FRAMING THE NEXT GENERATION OF PAYMENTS Annual Review 2018 Australian Payments Network Limited ABN 12 055 136 519 Level 23, Tower 3 International Towers Sydney 300 Barangaroo Avenue Sydney NSW 2000 Telephone +61 2 9216 4888 Email [email protected] www.auspaynet.com.au ANNUAL REVIEW 2018

CONTENTS

About Us 2 Chair and CEO Message 4 Highlights 5 Australian Payments Landscape 6

Payments Innovation 10

Effective Self-Regulation 13

Leadership in Collaboration 18

Board of Directors 22 Governance Framework 25 Leadership Team 26 Membership 27 Glossary 28

This Annual Review is designed to provide our members and stakeholders with a summary of what was achieved in financial year 2017-2018. References in this report to a year are to financial year ended 30 June 2018 unless otherwise stated.

All location photos in this Annual Review were taken by AusPayNet staff. We are delighted to feature them in this year’s report.

PAGE 1 AUSTRALIAN PAYMENTS NETWORK

Australian Payments Network champions the payments system.

We enable competition and innovation, promote efficiency, and manage risk to deliver improvements for all users of the payments system.

We bring together a diverse range of organisations including financial institutions, major retailers, payment systems operators and technology providers. Our network includes more than 120 members and participants, and we welcome involvement from all organisations with a significant interest in payments.

In our role as the self-regulatory body for payments, we take an inquisitive, front-footed approach to help frame the next generation of payments.

PAGE 2 ANNUAL REVIEW 2018

FRAMING THE FUTURE Payments Innovation Consumer preferences, advances in technology and regulatory changes are The payments system is opening new opportunities. This year, through wide collaboration, we developed evolving faster than ever as new frameworks and standards to help bring consumers, businesses, and innovative offerings to market faster with regulators embrace the digital reduced risk. world. To stay abreast of the changing landscape, we focus Effective Self-Regulation on three core areas. Alongside exciting opportunities, the rapidly changing landscape also exposes new risks. We are responding in a way that improves efficiency and competition, and ensures a robust payments system.

Leadership in Collaboration Embracing new opportunities and challenges involves coordination and collaboration. We bring together a diverse set of participants to harness the benefits of change, and make payments thrive.

PAGE 3 AUSTRALIAN PAYMENTS NETWORK

CHAIR AND CEO MESSAGE

This financial year, we saw payments evolve in ways that is accelerating change and likely to shape our industry for decades to come.

New York Times columnist Thomas starting point for ongoing industry hard to ensure that our membership Friedman recently described our era as collaboration on open data. criteria and processes are inclusive. ‘the age of accelerations’. While referring We were delighted to welcome 12 new Statistics released in our fraud report to the non-linear acceleration that can members during the year. for 2017 showed that card-not-present be observed today in such areas as (CNP) fraud accounted for almost 85% technology, globalisation and climate of all fraud on Australian cards. As chip Looking ahead change, his concept is equally relevant to technology has strengthened protections Australia’s payments industry. Such rapid The force of change in our industry is for in-person fraud, criminal activity is change can be overwhelming, but we not unique to Australia. Looking offshore, migrating online. In response, AusPayNet are pleased to say that our industry has the intense interest in payments by led a collaborative initiative across the embraced the challenge. non-traditional participants – Facebook, e-commerce community to tackle CNP Snapchat, Google among them - is not hard fraud. Together, we have developed a Framing fast, convenient to miss, and a by-product of the ubiquity of high-impact framework, with broader smartphones. and secure payments consultation underway. The landscape is shifting rapidly and the A highlight of the year was the launch Digital Identity was once again a fast- payments world we know today may not in February of the National Payments moving space for policy and technology be recognisable in a decade’s time. It is Platform (NPP). We are proud of NPP’s roots development in FY18. This too is a highly therefore critical that Australia’s world- within AusPayNet, where our team led complex area requiring cross-industry class system – including the regulations the early industry collaborative work. Its collaboration. We are coordinating efforts governing it – continues to adapt and success is an example of productive multi- through the APC, including working remain fit for purpose. stakeholder collaboration in payments - with the Federal Government’s Digital congratulations go to all involved. Transformation Agency, with an agreed AusPayNet is committed to ensuring the framework expected at the end of 2018. payments system embraces innovation, This year also saw advances in open-loop while remaining efficient, competitive, payments in transport. We supported a Embracing new technologies and secure. As busy as FY18 was, the year Sydney pilot conducted by Transport for underway is shaping up to be at least as NSW, in which commuters were able to and standards challenging. We extend heartfelt thanks pay their fare using contactless cards, A large part of AusPayNet‘s focus in FY18 to our fellow directors, members, the smartphones or wearables rather than an was working to ensure that new payments RBA and other regulators, and all of our Opal card. The highly successful trial has technology – increasingly software-based stakeholders for their generous support been expanded. - is accommodated appropriately. Close and ongoing contribution. We also thank AusPayNet undertook important work to attention has been paid to encouraging the AusPayNet team for their dedication, plan for the open data regime which will best practice in the adoption of new enthusiasm and passion for making commence in Australia in mid-2019. A technologies such as blockchain, and payments thrive. successful two-day Australian Payments secure application of existing technology in Council (APC) ‘hackathon’ coordinatedby new ways such as PIN on glass. Robert Craig, Chair AusPayNet in late 2017 provided a sound Of course, new technology means new Leila Fourie, CEO payments participants. We have worked PAGE 4 ANNUAL REVIEW 2018 HIGHLIGHTS

In collaboration with transport authorities, we developed a Ramping up the fight against online card fraud, our NATIONAL OPEN LOOP TRANSPORT PAYMENTS ACCELERATOR EVENT held in collaboration with the FRAMEWORK Reserve of Australia, The new framework is designed to ensure brought together the e-commerce a consistent customer experience as community. Participants reached transport authorities across Australia clear consensus to develop the implement contactless credit and debit CNP Fraud Mitigation Framework. card payments for transit.

We lodged submissions to Government to help SHAPE THE FUTURE OF PAYMENTS REGULATION on Open Banking, Competition in the Australian Financial System, the Black Economy and the Digital Economy.

