The article discusses an initiative by the Australian payments industry, with encouragement from the Reserve Bank of Australia, to establish a new payments system infrastructure. This will enable customers to "Pay Anyone, Anywhere, Anytime" with almost immediate settlement of funds. The new system will use international standards to support interoperability and allow more data to be sent with payments. It will also implement real-time interbank settlement to eliminate settlement risk. The article argues this initiative could provide an alternative model for developing countries seeking greater financial inclusion through new payment methods.

1. Australia’s Latest Payments System Development Initiative-
Could This Show An Alternative Path to Greater Financial Inclusion for
Developing Countries?
Louise Malady1
February 2013
Overview
The Australian payments industry, with strong involvement and encouragement
from the Reserve Bank of Australia (the RBA is the regulatory body responsible
for the oversight and regulation of the Australian payments system), is working
together to establish a new payments system infrastructure which will support
future innovations in payments for businesses and consumers. An update from
the payments industry on proposed plans was expected to be considered at the
RBA’s Payments System Board (PSB) meeting on Friday 15 February 2013.
This article seeks to highlight this Australian initiative for developing countries
seeking greater financial inclusion, and aid organisations assisting these
countries. This Australian initiative could show an alternative path to greater
financial inclusion for developing countries.
It is expected the changes being proposed in Australia will enable the banks’
underlying payments system infrastructure to support more efficient and
innovative payments products and processes than what is available to Australian
businesses and consumers today. The changes will pave the way for banks’
customers (both individuals and businesses) to be able to ‘Pay Anyone,
Anywhere, Anytime’.
Australian businesses and consumers have, in recent years, already enjoyed
some benefits of greater payments innovations being undertaken by Australian
banks. Due to a combination of technological advances and banks being driven
to compete for domestic depositors’ funds, as a result of limited international
funding sources, banks turned their focus to competing on product
differentiation and speed of processing payments. However, these innovations
are built to run on the banks’ existing payments system infrastructure which are
becoming out-dated, inflexible and exposed to greater operational risk. There is
a general acceptance by Australian payments industry players that their systems
need greater operational resilience.2 The RBA is also keen to see industry
1 Louise Malady is a researcher and consultant for mobile banking and payments regulation.
Louise is currently based in Sydney, Australia, and she has lived and worked in Singapore, India
and the Philippines. In 2011 Louise was engaged by the Asian Development Bank as a Payment
Systems and Mobile Banking Specialist. From 2001 to 2006 Louise worked for the Monetary
Authority of Singapore, where among other roles she was an Assistant Director in the Payments
Infrastructure Division. Louise started her career in 1989 at the Reserve Bank of Australia where
she gained broad experience in payments policy and banking supervision. Louise holds a Master
of Applied Finance from Macquarie University, Sydney. Louise can be reached at
louise.malady@yahoo.com.
2 This acknowledgement of a need for greater operational resilience was highlighted in a paper
by the RBA: “Operational Incidents in Retail Payments Systems: Conclusions”, November 2012, p3.
1

