Andrew Galvin, Michael Anastas and James Moore, Hwl Ebworth: Developments in the payments industry


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Andrew Galvin, Partner, Michael Anastas, Partner, and James Moore, Partner at HWL Ebsworthdelivered this presentation at the 2013 Credit Law conference. The event offers key insights from the regulators; thought-provoking sessions from industry leaders; and updates on all the regulatory changes impacting the sector. For more information on the annual event, please visit the conference website:

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Andrew Galvin, Michael Anastas and James Moore, Hwl Ebworth: Developments in the payments industry

  1. 1. [Insert Title] Presented by [Insert Speaker] [Insert date as: Day, # Month Year] Developments in the payments industry 23rd Annual Credit Law Conference Presented by Andrew Galvin, James Moore and Michael Anastas 3 October 2013 1
  2. 2. Regulation of the Australian payments sector  Overview of regulation  Purchased Payment Facilities Payment system policy and real time payments  Merchant pricing and surcharging  New Payments Platform - Real time payments Emerging products and regulation  The main players  Innovation in the market  Where to from here? Outline 2
  3. 3. Regulation of the Australian payments sector 3
  4. 4.  A payment system board supporting the RBA  Payment Systems (Regulation Act) / Payment Systems and Netting Act  Consumer protection provisions of the ASIC Act  Non deposit-taking institutions eligible for ESAs and membership of card schemes  Functional definition of “banking business” in the Banking Act expandable by regulation  Regulation of interchange and the imposition of access regimes  Prudential regulation of open loop stored value cards and electronic cash Payment reforms under Wallis 4
  5. 5.  Banking Act modifications  Payment Systems (Regulation) Act  Chapter 7 of the Corporations Act  EFT/ePayments Code  AML Act  Scheme Membership Requirements The Regulatory Framework 5
  6. 6.  “banking business” is now defined – but has the meaning changed?  Regulations have been made to include credit card issuing and acquiring and the issuing of purchased payment facilities  APRA has issued prudential standards and authorisation guidelines for SCCIs and PPPFs  Banking Business includes the provision of a PPF if APRA determines the facility:  is of a type allowing payment to be demanded in Australian currency of all or part of the balance held by the HSV [ie akin to a deposit]; and  is available on a wide basis as a means of payment having regard to restrictions limiting purchasers or payees [ie open loop]. Banking Act modifications 6
  7. 7.  Part 4 – regulates non-ADI holders of stored value (HSVs) for PPFs  PPF: facility purchased by a person from another person  able to be used as a means of making payments  payments are to be made by the provider of the facility or by a person acting under an arrangement with the provider (rather than by the user of the facility).  UNLESS excluded by declaration (being Gift card facilities, loyalty schemes, road toll devices, prepaid mobile phones, limited value ($10M) facilities and limited participant (50) facilities) and Westfield Insurance Cards.  HSV: person who is to make the payments [even if they don’t hold the value and have no contractual obligation to make payments]  Unless one of the exclusions applies, an authority or exemption from the RBA is required. A general exemption has been issued for corporations guaranteed by an ADI or a Commonwealth, State or local government. Payment Systems (Regulation) Act – Purchased Payment Facilities (PPFs) 7
  8. 8. Financial product – includes non-cash payment facilities  single payee facilities are excluded  licensing relief applies if payees are all related companies  licensing relief applies for suppliers arranging or advising on direct debits  wire transfers and money remittance are exempt depending upon settlement time (reg 7.1.07G) – useful for non-prepaid payment services For prepaid facilities, usually without an exemption, an AFSL alone will not be sufficient because of the Banking Act and PSRA. Class order exemptions apply for:  gift facilities  low value non-cash payment facilities ($1000/person + $10M float cap)  Prepaid mobile facilities and toll road facilities Corporations Act: Chapter 7 8
  9. 9.  Facilities which are not pre-funded are relatively unregulated (eg money transfer business. AFSL may be required depending upon settlement timeframe)  Closed loop facilities are relatively unregulated  Significant entry barriers remain for open loop (except where exemptions apply – eg gift cards) – ADI status and scheme membership may be required  Visa / MasterCard credit card business is heavily regulated – this might be eased – RBA Review of Card System Access Regimes: A Consultation Document The impact of licensing requirements 9