Supporting new technologies, This year, we added a new flagship we contributed to the event to our calendar, holding our development of NEW INDUSTRY FIRST AUSTRALIAN STANDARDS PAYMENT SUMMIT in December 2017. More than 250 including PCI security standards experts and innovators from across for card acceptance and ISO global the payments landscape participated standards for blockchain. in the one-day event.

We led the creation of an APAC / Pacific rim PAYMENTS THINK TANK - P7 for open dialogue about common themes impacting the region.

PAGE 5 AUSTRALIAN PAYMENTS NETWORK

AUSTRALIAN PAYMENTS LANDSCAPE The payments system is evolving faster than ever as consumers, businesses, and regulators embrace the digital world.

Australia’s adoption of digital services continues increasing in both scope and number 2013 • ONLINE SHOPPING CONTINUES TO GAIN INCREASING MOMENTUM $22.7BN 2017 $26.5BN 2018 UP 16.7% Australia is ranked in the top 10 for digital readiness ONLINE SHOPPING AUSTRALIA IS CONTINUES RANKED IN THE $22.7 $26.5 2015 10th out of TO GAIN INCREASING Billion Billion TOP 10 FOR 118 countries MOMENTUM 2017 2018 16.7% DIGITAL READINESS

Sources: Cisco Australian Digital Readiness Index; NAB Online Retail Sales Index

• Consumers Card payments grew are by a recordconsistently 12.7%. choosing digital payment methods 7.8 billion (2017) 8.8 billion (2018)

Cheque use continues to plummet Direct entry payments grew by 4.2% to 3.9 billion 99.9 million (2017) 80.4 million (2018) - down 20%

2017 2017 3 2016 201 8.8 2015 8.8 99.9 2018 Billion 2018 Billion Million 80.4 7.8 7.8 Million 2017 2017 Billion 2015 2016 2017 Billion 20154.22016 %2017 2013 2017 12.7%2013 -20% PAY ± PAY 2017 2018 • ATM withdrawals dropped to 600 million - down 4.0% DebitCard DIRECTDebitCard ENTRY CHEQUE USE PAYMENTS GREW BY CONTINUES TO

Card Card Credit 4.2% CreditTO 3.9 BILLION PLUMMET

CARD USEDOWN GREW  ATM WITHDRAWALS ¬ BY A RECORD4% DOWN DROPPED TO -4% 12.7% 600 MILLION 600 Million DOWN 4% Million Source: Reserve Bank of Australia600

PAGE 6 ANNUAL REVIEW 2018

2013 2017 9 out of 10 people own a smartphone. Mobile is leading digital adoption 7 out of 10 smartphone owners make

payments2015 on their2015 phone.2015 2015 2015 2016 2016 2016 2016 2016 2017 2017 2017 2017 2017

2013 2013 2013 2013 2017 2017 2017 2017 7 OUT OF 10 9 OUT OF 10 2015 2015 2015 2015 2015 2016 2016 2016 P 2016 P 2016 SMARTPHONE OWNERS PAY 2017 PAY 2017 PAY 2017 AY 2017 AY 2017 PEOPLE 2013 2013 2013 2013 OWN A MAKE PAYMENTS 2017 2017 2017 2017 SMARTPHONE ON THEIR PHONE PAY PAY

Sources: Deloitte Mobile Consumer Survey; Paypal mCommerce Index

As digital habits change so too do Australia’s preferences2015 2016around2017 security

31% of all smartphone owners ages 16-75 use ngerprint recognition 2013 2017

2015 2016 2017

2013 2017

31% OF ALL SMARTPHONE 56% OF AUSTRALIANS OWNERS AGES 16-75 ARE COMFORTABLE USING USE FINGERPRINT THEIR THUMBPRINT, VOICE RECOGNITION PAY OR RETINA FOR PAYMENT

Close to 60 participating nancialSources Institutions Visa; Deloitte

Some 2 million registrations for The is set to drive the evolution ofPayID payments

2015 2016 $ SOME 2 MILLION 2017 2013 2017 CLOSE TO REGISTRATIONS 60 PARTICIPATING FOR THE 0403 XXX XXX FINANCIAL PAYID ADDRESSING INSTITUTIONS SERVICE

Source: NPP Australia Limited Australia is punching above its weight in Fintech Australia is ranked in the top 5 countries Digital bank, Volt Bank, is the rst to become a restricted ADI for Fintech activity

2015 2016 2017 More than 650 Fintechs are operating 2013 2017 in Australia $$$ $ $ Top 5

650 FINTECHS AUSTRALIA IS RANKED IN ARE OPERATING IN A DIGITAL-ONLY , A FIVEFOLD IS GRANTED APRA’S FIRST THE TOP 5 COUNTRIES INCREASE SINCE 2014 RESTRICTED ADI LICENCE FOR FINTECH ACTIVITY

Source: KPMG Australian Fintech Landscape; APRA; EY FinTech PAGE 7 Australia Census AUSTRALIAN PAYMENTS NETWORK

Customer preference for digital payments provides a powerful base for innovation.

OVERVIEW OF CUSTOMER 7 Cheques PAYMENT TRENDS Direct Credit Number of Payments Direct Debit (in Billions) 6 Credit Card Debit Card Total for Financial Year

5

4

3

2

7 Cheques Direct Credit Direct Debit 1 6 Credit Card Debit Card 0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Reserve Bank of Australia 5

4 Cards NUMBER OFNUMBER CARD PAYMENTS OF CARD (Billions) PAYMENTS VALUE OFVALUE CARD PAYMENTS OF CARD (Billions) PAYMENTS (Billions) ($ Billions) Cards are the most popular payment

method in Australia. This year, card use Debit Cards Credit Cards Debit Cards Credit Cards 3 grew by 12.7%, the highest rate in a decade, to reach 8.8 billion transactions. 2.0 3.6 216.2 281.3

Debit cards dominate, representing 68.4% 2014 2014 of all card payments. Debit cards witnessed 4.0 2.2 235.5 295.0 2 the highest growth rate ever, soaring by 2015 2015 15.7% to 6.0 billion transactions. Debit 4.6 2.4 256.4 307.9

card values increased to $305 billion – up 2016 2016 10.0%, the first double digit growth rate 5.2 2.6 277.2 319.7 1 since 2013. Credit card growth remains 2017 2017 consistent, increasing by 6.7% in number 6.0 2.8 305.1 329.7

to 2.8 billion, and by 3.1% in value to 2018 2018 $329.7 billion this year. 0 2 4 6 8 10 0 100 200 300 400 500 600 700 0 Source: Reserve Bank of Australia 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

