Mobile Payment & Digital Wallets

Australia’s payment ecosystem is of a foundational importance to Australia’s economy and society, supporting around 55 million payments, worth up to $650 billion, each day. The system is highly complex and is evolving rapidly. New platforms and technologies are changing the ways in which consumers and businesses transact, with mobile payment predicted to become the most popular contactless way for Australians to pay by the end of 2021. A growing number of powerful multinational technology firms are playing increasingly central roles within Australia’s payments architecture, often with little regulatory oversight. The global reach and market dominance of these so-called ‘fintechs’ has left Australian businesses and consumers using their platforms and services with little influence and few opportunities to negotiate favourable agreements.

The committee’s self-referred inquiry began in March this year, aiming to explore these imbalances in bargaining power operating between providers of mobile payment digital wallet services and the merchants, vendors and consumers who rely upon them. The committee looked to assess the adequacy and performance of Australia’s regulatory regime compared to the rest of the world, and the implications of mobile payment and digital wallets for competition and consumer protection.

The committee received 23 public submissions, as well as a range of confidential correspondence and answers to questions on notice. Public hearings were held on 26 and 27 July of this year. The committee found that much of the existing legislation governing the payment space is predicated on outstanding structures and systems, while the effectiveness of the multitude of regulators covering the payments ecosystem has been undermined by outdated concepts of what constitutes a payment platform. These gaps have allowed some of the most important players in the system to operate outside the reach of our regulators.

The committee therefore recommends that the Department of the Treasury report to parliament on gaps in the current self-regulatory model and provide policy advice on the merits of regulating payment platform providers as participants in the payments ecosystem. The committee also calls for the definition of a payments system within key regulations to be expanded to encompass new and emerging payments technologies, and recommends that the Reserve Bank of Australia be given additional powers to request information from mobile payment platform providers related to their fees and costs.

Evidence before the committee suggested that anti-competitive practices, such as restricting third-party access to key technology, may be jeopardising consumer choice, stifling innovation and driving up payment costs. Equally, the breadth of access to sensitive consumer information concentrated in technology companies and the potential for misuse of transaction data concerned the committee. As such, the report recommends that the current inquiry by the Australian Competition and Consumer Commission into Apple Pay consider these matters as part of their investigations.

The committee also heard extensive evidence on Least Cost Routing, a process where merchants rout transactions through the card scheme that attracts the lowest costs. This capability is not currently supported for mobile payments, often driving up the costs of acceptance for merchants and, ultimately, consumers. The committee welcomed the further attention from regulatory agencies on this issue but, at this time, remains unconvinced that legislation is required to mandate Least Cost Routing for mobile payments.

Throughout the inquiry, it was emphasised to the committee that the rapid evolution of Australia’s payments ecosystem is likely to continue. The committee believes it is therefore critical that our legislation, regulators and regulatory approaches are nimble and flexible enough to adapt to the future of the sector. The committee considers: first, that legislation and regulations must be updated to keep pace with practice, and become as technology-neutral as possible; second, that the coverage of existing voluntary codes of practice should be expanded and closely monitored; and, third, that new powers should be vested in the government to allow it to designate firms as participants in the payments system, to ensure that they fall under the existing legislation.

The committee would like to thank the individuals and organisations who contributed to this inquiry by preparing written submissions and giving evidence at public hearings. As well, I would like to single out the outstanding performance of this committee’s secretariat, led by Dr Patrick Hodder and Mr Jon Bell, Ash Clements, Shelby Bassett and Ele Fionga—without their dedication this committee would not be able to do its work. I commend the report to the House.

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