  10. 10.  White labelling  Tripartite alliances  Even the card schemes need a sponsor  Specialist platform operators manage most prepaid card programs even for the big banks (eg FIS, eMerchants)  Pure BIN sponsorship (BIN sponsor has a passive role limited to settlement)  BIN sponsor acting as issuer (BIN sponsor assumes full regulatory responsibility but the distributor might need an AFSL) The impact of licensing requirements – indirect approaches 10
  11. 11.  Account based stored value has emerged instead of electronic tokens of value  The legal characterisation is important to determine:  Whether banking business is conducted under the Banking Act  Whether it is a designated service under the AML Act, and if so, which type  Whether it is a financial product, debenture or managed investment scheme under the Corporations Act  Whether unclaimed money laws apply, and if so, which ones  Whether it benefits from the Financial Claims Scheme (depositor protection)  Whether the ePayments Code applies  Whether it is subject to unsolicited credit/debit card prohibitions The legal nature of stored value 11
  12. 12. The legal nature of Stored Value - Virtual currencies 12
  13. 13. Payment system policy and real time payments 13
  14. 14.  March 2013 change - Merchant pricing standard – an indirect signal to merchants  Scheme rules must not provide that acquirer terms cannot forbid merchants from recovering reasonable costs of acceptance or pricing different cards differently  Before January 2003, scheme rules had a "no surcharging" provision. Consistently enforced?  Consumer campaign and other regulatory action (ie Victorian Cabcharge ruling) may have more direct effect.  6 April 2013: UK took direct action under Consumer Protection (Payment Surcharges) Regulation, which directly prevents a merchant from charging fees in excess of "costs borne by the trader" for a particular payment method Merchant pricing standard and surcharging 14
  15. 15. Payment system changes around the world 15
  16. 16. Overview  Payments System Review  Initial Strategic Objectives  Progress so far  Timeline and next steps New Payments Platform - real time payment reforms 16
  17. 17. Payments System Governance  Existing impediments to innovation: market forces may not be sufficient  PSB sets high-level strategic objectives  Enhanced Industry Governance through co-ordination body to assist in achieving objectives Payment system review - conclusions 17
  18. 18. Payment system review: initial objectives PSB objective APCA response  Ability to make real-time retail payments by end 2016  Supportive: see later slides  Same-day settlement of all DE payments by end 2013  Supportive: Plan for 5 settlements each business day  Ability to make and receive low-value payments outside normal banking hours by end 2016  Mostly supportive: Develop through real-time payment system, not change existing systems  Ability to send more complete remittance information with payments by end 2016  Supportive: To be considered as part of the New Payments Platform (real- time payment system) development  Ability to address payments in a relatively simple way by end 2017 if not earlier  Supportive: Industry approach to be discussed and developed 18
  19. 19.  Real time payments: businesses and consumers making payments in real time between ADI accounts, near-immediate funds availability to payee  RBA proposal: payments messaging hub + RBA-provided settlements hub  System to be assessed against RBA's "Core criteria", released November 2012, consisting of:  10 program governance criteria (G1-10);  15 criteria for the real time payments solution (S1-15); and  7 criteria for the ongoing operation of the solution (O1-7)  Solution to be delivered in accordance with the timetable proposed by the RBA  In February 2013, RTPC submitted a proposal for the project and basic structure for the solution, which was endorsed by the PSB Payment system review: Real time payments 19
  20. 20. RTPC proposed solution Source: Source: Strategic Review of Innovation in the Payments System – RTPC Proposal to PSB 20
  21. 21. RTPC proposed solution 21 Image © copyright APCA Copyright Australian Payments Clearing Association Limited (APCA) owns the copyright in this image. Other than for the purposes of, and subject to the conditions prescribed under, the Copyright Act 1968 (Cth) (or any other applicable legislation throughout the world), or as otherwise provided below, no part of any material on this web site may, in any form or by any means, be reproduced, adapted, distributed, stored in a retrieval system, transmitted, printed, displayed, published or commercialised without APCA’s prior written consent. Enquiries should be directed to APCA. You may: * print copies of any material on this web site for informational, non- commercial use; * store a copy of the material on your local computer solely for viewing it; or * copy or distribute any one or more pages of the material in complete and unaltered form, so long as it is appropriately attributed to APCA, and a copy of this copyright notice appears in its entirety in each copy made or distributed. All other rights are reserved by APCA.