PAGE 8 ANNUAL REVIEW 2018

Direct Entry NUMBER OF DIRECT ENTRY PAYMENTS VALUE OF DIRECT ENTRY PAYMENTS NUMBER OF(Billions) DIRECT ENTRY PAYMENTS (BILLIONS) VALUE OF DIRECT($ Trillions ENTRY PAYMENTS) ($ TRILLIONS) The number of direct credits reached

2.7 billion – up 3.8%. By value, direct credits Direct Debits Direct Credits Direct Debits Direct Credits largely remained steady, dipping down 0.6% to $9.1 trillion. Direct debits followed a 0.8 5.8 2.1 8.1

similar pattern, growing in number by 4.9% 2014 2014 to 1.2 billion, but dropping in value by 8.7% 0.9 2.2 5.7 8.4

to $5.5 trillion. Some value is likely moving 2015 2015 to cards, and while still early days, to the 1.0 2.4 5.9 8.7

NPP, following its launch in February 2018. 2016 2016 1.1 2.6 6.1 9.2 2017 2017 1.2 2.7 5.5 9.1 2018 2018 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 0 5 10 15 20

Source: Reserve Bank of Australia

NUMBER OF CASH WITHDRAWALS (BILLIONS) NUMBER OF CASH WITHDRAWALS ($ BILLIONS) Cash NUMBER OF CASH WITHDRAWALS VALUE OF CASH WITHDRAWALS (Millions) ($ Billions) ATM withdrawals continued their steady decline, falling to 600.2 million – down

4.0%. This compares to a 7.5% drop 760.6 144.5 2014 last year. The value of ATM withdrawals 2014 remained at around $133.0 billion, down 723.5 142.1 2015 a slight 0.3%, compared to a 4.0% drop in 2015

2017. The slowing rate of decline suggests 675.8 138.7 2016 that Australians are using ATMs more often 2016 following the removal ATM direct charges 625.4 133.1 2017 to non-customers from September 2017. 2017

Notwithstanding this, ATM withdrawals have 600.2 132.7 2018 dropped by 21.1% since 2014. 2018 0 100 200 300 400 500 600 700 800 0 30 60 90 120 150

Source: Reserve Bank of Australia

Cheques NUMBERNUMBER OF CHEQUE OF PAYMENTS CHEQUE (MILLIONS) PAYMENTS VALUE OFVALUE CHEQUE OF PAYMENTS CHEQUE ($ TRILLIONS) PAYMENTS (Millions) ($ Trillions) Cheque use plummeted by 19.6%, with cheques numbers dropping from 99.9 million to 80.4 million. This follows a 21% 181.0 1.2 drop in 2017. Cheque values dropped by 2014 2014

12.5% to $1 trillion. The rate of decline in 152.6 1.2 value is the strongest since 2009, and the 2015 2015 first double-digit fall since 2011. 126.4 1.2 2016 2016

99.9 1.1 2017 2017

80.4 1.0 2018 2018 0 50 100 150 200 0.0 0.2 0.4 0.6 0.8 1.0 1.2

Source: Reserve Bank of Australia PAGE 9 PAYMENTS INNOVATION

Consumer preferences, advances in technology and regulatory changes are opening up new opportunities. This year, through wide collaboration, we developed new frameworks and standards to help bring innovative offerings to market faster with reduced risk. ANNUAL REVIEW 2018

Frameworks and common standards play an important role in providing a whole of industry approach to enabling secure payments innovation.

2015 2016 2017 2015 2016 2017

2013 2017 2013 2017

Contactless payments for transit Some 60 card-acceptingmore devices than and systems were approved through our device In collaboration with transport authorities certification program60 this devices year - up 20% on and industry, this year, we released a the 2017 financial year. national Open Loop Transport Payments approved Framework. This builds on the framework Supporting secure innovation we developed last year with Transport for NSW to support Australia’s first Contactless Standards frameworks help instil Transport Payments Trial launched in community confidence in emerging20 % July 2017. The initiative, which started on technologies. An important part of our work Sydney’s Manly ferry, enables customers involves developing AusPayNet’s security to pay for transit using their own debit or rules as new technologies emerge and more than credit card (or smartphone or wearable, contributing to national and international rather than an Opal card). Following the standards developments. This year, we 60 devices trial’s success, Transport for NSW expanded contributed to the development of a new contactless payments to all Sydney ferries PCI security standard to protect PINs approved (and a light rail line) in March 2018. entered on commercial off-the-shelf devices (like smartphones and tablets) The new Open Loop Transport Framework used by merchants. The PCI security is designed to help transport authorities 20% standard was published in January 2018. and partners across Australia introduce contactless payments for transit. In addition to providing guidance on selecting secure implementation models, the national framework ensures a consistent ticketing experience for customers.

Ensuring security of all card accepting devices As open loop payments become more The new Open Loop Transport widespread outside the retail sector, Framework is designed to industry is ensuring the security of all card accepting devices. This year, our Issuers help transport authorities and Acquirers Forum expanded AusPayNet’s device certification program beyond ATM and partners across Australia and POS devices to include all devices that accept debit and credit card payments. The introduce contactless expanded scope covers for example, transit devices, vending machines and parking payments for transit. meters. The new requirements come into effect from 1 July 2019.

