet management, digital and mobile banking platforms, and access to the New Payments Platform (NPP). We also act as settlement agent for many of our clients through our Exchange Settlement Account with the Reserve of Australia (RBA). We process approximately 16% of Australia’s electronic transactions. For further information on services Cuscal provides, please refer to our website at www.cuscalpayments.com.au.

We are at the forefront of payments innovation and we are investing for future development. As a founding participant and one of the primary architects of the NPP, we enabled 30 of our clients (40 brands) to participate in this important payments innovation on Day One, which is greater than 50% of the total number of participants. We are also an industry leader in the implementation of digital wallets including and Google Pay, having enabled nearly 40 of our clients with this technology.

Cuscal also works closely with small and large fintech companies seeking access to the Australian payments ecosystem and has enabled the connectivity to clients, so they may provide innovative products, business models, and drive improved customer outcomes.

We are experienced in developing API’s for our clients, and we are compliant with Payment Card Industry’s Data Security Standards (PCI-DSS). The secure handling and transmission of customer financial transactional data is therefore core to our business. Cuscal supports an industry environment that encourages competition, stability and innovation, and one that does not place unreasonable cost burdens on the industry.

General Comments

Our responses have been structured in line with the three key sections presented in the Consultation Paper and are formed from deep experience in the Australian Payments

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System, the developments we see in domestic and global payments, and qualified comments from notable references.

Australian Payments in Global Context

1. What are your views on the trends outlined on pages 4 to 8? Are there other factors or issues to consider?

The trends outlined remain consistent with what Cuscal is observing in domestic, and global payments. Through the industry’s push for less-cash usage, and new digital innovations being rolled out, it follows that there will be be further ATM fleet rationalisation1. We remain confident further demand for digital payments will occur when the NPP rolls out future overlay services, including request for payment. Remaining with NPP, we note that the industry is preparing to facilitate real-time social welfare payments. We see this social service that will be provided by the NPP infrastructure to beneficiaries as a further example of how far payments technology can extend to.

2. What are some other interesting international trends?

As global jurisdictions expand their capacity beyond domestic fast payments, we see the opportunity for global fast payments further connecting consumers seeking fast and seamless exchange of funds2. And bypassing conventional means that may take days before a beneficiary can receive their funds.

As devices become more communicable, the Internet of Things will provide customers with more convenient opportunities to streamline their payments experience. Including smart refrigerators, for example, that allow customers to view grocery contents, and pay for new groceries, all from the screen of their smart refrigerator.

We are seeing further advantages of distributed ledger technology/block chain pilots, where these classes of payments have extended beyond retail payments to international trade financing3. This highlights the benefits of removing traditional processes, and streamlining payments.

Further, we are seeing more jurisdictions moving towards a standardisation of payments messaging type, notably, migration towards ISO 20022. The UK is a good example, and the Bank of England has moved from an industry consultation stage and is now determining the establishment of a panel aimed at streamlining the adoption of this messaging standard4.

3. Is digitisation changing the way we view payments?

Cuscal clearly believes digitisation is changing the way payments are made. However, we also recognises that some customer demographics continue to prefer using established means of payments, including cards, telephone banking, ATMs, agency banking, and cash. As the Government and service entities increase the use of digital channels (e.g Digital licenses) and the issuance of virtual cards are further centralised to devices, this will further increase the demand and usage of digitisation.

Also, as digital wallet providers advance existing service provisions including budgeting and spend tracking tools, and targeted offers, this will further drive customer reliance on digitisation.

1 Sydney Morning Herald - cull ATMs as more customers ditch cash 2 SWIFT - global payments innovation (gpi) 3 Completes New Blockchain-Enabled Global Trade Experiment 4 pmnts.com - Bank Of England Plans Panel To Standardize Payments Messaging 2

Objectives for the Australian Payments System

4. Within the four user groups (individuals, business, community groups and government), what sub-groupings have special needs or requirements that we should consider?

We feel the four user groups adequately represent participants in the payments system, and suggest an additional inclusion by way of the following subgroup incorporated under Individuals:

Group Subgroup Needs and requirements for consideration • Better educate and inform payments users that have displayed slowness, or reluctance to embrace new payment technologies. • While government agencies provide the community with financial literacy assistance, we welcome Slow adopters industry bodies to further distribute this knowledge across all communities. • Industry participants to consider further simplifying payments processes, to achieve stronger Individuals engagement in future rollout of payments innovation. • This includes parts of the community where there is insufficient infrastructure to facilitate mainstream payments • Access channels The community may not have in possession technological devices (e.g. smart phones, or computers), to enable payments, due to financial or geographic limitations

5. Do Resilience, Efficiency, Accessibility and Adaptability remain appropriate characteristics for our vision of an effective payments system?

