The newly launched Strategic plan for the Australian payments system – developed through consultation with regulators, industry representatives, consumers and business and feedback from a previous one consultation paper – “describes the government’s vision for the sector,” said Treasurer Jim Chalmers in preparing a broad reform agenda built around the main principles of reliability, accessibility, innovation and efficiency.

The strategy is based on five key pillars, including improve resilience against scams, fraud and cyber attacks; promoting industry collaboration and competition to lower transaction costs for small businesses; supporting wider use of digital ID and the consumer data law (CDR) framework; and embracing fintech innovations such as seamless cross-border payments and a central bank digital currency (CBDC).

It also includes a seven-year plan phase out controlswhich now make up only 0.2% of non-cash payments and are becoming increasingly expensive to maintain.

The COVID-19 pandemic accelerated the shift from in-person shopping and physical payment methods to online shopping and digital payments across a wide variety of cards and devices.

“New digital products are changing the way we make payments and the way businesses offer payment services,” said Chalmers said.

“The Government is committed to ensuring that Australia’s payments system remains fit for purpose now and in the future.”

Among the many changes outlined in the new strategy is the full transition from long-established batch-based payment settlement systems – which can take hours or days to process some transactions – to the NPPwhich was introduced in 2018 to provide near real-time settlement through services such as PaymentID and 24/7 money transfer service Osko.

Chalmers also issued a new one Statement of Expectations – which updates the Australian Prudential Regulation Authority (APRA) mission statement with measures such as increased transparency and adoption of climate reporting standards – and invited feedback on proposed regulatory reforms and the license of payment service providers.

Mobile payments are exploding

Reform was long overdue, said Airwallex director of strategy Amelia Hamer, who warned that “Australia is already a decade behind the UK and Singapore in providing a suitable regulatory system for payment businesses.”

“Australia needs a regulatory regime for the payments industry that works for small and medium businesses and consumers, not just the big banks,” she said, calling the current system a “competitive and antiquated” service that “undermines the power of the banks to continue to overcharge and underserve Australian businesses and consumers.”

Anna Bligh, CEO of the Australian Banking Association (ABA). called the reform “a long overdue review of the payment arteries that power the Australian economy.”

“Payments are the lifeblood of our economy, but Australia currently uses a 60-year-old system for many everyday consumer and business payments,” she said.

The changes come as figures show Australians are abandoning conventional payments en masse, with 38% of Australians Reportedly leaving wallets at home last year – twice as many as in 2019 – and paying with smartphones or smartwatches.

With 15 million registrations as of May 1, PayID has grown tremendously and now accounts for 20% of all payments.

A newly released ABA-Accenture report showed that cards are now used for 75% of payments – up from just 26% in 2007.

In particular, the use of mobile wallet apps has exploded in recent years with 15.3 million cards registered in mobile wallets last year – up from around 2 million cards five years ago.

Consumers used mobile wallets for 2.4 billion purchases worth $93 billion last year, up from 29.2 million transactions worth $746 million five years ago.

With an average of nearly 500 cashless payments per person per year, “Australia has witnessed a phenomenal shift in customer banking and payment preferences in recent years,” Bligh said, with Australians “at the forefront of using cashless payment methods.”

“As customers increasingly shop, pay or get paid digitally, they also expect their banking and payment services to be available digitally in a format that is convenient, fast, cost-effective and secure…. It is clear that these recent technological leaps are now permanent consumer preferences.”