PAGE 11 INNOVATION

INNOVATION

INNOVATION AUSTRALIAN PAYMENTS NETWORK INNOVATION

Blockchain Data sharing and open banking Digital ID As blockchain explorations continue, we The trend towards open banking is a Through the Australian Payments Council, are likely to see new applications and common global theme. To explore the the industry is developing a standards- solutions roll-out. AusPayNet is monitoring potential and challenges of data sharing, in based trust framework that will support developments. We also participate on August 2017, we supported the Australian more convenient and secure ways for the ISO committee developing global Payments Council’s highly successful individuals and organisations to interact standards for blockchain and distributed two-day ‘hackathon’. The event saw teams online. The work has involved close ledger technologies. In May 2018, we joined from across Australia using payments data engagement with the fintech community 130 participants from 35 ISO members to develop apps ranging from financial and Government. to review draft standards for reference planning to rewards program comparison. architecture and interoperability, security The hackathon was a valuable starting The future of payments and privacy, and smart contracts. With point for industry collaboration around good progress made, ISO expects to publish open data. This year, we developed a technology and the first draft reports by mid-2019. innovation roadmap to guide our focus Open data is gaining real momentum in on the next generation of payments. We Australia. The Government’s decision to New infrastructure are now actively exploring technologies implement a Consumer Data Right (CDR) like QR codes, AI, and biometrics and the to support innovation and more specifically open banking implication for Australian payments. presents new opportunities for consumer The launch of the New Payments Platform In the coming year, through industry (NPP) in February 2018 was a landmark driven innovation. The CSIRO’s Data61 is leading the development of technical consultation, we will deliver a clear vision for payments innovation. The NPP is next- for the future of Australia’s payment generation infrastructure equipped to standards for the CDR, as the Data Standards Body (DSB). Our Chief Operating systems, and the messaging that meet evolving customer needs. Services supports them. built on the NPP leverage the benefits of Officer, Andy White is a member of the near-instant, flexible, data-rich payments, committee advising the DSB, along with 24/7/365. This can be seen in the first representatives from data holders, data service ‘Osko’, which offers customers recipients and consumer and privacy an easy way to pay one another via a advocates. mobile phone number. AusPayNet was instrumental in the early development of the NPP including the establishment of NPP Australia. We were delighted to welcome NPP Australia as an Operator member in December 2017. We are now actively exploring technologies like QR codes, AI, and biometrics and the implication for Australian payments.

PAGE 12 EFFECTIVE SELF-REGULATION

Alongside exciting opportunities, the rapid changing landscape also exposes new risks. We are responding in a way that improves efficiency and competition, and ensures a robust payments system. AUSTRALIAN PAYMENTS NETWORK

FRAUD PREVENTION

Combatting card fraud is a key industry priority. This year, we joined forces with the broader e-commerce community to ramp up the fight against online card fraud.

Payments fraud is changing in Ramping up the fight against We continue to work closely with the line with consumer preferences. online fraud e-commerce community to garner The steady rise in online shopping feedback on the Framework. The next steps In February 2018, we held an Accelerator effectively illustrates the changing involve drafting implementation guidelines event in cooperation with the Reserve payments landscape. Globally, online and consulting on implementation Bank of Australia, to ramp up the fight, and timeframes. Compliance with the sales continue to account for a accelerate the adoption of online fraud framework is expected to be enforced growing portion of total retail. In line prevention measures. The event brought through AusPayNet’s IAC Code Set. with global trends, the shift towards together the entire range of e-commerce online shopping is also seeing rising stakeholders to expedite a new, whole of Chip technology protecting online payment fraud. In 2017, card- industry approach for tackling CNP fraud against in-person fraud not-present (CNP), mainly occurring (see page 21). Participants reached clear online, accounted for 85% of all fraud consensus to develop a high-impact Last year, we reported that industry had on Australian cards. industry framework, underpinned by completed the roll-out of chip technology collaboratively agreed principles. at ATMs. With the clear majority of cards, POS terminals and ATMs now EMV compliant, CNP Fraud Mitigation Framework counterfeit/skimming fraud dropped to the lowest value since we first published In close consultation with the e-commerce fraud statistics in 2006. Continued efforts community, we have been leading industry at every level, and close cooperation with work to develop the CNP Fraud Mitigation law enforcement, are providing strong Framework. The new framework clearly protection for in-person fraud. defines actions and responsibilities for reducing CNP fraud across the online payments community. For example, issuers will adopt targets for lowering online fraud on their card-bases. The industry has also set a benchmark for acceptable fraud risk for merchants. Merchants with fraud rates above this level will be required to use multi-factor authentication measures, except for exempt transactions. Multi-factor authentication adds layers of security by using more than one attribute to verify consumers online.

PAGE 14 SELF REGULATION

SELF REGULATION SELF REGULATION SELF REGULATION

SELF REGULATION SELF REGULATION ANNUAL REVIEW 2018 SELF REGULATION SELF REGULATION

Evolving security standards We represent industry on domestic and global standards bodies. AusPayNet is at the front line of standards development for card payments security. ISO/TC68 Financial Services This includes Australian standards and global ISO and PCI standards. This year, ISO/TC68 FinTech – Technical Advisory Group Standards Australia published revised ISO/TC68/SC2 Financial Services Security standards for cryptographic keys used to initialise POS terminals (AS2805.6.5.3). We ISO/ TC68/SC2/Working Group 11 contributed to this major work, the first in a substantial review of the AS2805 suite. More ISO/TC68/SC2/Working Group 13 broadly, AusPayNet continues to review relevant standards from PCI, EMVCo, ISO, ISO/TC68/SC7 Core Banking NIST, Fast IDentity Online Alliance (FIDO) and W3C (the World Wide Web Consortium) to ISO/TC68/SC7/Working Group 10 improve global card payment security. ISO/TC307 Blockchain and Distributed Ledger Technologies

Next generation banknotes ISO20022 Registration Management Group While cards have overtaken cash as the Standards Australia Committee IT/5 most popular payment method, cash remains important. The Reserve Bank of Standards Australia Committee IT/5/3 Australia is progressively rolling-out next generation banknotes to ensure Australia’s Standards Australia Working Group IT/5/4 currency remains among the most secure against counterfeiting. Following release Standards Australia Working Group IT/5/8 of the new $10 banknote in September 2017, industry is preparing for the new SWIFT Australian National Member Group $50 banknote in October 2018 - the first SWIFT Australian User Group to impact Australia’s ATM network. We are monitoring upgrades and reconfigurations Payments Card Industry Security Standards Council (PCI SSC) (Affiliate member) to ATMs, as well as to cash equipment and dispensing machines, to ensure a smooth PCI SSC Mobile Working Group transition once the new $50 banknote enters circulation. PCI SCC PIN Assessment Working Group

PCI SSC PIN Transaction Security Working Group

PCI SSC Software Security Working Group

PAGE 15 AUSTRALIAN PAYMENTS NETWORK

CORE PAYMENT SYSTEMS

An important part of our role is managing core payments systems and frameworks. These rules, procedures and common standards ensure payments are exchanged safely and securely.

