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Thursday, 30 June 2011 20:33

Technology crimps cash's cachet


Cash is no longer king, making up less than a quarter of the value of all payments made in Australia, as the value curve bends toward online and card based transactions. It's a shift that has prompted the Reserve Bank's Strategic Review of Innovation in the Payments System which could ultimately dictate the nature of computer systems the big banks will need in order to comply with the shifting regulatory landscape.

According to a Reserve Bank sponsored survey released today while cash made up 62 per cent of the number of payments made by individuals in Australia in 2010, it represented less than a quarter of the value of all payments.  And, while online payment systems such as PayPal handled only 1 per cent of Australian transactions by value in 2010, technology enabled systems such as eftpos, BPAY, internet and telephone banking accounted for 37 per cent of transactions by value.

The Strategic Review which was first announced last year and which today began the public consultation phase is intended to take a medium term view, exploring technology and innovation that might impact and shape payments and policy over the coming five to ten years.

According to the Reserve Bank; 'Its objective is to identify areas in which innovation in the Australian payments system may be improved through more effective co-operation between stakeholders and regulators.' And reading between the lines, if the banks don't move fast enough the regulator is likely to mandate change.

While the Bank claims it has an open mind its issues paper, also released today, gives some clue of its early thinking. For one it comes down strongly in favour of multiple same day settlements rather than next day settlement of retail transactions. Improved payments access over holidays and weekends is also on the Bank's agenda.

The issues paper points to a need for banks and financial institutions to develop more real time processing capability in order to: 'uniformly make funds available in a timely fashion '. The Bank notes: 'One question is whether a move to same-day settlement of retail transactions, combined with transparency of the timing of availability of funds, would apply sufficient competitive pressure to provide faster availability of funds, or whether other measures would be necessary to achieve this end.'

In a nutshell - if the banks don't do it because it makes good commercial sense, they may be compelled to do it by regulation.

The issues paper also lamented the relatively slow progress in terms of allowing for additional data to be transmitted along with payments information, and called for a faster migration to ISO 20022 message standards in order to facilitate that.

The issues paper also noted that: 'The Board is conscious that the major banks and BPAY have been working for some time on a new, hub-based retail payments system, referred to as MAMBO. For commercial reasons, relatively few details of the MAMBO system have been made publicly available, but the system is expected to be able to address a number of the gaps identified in Section 6 (of the issues paper). '

MAMBO (or M@mbo) is a blueprint for a system where individuals would be assigned BPAY identifier numbers to allow funds to be transferred peer to peer. It's been in stop-start development for almost two years, although there have been reports that it is scheduled to debut at the end of the year.

According to the Reserve Bank's issues paper; 'The Board welcomes the implementation of systems such as MAMBO that address some of the unmet needs of end-users.' But it warned that MAMBO won't prove a silver bullet and the banks will still have other technology issues to address in order to meet the expectations both of the Reserve Bank and Australian citizens.

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