Generally, we believe these four key headings are appropriate. However, we would add the following construct to Adaptability.

Characteristic Measure Added Suggestions

Adaptability Openness • Should be extended to include new entrants into the payments system, as the current definition does not clearly make this distinction.

6. Should digitisation change our vision for an effective payments system? If so, how?

Digitisation is further underpinning mainstream payments in Australia and abroad. Globally we are seeing growth rates in digital payments, which do not appear to be plateauing. Industry research further backs this with the increasing use of wearable technologies used by consumers to facilitate payments. As well as 87 per cent of the Australian population owning a smart phone. As reported recently, Australia’s transit network is being expanded to accommodate for open loop payments, which will also be facilitated using digital devices5.

In light of the ever-expanding realm of digitisation, we believe APC’s vision should remain focussed on characteristics and other themes mentioned in the consultation paper, specifically resilience, security and trust. To further push uptake and innovation of digital

5 Australian Payments Network - The Digital Economy 3 payments, customers will need to maintain a level of confidence that the payments system is adequately fortified to withstand cybersecurity attacks, and other threats that can compromise the integrity of payment systems.

Cuscal also recognises that with the ever growing technological payments infrastructure underpinning the Australian economy, payment systems incidents can significantly disrupt consumer payments, which may undermine Australia’s payments systems integrity. And this has been evident from highly publicised industry incidents that left customers unable to receive or make payments for several hours, and during peak payment times.

Areas for Industry Collaboration

7. Do the identified topics represent appropriate focus areas for the APC, given our vision of an effective payment system?

The focus areas identified by the APC cover a broad remit of strategic value in payments, and we recommend the APC considers further focus areas raised in question 8. However, the APC may wish to further consider increasing collaborations with its own counterparts in different jurisdictions, if it has not undertaken this initiative already. In doing so, we believe participants in the Australian payments system may gain further insights on global payments developments, and apply industry comparisons to benchmark domestic innovations to the global sphere.

8. Are there other potential focus areas that we have not identified?

In addition to the existing focus areas, the APC should consider how the industry best deals with decommissioning legacy systems to better allocate investment capital and resources to the maintenance of current, and the development of, emerging payment systems. A large segment of the Australian banking industry has undergone unprecedented overhaul in modernising core platforms. And this trend is likely to continue that will probably no longer afford participants the temporary, and at times, very costly option of procrastinating investment in systems modernisation.

On the reverse, we believe failure by institutions to adequately modernise their payment systems can result in expending excess investment capital and resources towards legacy systems where decommissioning would be a better option. The APC can further consider this proposed focus area to extend to the consolidation of legacy systems, especially where these legacy systems may pose an increased risk of performance instability.

9. How do you think we should prioritise our work within these focus areas?

We believe the APC should prioritise the focus areas based on the below rankings, which we have taken into account significance, ubiquity, and reliance to facilitate payments.

Focus area priority Reason for priority

1. Systemic resilience Customers must have confidence that payment systems operate with minimal disruptions, and with sufficiently strengthened frameworks to avert disrupting their payments experience. While the industry has made significant strides in modernising its core banking and payments platforms, the performance of these systems are reliant on infrastructure performance. As we have seen, natural disasters, for example, have impacted payments infrastructure, and has led customers to revert to the reliance of cash to fund essentials.

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Focus area priority Reason for priority

2. Financial crime Customers need a level of comfort that their personal data and funds are not at risk of financial theft. And where financial crime impacts customers, institutions quickly restore, and further strengthen their environments to cordon off future threats. Currently, the industry is collaborating to address growing fraud rates relating to card not present transactions, with the view to provide recommendations to the Reserve Bank of Australia. Consideration should also extend towards emerging payment technologies (e.g. wearables). 3. Payment interoperability: While global fast payment interoperability remains in its fast global and domestic developmental stages, over time, this will lead to greater payment dimensions efficiencies where scale will drive lower unit costs. 4. 5G, hyper-connectivity and We agree the internet of things presents further challenges, the internet of things however, given this payment technology remains in its formative stages, its evolution may present greater opportunities for retail payments.