AusPayNet manages core systems for Through management committees of This year, we also began investigating cards, direct entry, cheques and high-value member representatives, we update moving to a more agile, principles-based payments. We also manage frameworks and develop new industry-wide rules approach to ensure that our governance for the bulk distribution of cash, and the and procedures to support the evolving frameworks, rules and procedures Community of Interest Network (COIN) payments environment. A summary of continue to be sound, resilient and flexible infrastructure system. some developments is provided below. enough in the face of exponential change.

BOARD OF DIRECTORS

APCS BECS HVCS ACDES ISSUERS AND COIN MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT ACQUIRERS INFRASTRUCTURE COMMITTEE COMMITTEE COMMITTEE COMMITTEE FORUM MANAGEMENT (Cheques) (Direct Entry) (High Value) (Cash) (Cards) COMMITTEE

Cheque use is The direct entry Members have Industry continues Mitigating card- The COIN provides plummeting system processes completed work to support the RBA’s not-present fraud the payments as consumers more than $14.6 to ensure the HVCS progressive roll-out remains a high community with consistently choose trillion a year. A rules are consistent of new banknotes. priority for the card network connectivity digital payments. key focus is the with new SWIFT With the new $50 payments industry. for a range of low- The industry has automation of security controls. note due for release The IAF oversaw value payments explored further processes to deliver We also undertook in October 2018, work to develop to traffic including measures to improve efficiencies to a preliminary preparations have high-impact, cross cheques, direct entry cheque processing members. This year, consideration of been extended to industry framework and cards as well as efficiencies, leading we kicked-off a migration to ISO ATMs. Members are for fighting online for BPAY and certain to a focus going project to automate 20022 messaging also reviewing the card fraud for Cardlink payments. forward on education transaction standards, which will audit arrangements consultation, ahead and awareness of negotiation feed into a broader for cash centre of implementation digital alternatives. authorities. cross-industry review. services. from late 2018.

PAGE 16 ANNUAL REVIEW 2018

POLICY

The digitisation of the global economy presents both challenges and opportunities. A self-regulatory approach continues to be the best way to navigate this journey.

The regulatory landscape is The changing way consumers pay is being undertaken by the RBA and APRA. becoming more fragmented and policy considerations The intention is to create a simplified tiered regulatory framework. The Productivity Commission (PC), in This year, the Government continued to its Final Report on Competition in the explore policy implications around the Infrastructure investment and Australian Financial System, recognised rise of digital payments. AusPayNet made financial inclusion are essential that there is scope for providers to a number of submissions seeking self- compete within and between different regulatory and market-based outcomes To ensure that the digital economy and payment methods, and for new entrants that promote competition and choice. payments can continue to thrive, public to the payments system. The Government investment in digital infrastructure, including continues to progress regulatory changes Black Economy Task Force (BET) broadband, needs to continue. Australians to encourage greater participation into The BET noted the potential for electronic also need appropriate skills, support and financial services. payments to bring greater transparency confidence to use digital payments. The payments industry has undertaken research In May 2018, APRA introduced a Restricted to money flows within the economy. One of to understand the payment preferences of ADI (RADI) licencing framework. This its recommendations was the introduction Australians, which will inform a strategy enables start-ups to operate under a RADI of an economy-wide cash payment limit for managing declining payment methods licence for two years, while preparing to of $10,000 made to businesses for goods such as cheques. Through digital education become an ADI. The framework aims to or services from 1 July 2019. Among other and support programs, government can strike a balance between encouraging things, our submission highlighted that the also assist in ensuring that all Australians are competition and maintaining safety and mandate of the $10,000 cash payment was able to access emerging payment methods. stability of the banking system. an opportunity for government to support industry’s work in helping all Australians A need to balance innovation transition to digital payment methods. OUR SUBMISSIONS THIS YEAR and risk Competition in the Australian Aug 2017: Black Economy Taskforce: In November 2017, the Government Financial System Interim Report announced the introduction of an Sep 2017: Treasury: Open Banking Review The PC recommended a ban on card economy-wide Consumer Data Right (CDR), payment interchange fees by the end of Sep 2017: Productivity Commission: committing to a phased implementation 2019. In our submission, we highlighted Competition in the Australian for open banking from July 2019. Open that previous reviews (2014 Financial Financial System – Issues Paper banking enables customers to share their System Inquiry, 2015-16 RBA Review of transaction data with trusted third parties Nov 2017: Department of Industry, Card Payments Regulation) have decided if they choose to do so. This provides Innovation and Science: Digital not to proceed with sharply reduced Economy Consultation exciting opportunities for innovation, but interchange fees as they can lead to it is crucial that the right framework and Mar 2018: Productivity Commission: costs being recovered in other ways, systems are put into place to protect Competition in the Australian including from customers. Our submission Financial System – Draft Report customers and their payments. We have supported proposals for a review of engaged with the Treasury, ACCC and Purchase Payment Facilities (PPF) and Jun 2018: Treasury: Introduction of an Economy-Wide Cash Limit CIRSO’s Data61 on implementation issues the ePayments Code. PPFs provide stored affecting our members. value products. A review of the PPF regime PAGE 17 LEADERSHIP IN COLLABORATION

Embracing new opportunities and challenges involves coordination and collaboration. We bring together a diverse set of participants to harness the benefits of change, and make payments thrive. ANNUAL REVIEW 2018

Through our network, we work closely with industry, government, regulators and all stakeholders to frame the future of payments. We create the right environment for cross-industry collaboration.

