payment method Archives - Page 2 of 3

Payment costs in Australia – early observations from new RBA research

6 January, 2015
Brad Pragnell
Payment System

With complex processes and multiple parties, determining the costs of payments can be difficult. In recent years, the Reserve Bank of Australia (RBA) has taken up the challenge and released a research report on the cost of payments in Australia. This represents a long-awaited follow up to research last done in 2006. The most recent RBA report dated December 2014 draws upon data collected in 2013 from financial institutions, businesses and consumers and seeks to quantify the overall cost of payments and the cost of various payment methods. This includes both “resource costs” (the costs to the whole economy) and “private costs” (the costs borne by consumers, merchants and financial institutions respectively).

Payments World USA

In April, I took a quick trip to Disney World...well, kind of. The annual conference of NACHA, APCA's equivalent body in the USA, was held at Disney World's home: Orlando, Florida. Around 2,200 bankers turned up to hear three days of presentations on the state of US payments - and possibly catch a few rides. I hope they had some fun amongst the work, because these are stressful times for US payment providers. Having weathered the GFC with tightened budgets, US bankers are acutely conscious of new payments system developments in other countries and pressure from the US Federal Reserve to follow suit or be left behind; but they are a long way from agreeing amongst themselves what is to be done, and who will pay. My small contribution was to outline the policy logic behind Australia's New Payments Platform (NPP) proposal as a comparative example. There was much interest.

A health plan for the payment system

Recent data shows Australian non-cash activity overtaking cash transactions for the first time. These days almost every economic act other than a small consumer purchase requires an electronic transfer of value through the payment system by card, direct credit, direct debit, BPAY or some other method. This means that the payment system has become to the economy what your arteries and veins are to you – critical for economic health. One might think, then, that keeping the payment system “fit” (that is, secure, efficient and competitive) would be the subject of a well-developed “health plan”. Curiously, in many countries this has not been the case.

Australia and the electronic payments leagues table

Today electronic payments are the norm in Australia. In the direct entry system, there are about 7 million items per day equal to about $45 billion. Employers and governments use direct entry to pay wages and benefits, while individuals use direct entry to pay for goods and services through direct debits and internet banking. These direct entry payments, which include direct credit and direct debit, account for 96 per cent of non-cash value (excluding high value payments) and about one-third of the number of non-cash payments. From these figures, one would suspect that Australians are reasonably prolific users of electronic payments, which stands in contrast to some commentary that Australia is somehow “lagging behind” other countries in this respect.

A tale of two countries

In Sydney in early June, we launched our consultation on the future of cheques. Our proposition is simple: based on long-term trends, cheques are steadily disappearing from the Australian community. That means problems down the track for those who rely on them, as they increasingly find their payment counterparties don't want to use or accept a cheque, even if they do. This consultation is not about cheque clearing at all: it's about making sure people have what they need. In the same week, on the other side of the world, the House of Lords in London began an acrimonious debate on the same issue: the future of cheques in the UK. The UK Payments Council has had closure of the paper clearing system on the agenda for several years, but they have not been able to win community support for the need to change.