  22. 22.  RTPC was to become RTP Programme Steering Committee (+ RBA reps), has now become New Payments Platform Steering Committee  Proposal included project management overview, including:  Project management roles (KPMG appointed following tender);  Stakeholder and expert groups;  Project streams  Clearing switch and network and simpler addressing will be put to tender, with the vendor providing progress reports to the programme director.  Expressions of interest will be invited for entities wishing to provide the Initial convenience service, with timing and resources to be included in the project management.  Settlement hub project to be implemented by RBA, with progress reports to the programme director RTPC solution: governance 22
  23. 23. RTPC program - timeline PSB timeline RTPC proposal  PSB consult/report key findings: by Q1 2013  N/A   Tender process to construct payments hub: mid - end 2013  RFT process early 2013 - early 2014 …  Industry connectivity requirements: mid 2014  Requirements development: early 2013 …  RITS capability for high speed / high volume settlements: end 2014  Broad timeline: industry testing early 2015 …  Real time retail payments hub - external testing: end 2014  Broad timeline: industry testing early 2015 …  All ADIs can receive RTP: end 2015  Out-of-hours service, better remittance data: mid 2016  Basic RTP: ADIs can send and receive fast message and value, near 24/7, ISO 20022 message format: end 2016.  Convenience service or other overlay service" launch simultaneously: end 2016 …  Simpler addressing: end 2017  Sending ADI can identify payee a/c no. (eg by mobile number): end 2017 … 23
  24. 24.  Project definition and planning underway  Solution to be selected and build to commence in H1 2014 (testing Q2 2015)  Implement in Q4 2015 New Payments Platform program: next steps 24
  25. 25. Emerging Products and Regulation 25
  26. 26. 26 1) Are we seeing changes in the payments framework or simply new devices with the same framework? 2) What impact does regulation have on the new players? Two important questions
  27. 27. 27 The main players Merchants Financial Institutions Telecommunications Network Providers IT/Software/Application Providers
  28. 28. 28 A number of different options or is it a combination of all? Financial Institutions Technology Companies TelCo Providers Merchants
  29. 29. 29 Innovation in the market
  30. 30. 30 Innovation in the market
  31. 31. 31 • Consumer facing opportunities • Merchant facing opportunities • Integrated smartphone and payment technology • Purchases of goods and services • Third party payments Where to from here?
  32. 32. 32 A number of different options or is it a combination of all? Financial Institutions Technology Companies TelCo Providers Merchants
  33. 33. Andrew Galvin James Moore Michael Anastas T +61 2 9334 8502 T +61 2 9334 8686 T +61 7 3020 2833 33
  34. 34. © HWL Ebsworth Lawyers Brisbane Canberra Melbourne Norwest Perth Sydney Level 23 Riverside Centre 123 Eagle Street Brisbane QLD 4000 P +61 7 3002 6700 F 1300 368 717 Level 1 25 National Circuit Forrest ACT 2603 P +61 2 6151 2100 F 1300 769 828 Level 26 530 Collins Street Melbourne VIC 3000 P +61 3 8644 3500 F 1300 365 323 Suite 310, Level 3 Norwest Central 12 Century Circuit Baulkham Hills NSW 2153 P +61 2 9334 8555 F 1300 369 656 Level 11 Westralia Plaza 167 St Georges Terrace Perth WA 6000 P +61 8 9321 1211 F 1300 704 211 Level 14 Australia Square 264-278 George Street Sydney NSW 2000 P +61 2 9334 8555 F 1300 369 656 Office Locations