Working with Government Member events program Australian Payment Summit Given the changing payments landscape, Throughout the year, we held member This year, we added a new flagship event AusPayNet continues to work closely events exploring the latest trends, and the to our program, holding our first Australian with public regulators including the opportunities and challenges for Australian Payment Summit in December 2017. Reserve Bank of Australia (RBA), Australian payments. This year’s program included More than 250 experts and innovators Prudential Regulatory Authority (APRA), sessions on Digital ID in July 2017 and from across the payments landscape Australian Securities and Investment February 2018, the NPP in August 2017, participated in the one-day event. Commission (ASIC) and the Australian Stronger Authentication in March 2018, Themed “Towards a New World of Competition and Consumer Commission the UK’s Open Banking experience in March Payments”, the Summit covered a range (ACCC). We also liaise with Government 2018 and Artificial Intelligence in June of topics, including open banking, departments and agencies including The 2018. As part of these sessions, we were payments fraud, digital ID, blockchain and Treasury, the Digital Transformation Agency delighted to host guest speakers from cryptocurrencies, and featured a fintech (DTA) and the Productivity Commission (PC) Australia, Canada, the United Kingdom and showcase. We were delighted to have Dr on issues of payments policy. the United States. Philip Lowe, Governor of the RBA, present the Bank’s view on “an e-AUD?”, alongside market experts who shared local and international perspectives on topical issues. The event also provided a valuable networking opportunity. Building on this success, we have expanded the Summit to a two-day event in 2018, to be held on 26-27 November in cooperation with Currency Research. We are delighted that Dr Lowe has accepted our invitation to deliver the opening keynote again.

MEMBER EVENTS THIS YEAR Jul 2017: Digital ID Aug 2017: NPP Update Feb 2018: KYC and Digital ID Mar 2018: Stronger Authentication Mar 2018: Open Banking in the UK Jun 2018: Artificial Intelligence (AI)

PAGE 19 AUSTRALIAN PAYMENTS NETWORK

Industry conferences and events Member and stakeholder Member survey AusPayNet participates in industry engagement To better serve our members, each year conferences and forums to share Our relationship meetings with members we seek feedback on our services through information and stay abreast of and industry stakeholders continued a member satisfaction survey, with the developments. This year, we took part in to provide great opportunities for results greatly helping to inform our some 120 events both locally and overseas. collaboration in 2018. AusPayNet also work. We are delighted to report that this Topics included innovation, the changing expanded the definition of the Operator year 89% of members were satisfied with payments mix, payments fraud, digital ID, member category to make it easier for our services, up from 84% in 2017. Our open data, and emerging technologies. Our more payment companies to join our members were clear on what they thought international engagements saw us visit network. This year, we welcomed 12 new our strategic focus should be over the next a range of countries including the United members: Diners Club, EFTEX, NPP Australia, three years – managing the payments mix, States, Canada, the Netherlands, New Payments Express, RACQ Bank, SWIFT emerging technology/digital disruption, Zealand, the United Kingdom, Singapore Services Australia, Volt Bank, Advam, FIS fraud prevention and digital ID. One area and Malaysia. Australasia, Quest Payments, Threatmetrix, they feel could be further enhanced is and Verifone. member communications. Exchanging information with international payment associations Each year, we meet with national payment associations to exchange information and discuss emerging issues from an international perspective. The International Council of Payment Association Chief Executives (ICPACE) was held in May 2018, in San Diego, California. ICPACE brings together associations from Australia, Canada, United Kingdom, United States, Netherlands, New Zealand, and South Africa. This year, we were instrumental in setting up Payments 7 (P7) to provide a forum for open dialogue with payment associations from across Asia-Pacific. The inaugural P7, involving Australia, China, India, Malaysia, New Zealand, Philippines and Singapore, was held in Sydney in December 2017.

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Hosting overseas delegations Keeping the community informed In January 2018, AusPayNet hosted a As the world of payments rapidly evolves, session at the British Consulate-General AusPayNet has an important role to play Sydney with The Rt Hon The Lord Mayor in sharing information which improves of the City of London, Alderman Charles understanding of how payments support Bowman, and his FinTech delegation. the economy. We do this through our Delegates included the UK Prime Minister’s website, regular publications, events and Business Envoy for Financial Services, forums, and media releases throughout and UK technology companies focused on the year. banking and payments, insurance, asset AusPaynet’s regular publications, the management and cyber security. Digital Economy and Australian Payment Card Fraud reports, track the changing Bringing the e-commerce landscape and industry’s efforts in community together ensuring convenient and secure payments. Fraud prevention efforts involve strong Our newsletter – Payments Monitor – collaboration and partnerships at every provides a quarterly round-up of payments level. This year, we joined forces across developments, industry news, recent the e-commerce community to ramp up events and regulatory updates. Through the fight against online card fraud. Our our fortnightly blog, we provide insights on February 2018 Accelerator event (see emerging topics that have international as well as local relevance. page 14) brought together 70 participants Sharing strategic information to from card issuers, merchant acquirers, fight fraud In July 2017, we launched our Twitter COLLABORATIONretailers, card schemes, payment account to coincide with the roll-out of our gateways, payment service providers, Through our Fraud in Banking Forum, new website following last year’s rebrand. regulators and industry bodies. As part financial institutions and law enforcement The number of ‘followers’ continues to of our CNP Fraud Mitigation Framework share strategic information on emerging grow steadily, as we build connections consultation, we hosted workshops threats and criminal methodologies. Close with the broader community. In addition to in Brisbane, Sydney and Melbourne in cooperation between the two communities providing a platform for sharing content, partnership with the Australian Retailers helps build an intelligence-led responseCOLLABORATION to Twitter is proving an important interaction COLLABORATIONAssociation. The workshops were attended gangs operating in Australia. We also work tool around industry events. by 87 people from 54 organisations across closely with the Australian Financial Crime the e-commerce community. Exchange (AFCX), established by AusPayNet Australian Payments Council in 2016. The AFCX provides its participating members with a secure environment for As secretariat to the Australian Payments COLLABORATION sharing data in real-time to fight financial Council we continue to support the Council related crimesCOLLABORATION and cybercrime. and wider payments community in its work to ensure that as the payments system COLLABORATION evolves, it continues to meet the needs of the evolving economy. This year the Council made progress in key areas of cyber security and digital identity. COLLABORATION

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BOARD OF DIRECTORS

Under the leadership of an independent chair, the Board has 13 members comprising independent directors, the CEO, and non- executive directors appointed or elected by AusPayNet members.