5. Social inclusion Australia is country with very strong population of banked citizens, as the Consultation Paper endorses. This has recognised Australia as a market leading adopter of contactless payments.

6. Decline of cash We recognise that while cash will decline in preference to digital payments over time, we also recognise that as central banks move closer to issuing digital currencies, this may result in major disruptions to established cryptocurrency participants6.

10. Can you provide any information on emerging technologies that may impact our work?

The following emerging technologies we believe, will play further prominence in payments, which the APC would benefit from keeping abreast of.

Emerging Technology Impacts to APC’s Work Intelligence augmentation7 The next stage of AI, which is intended to provide a strong predictive analytics platform to create its own content, allowing marketing campaigns to be more agile and experimental. 5G network The 5G network will afford exponentially greater connections compared to 4G, and provide further developments for the Internet of Things. Instant cross-border As more payments platforms migrate over to ISO 20022, consumers payments8 will expect seamless fast transactions across multiple regions. APC may need to consider how best to balance consumer expectations with AML/CTF and other screening sanctions at an international level. APIs The onset and rise of APIs have ushered in several non-traditional players into the payments system. Banks will need to offer platforms that foster stronger collaboration between third-parties. The APC may need to consider how best to ensure customer data and payment systems integrity remains strengthened. Further, how APIs are developed to be a provision of service, as opposed to mere access of data.

6 The Guardian newspaper - Why digital currencies will destroy bitcoin 7 paymentscardsandmobile.com - 5 emerging payments technology trends for 2019 8 Capegemini - Top 10 Trends in Payments: 2019 5

Social media Social media is developing into a platform where subscribers can facilitate payments. In light of this, the APC should further consider how social media will play its part in the future of payments technology.

11. Can you provide any information on any other ongoing strategic work within these focus areas? Including industry, government, academia, NGOs, etc?

While it is noted the Consultation reports the APC’s efforts in “The Transition Away from Cheques”, Cuscal encourages the APC to continue with its efforts in this matter, and considers adding this topic to its existing focus areas. The declining use of cheques further highlights the appetite, which industry, government, and other sectors continue to adopt emerging payment technologies.

And while the use of cheques was once seen as an established method of payment, especially in property settlements, with the onset of PEXA, we are further seeing the decline of cheque use in Australia. When brought into perspective, cheque usage currently accounts for less than 0.2 per cent of Australian payments in aggregate9. Inevitably, we believe the same approach being taken for direct entry in the next three to five years.

In relation to government, we believe further consideration should be given to the importance of payments settlements infrastructure, being the finality of payments across government systems. Recognising the RBA, during 2017/18, settled a daily average value of approximately AUD $224 billion in RITS, RTGS and retail payments.10

Additionally, while we appreciate the APC is in the throes of conducting a triennial review of its Payments Plan, we propose going forward that the review interval is shortened recognising the development of payment technologies in the intervening period. Alternatively, if the APC maintains its approach to a triennial review that it provides members with intermittent updates where material progress or changes in the industry may influence its Payments Plan.

12. Other general matters a) It is self-evident that progress in payments is still dominated by the major banks and they will allocate relative priority and resources to regulatory/compliance matters or competitive issues. When developments such as NPP are not captured by either of these drivers, resources will be prioritised towards initiatives that do have more immediate consequences in terms of regulation or competition.

There is no commentary in the APC plan or intent that addresses this issue. It needs to be considered not only in relation to NPP, but all future development that its wants to promote or support such as digital ID, etc. Otherwise our progress in generally left to a best endeavours approach and as we have seen with NPP, the reach and industry benefits presently created is less than ideal.

b) The paper does not address the fact that related developments such as NPP, Open Banking, Digital ID, etc. are not adequately co-ordinated at either an industry or regulatory level and until this is corrected we will not meet efficiency objectives (and potentially accessibility and adaptability) as a consequence of inadequate planning and co-ordination during development and implementation phases.

9 news.com.au - Millions of cheques still written yearly in Australia, figures show 10 Reserve Bank of Australia - Trends in Payments, Clearing and Settlement Systems 6

Lastly, APC needs to consider the funding model for various research areas and other activities. If the industry wants progress and coordination, backed by world class research then an ongoing funding model needs to be developed and agreed as part of the planning cycle.

We trust that our above responses will assist the APC in formulating its revised Payments Plan, and if we can be of any further assistance, please feel free to contact me.

Yours sincerely,

Kieran McKenna Chief Risk Officer

Cuscal Limited

W cuscalpayments.com.au

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