The independent directors have substantial voting rights to ensure public interest and broader community benefits are effectively represented. There were a number of changes to the Board during the year, and up to September 2018. Rosanna Fornarino resigned from the Board in October 2017 and was replaced by Paul Franklin. Olivia McArdle was elected to replace Simon Babbage in November 2017, and Derek Weatherley replaced Craig Kennedy in April 2018. Long-serving director, Stuart Woodward, resigned in April 2018 after serving 13 years, and was replaced by Lynda McMillan. Anne Collard also resigned in April 2018 and was replaced by Jackie Kallman. The names of the directors in office as at 30 September 2018 follow.

Robert Craig, Chair Paul Franklin, Deputy Chair Leila Fourie, CEO BSC (HONS), BCA, MAICD BSC, MCOM, EMBA, FFINSIA, GAICD PHD ECONOMICS AND FINANCIAL SCIENCE, GAICD Chief Operating Officer, General Manager Payments, Chief Executive Officer, Insurance and Care NSW Limited Australian Payments Network

Mr Craig was appointed in January 2014 Mr Franklin was appointed as a non- Dr Fourie was appointed as Chief Executive as an independent director and AusPayNet executive director by NAB in October 2017 Officer and a director of AusPayNet in Chair. and was appointed by the Board as Deputy September 2016. Chair in May 2018. He also serves as Chairman and member She serves as: Member of the Audit, Risk of the Remuneration Committee. He serves as: Chairman of the Australian and Finance Committee, the Remuneration Paper Clearing System Management Committee and the Australian Payments Committee and the Nomination Council. Committee.

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Chris Campbell Jennifer Clark David Jay BSC (HONS), BCA, MAICD FAICD BEC, MBA, FCPA, F FIN, FAMI, MIIA, GAICD Head of Payments Policy and Strategy, Deputy Chair of the Australian Maritime Safety Chief Executive Officer, Group Authority; Chair of Government audit and risk Australian Settlements Limited committees

Mr Campbell was appointed as a non- Ms Clark was appointed as an independent Mr Jay was appointed as a non- executive director by Westpac in April 2003. director in June 2014. executive director by Building Society Members in August 2010. He serves as: Chairman of the COIN She serves as: Chairman of the Policy Management Committee, and member of Experts Group, and member of the Audit, He serves as: Member of the the Audit, Risk and Finance Committee, the Risk and Finance Committee, and the Nomination Committee. Remuneration Committee, and the Policy Remuneration Committee. Experts Group.

Jackie Kallman Kees Kwakernaak Olivia McArdle BPSYCHSC (HONS) MSC, MAICD BCOMM (ACCOUNTING & LAW), MBA, CA, MAICD Head of Payments Industry, Australia and Managing Director, First Data Network Australia Head of Deposits and Payment Products, New Zealand Banking Group Limited Macquarie Bank Limited

Ms Kallman was appointed as a as a non- Mr Kwakernaak was appointed as a Ms McArdle was appointed as a non- executive director by ANZ in April 2018. non-executive director by Electing executive director by Electing Members in Members in October 2016. November 2017. She serves as: Chairman of the High Value Clearing System Management Committee, He serves as: Chairman of the Australian She serves as: Member of the Audit, and member of the Policy Experts Group. Cash Distribution and Exchange System Risk and Finance Committee and the Management Committee, the Next Generation Remuneration Committee. Banknotes Support Steering Committee, and member of the Nomination Committee.

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Lynda McMillan Michelle McPhee Kate Mulligan MBUS, GAICD BBUS (HONS), GAICD BA, LLB(HONS), MAICD Head of Payments Representation, Business Head of Banking, Reserve Bank of Australia Managing Director, King Irving and Private Banking, of Australia

Ms McMillan was appointed as a non- Ms McPhee is was appointed as a non-executive Ms Mulligan was appointed as an executive director by the CBA in April 2018. director by the RBA in February 2017. independent director in June 2014. She serves as: Chairman of the Fraud in She serves as: Chairman of the Audit, Risk She serves as: Chairman of the Issuers Banking Forum. and Finance Committee, and member and Acquirers Forum. of the Nomination Committee and the Remuneration Committee.

Derek Weatherley BCOMM, MACC, GAICD Chief Executive Officer, Indue Limited

Mr Weatherley was elected as a non- executive director by Credit Union Members in April 2018. He serves as: Chairman of the Bulk Electronic Clearing System Management Committee.

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GOVERNANCE FRAMEWORK

The AusPayNet Board is responsible for setting the company’s strategic direction and corporate governance.

Chair and CEO • Nomination Committee – supports the Reserve Bank of Australia Board on matters relating to the eligibility, The current Chair, Robert Craig, was appointment and election of directors. As a participant in payment systems, the appointed in January 2014 and is an Reserve Bank of Australia (RBA) has been a independent voting director. The CEO • Remuneration Committee – establishes member of AusPayNet since its inception is charged with implementing Board remuneration policies and practices for in 1992. The RBA has appointed a director endorsed strategy and managing the day the company generally and recommends to the AusPayNet Board, in accordance with to day affairs of the company. The CEO is remuneration levels and contractual its rights under the AusPayNet Constitution. a board-appointed, non-voting, executive arrangements for the CEO, independent Additionally, since May 2007, the RBA and director. chair and independent directors. AusPayNet have been liaising on payments policy issues under an agreed set of Board Committees Board Charter, Code of Conduct procedures which have been set out in a and Induction Memorandum of Understanding, which The Board has established a management includes senior staff of the RBA consulting committee for each AusPayNet framework The Board carries out its functions and with AusPayNet on a regular basis on including its clearing systems, Issuers and exercises its powers in accordance with issues of common interest. This ensures Acquirers Community, and infrastructure the Board charter, which sets out its continued close cooperation between the system (COIN). Acting under delegated role and responsibilities. The charter is RBA and AusPayNet. authority from the Board, management supplemented by various board policies committees are responsible for the including a conflicts management Risk management efficient operation and management policy, a competition protocol and a of each framework. Specialized sub- Code of Conduct, which all directors and AusPayNet has put in place a risk committees are also established under management committee members must management framework which the Board certain frameworks to address technical comply with, and which is designed to oversees. Key risks and risk appetite are and operational issues requiring subject ensure high standards of ethical and regularly reviewed, and the risk framework matter expertise. professional conduct and compliance. is submitted to both internal and external review. The Board has also established the The Board reviews the charter and other following committees to assist in policies regularly. An induction program for managing the company’s affairs: newly appointed board members provides an overview of AusPayNet’s governance • Audit, Risk and Finance Committee – and policy framework and operations, as reviews the company’s internal financial well as an understanding of their role and practices, budget and audit results responsibilities and monitors the effectiveness of the company’s financial controls and administrative policies.

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COLLABORATION

COLLABORATION COLLABORATION

AUSTRALIAN PAYMENTS NETWORK COLLABORATION

LEADERSHIP TEAM

Our Executive Committee is responsible for leading the AusPayNet team in delivering on strategic objectives.

LEILA FOURIE CEO

NANCY BRYLA LYNETTE HICKEY VICTORIA RICHARDSON ANDY WHITE General Counsel Chief Financial Officer Chief Strategy Officer Chief Operating Officer

Corporate Governance Financial Accounting, Payments Innovation and Member Services and Forecasting and Reporting Emerging Technology Engagement Framework and Core Systems Governance Cash Flow Management Industry Policy Compliance, including and Strategy Standards Legal Advice and Audit and Compliance Guidance Communications and Project Management Risk Management Marketing Regulatory Compliance Technology and Operations Australian Payments Council Secretariat

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ANNUAL REVIEW 2018 COLLABORATION

MEMBERSHIP

AusPayNet has 124 member organisations including participant members, operator members, COIN members and affiliates.

AUSPAYNET MEMBERS Delphi Bank Payments Express COIN MEMBERS Deutsche Bank AG PayPal Australia Pty Ltd * Adyen Australia Pty Ltd # Diners Club * p&nbank Cabcharge Australia Limited Agricultural EFTEX Pty Ltd Police Bank Limited First Data Resources Australia Limited eftpos Payments Australia Queensland Country Credit Union Limited American Express Australia Limited * Limited * # QPCU Limited Fuji Xerox Australia Pty Limited AMP Bank Limited Endeavour Mutual Bank Ltd , Australia Branch (Co- Genpact Australia Limited Arab Bank Australia Limited First Data Network Australia Operative Centrale Raiffeisen- Property Exchange Australia Austraclear Limited * Limited Boerenleenbank B.A.) Limited Australia and New Zealand G&C Mutual Bank Limited # Rabobank Australia Limited Transaction Network Services Banking Group Limited # Gateway Credit Union Limited RACQ Bank Australia Pty Ltd Australian Military Bank Ltd Limited Railways Credit Union Limited Australian Settlements Limited Limited trading as MOVE Bank # Also a COIN member Auswide Bank Ltd Holiday Coast Credit Union B&E Ltd trading as Bank of Us Limited Reserve Bank of Australia # AFFILIATE MEMBERS (ISSUERS Bananacoast Community Credit Hong Kong and Shanghai Banking Royal Bank of Canada & ACQUIRERS COMMUNITY) Union Ltd Corporation Limited - Australian Southern Cross Credit Union Ltd Advam Bank Australia Limited Branch Standard Chartered Bank Cardtronics Australasia Bank of America, National HSBC Bank Australia Limited State Bank of India Diebold Nixdorf Association Limited State Street Bank and Trust Gemalto Bank of China IMB Ltd Company Giesecke & Devrient Australasia Bank of China (Australia) Limited Indue Ltd Sumitomo Mitsui Banking IBM Australia Limited Bank of Communications Co., Ltd Industrial and Commercial Bank Corporation Ingenico International (Pacific) Sydney Branch of China Limited Summerland Credit Union Ltd Pty Ltd Limited ING Bank (Australia) Limited Suncorp-Metway Limited # NCR Australia Pty Ltd Bank of Sydney Ltd ING Bank NV (Sydney Branch) SWIFT Services Australia Pty Ltd* Optus Bendigo and Adelaide Bank JPMorgan Chase Bank, National Taiwan Business Bank, Sydney Quest Payment Systems Pty Ltd Limited Association Branch Thales Beyond Bank Australia LCH Clearnet Limited Limited Threatmetrix Big Sky Building Society Limited Macquarie Bank Limited The Rock UL Transaction Security BNP Paribas Maitland Mutual Building Society Limited # Verifone BNP Paribas Securities Services Limited UBS AG, Australia Branch

BPAY Group Limited * # Mastercard Asia / Pacific United Overseas Bank Limited Capricornian Ltd (Australia) Pty Ltd * Uniting Financial Services Members as at 30 September 2018 China Construction Bank Mega International Commercial Unity Bank Limited Corporation, Sydney Branch Bank Co, Ltd Victoria Teachers Limited, trading Citibank N.A. Members Equity Bank Pty Limited as Citigroup Pty Limited Mizuho Bank, Ltd Visa AP (Australia) Pty Ltd * CLS Bank International MUFG Bank, Ltd Volt Bank Ltd Coles Group Limited # National Australia Bank Limited # Warwick Credit Union Ltd Commonwealth Bank of Australia # Newcastle Permanent Building Westpac Banking Corporation # Community First Credit Union Society Ltd Woolworths Limited # Limited New Payments Platform Australia * Credit Union Australia Limited Oversea-Chinese Banking * Operator Member Limited # Corporation Limited Defence Bank Limited PAGE 27 AUSTRALIAN PAYMENTS NETWORK

GLOSSARY

ACDES Australian Cash Distribution and Exchange System AI Artificial Intelligence APC Australian Payments Council APCS Australian Paper Clearing System APRA Australian Prudential Regulation Authority BECS Bulk Electronic Clearing System Blockchain A distributed ledger CNP Card-not-present COIN Community of Interest Network CSIRO Commonwealth Scientific and Industrial Research Organisation Digital ID Digital Identity Direct Entry Payments system for direct debits and direct credits EMV Europay, MasterCard, and Visa Fintech Collaboration between financial services companies and technology innovators HVCS High Value Clearing System IAC Issuers and Acquirers Community ISO International Organization for Standardization KYC Know Your Customer NIST National Institute of Standards and Technology NPP New Payments Platform OPAL NSW public transport ticketing system PCI Payment Card Industry PCI SSC PCI Security Standards Council POS Point-of-sale QR Codes Quick Response Codes RBA Reserve Bank of Australia SWIFT Society for Worldwide Interbank Financial Telecommunications

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