2. players focus their efforts on ensuring the underlying payments infrastructure is
an adequate support base for future innovations in payments.3
In developing countries, new payment methods and payments innovations have
been hailed as a means towards greater financial inclusion. However, a
stumbling block in many countries has been how to design a new payments
product or system which can reach a critical mass of end-users to truly enable
users to ‘Pay Anyone, Anywhere, Anytime’. New payments products and systems
are often confined to a limited user group, determined by the end-user’s choice
of Telco provider or bank or the dominant Telco provider or bank in that
particular market. Efforts are being made to build interoperable payments
products and systems.4 However, the initiative underway in Australia to
overhaul the payments infrastructure takes a step back from the myriad of
innovations in end-user payments products and systems and looks at how to
develop the architecture of the underlying infrastructure so as to provide
adequate support for ongoing innovations in payments.
Payments regulators in developing countries, and the aid organisations
supporting greater financial inclusion in these countries, could direct more focus
and funding towards payments system infrastructure development initiatives
similar to those currently being undertaken in Australia. While it may be argued
such payments system development is too costly for developing countries to
consider, it is possible developing countries face a different cost structure to
developed countries as the former are unlikely to have the vast legacy systems
which the latter must contend with; the developing countries may be able to
“leap frog” some of costs involved in such infrastructure development work.
Central banks and payments regulators in developing countries would also need
the support to strengthen their capacity to implement this type of broad
payments system development initiative. Supporting and driving this type of
initiative would be consistent with aid organisations’ objectives of financial
inclusion as it could provide developing countries with a much stronger
foundation on which to subsequently build more accessible payments products
and processes.
This article is structured as follows:
 Section I describes the proposed key features for the end-users of the new
infrastructure being considered in Australia. Of note is the RBA’s
emphasis on the use of the ISO 20022 message standards to support
carrying richer data with payment instructions and interoperability and
also the RBA’s willingness to enhance its settlement system to facilitate
(http://www.rba.gov.au/payments-system/resources/publications/payments-au/201211-
operational-incidents-in-retail-payments-systems-conclusions/)
3 The RBA released its “Strategic Review of Innovation in the Payments System: Conclusions” in
June 2012. This document is widely used and referenced throughout this article.
(http://www.rba.gov.au/payments-system/reforms/strategic-review-
innovation/conclusions/index.html)
4 For a recent review of such efforts, see The Economist, Schumpeter, “All together now”,
17 January 2013 and Readers’ comments online
(http://www.economist.com/blogs/schumpeter/2013/01/mobile-money)
2

3. real-time interbank settlement for retail payments using the new
payments system infrastructure. This enhancement would mean
settlement funds are final and irrevocable; eliminating the settlement risk
which is present in many retail payment systems today;
 Section II highlights the driving forces creating the necessary
environment for change in Australia’s payments infrastructure. An
appreciation of these local conditions and context are important because,
as with any development initiative, there cannot simply be carbon copies
made and applied throughout the world; and
 Section III concludes this article with a recommendation that the lead role
being played by the RBA in this initiative be followed and emulated where
possible by payments regulators in countries wanting to embrace new
payment methods as a means of achieving greater financial inclusion.
Section I - The Payments Initiative Underway in Australia – It’s time to ‘Pay
Anyone, Anywhere, Anytime’
A significant and far-reaching payments initiative is now on the horizon in
Australia. The Australian payments industry, with strong encouragement from
the RBA, is working together to establish a payments system which will enable
banks’ customers (both individuals and businesses) to ‘Pay Anyone, Anywhere,
Anytime’. It is expected this payments innovation will:
- enable all Australians to make and receive payments in day-to-day
business and consumer transactions irrespective of who they bank with
and with confidence the person receiving the payment will receive the
funds almost immediately as cleared funds;
- provide an easier system of addressing payments. Individuals receiving a
payment will no longer need to remember their BSB and Account No..
Instead a more memorable alias may be able to be used, such as an
individual’s mobile phone number or email address; some form of
centrally managed database in the background could link users bank
account details to their chosen alias; and
- make it easier for people to integrate remittance information with their
payments details by increasing the amount of information which can
accompany a payment instruction. In this way business owners can look
forward to less time spent on reconciliation processes (often an arduous
process for business owners).
The RBA has identified two notable features it would like to see adopted in the
new payments system infrastructure:
- The adoption of the ISO 20022 message standard in the new payments
infrastructure.5 ISO 20022 is used to support interoperability in payment
systems and it enables a greater quantity of data to accompany the
5Reserve Bank of Australia, “RBA Core Criteria for a ‘Fast Payments’ Solution”, November 2012,
p2. (http://www.rba.gov.au/payments-system/reforms/strategic-review-innovation/201211-
rba-core-criteria-fast-pay-solution/index.html)
3

4. payment instruction, thereby creating the possibility of “marrying” a
payments instruction with remittance information;6 and
- Real-time interbank settlement for retail payments using the new
payments infrastructure. The RBA would enhance its RTGS system
whereby settlement funds would be final and irrevocable, eliminating the
type of settlement risk which is present in many retail payment systems
today. Such settlement risk is now an unnecessary risk given the
technological advances of recent years enabling it to be more easily
mitigated.
Payments industry regulators, participants and observers around the world
realise this type of payments initiative requires an overhaul of existing payments
system infrastructure as it involves transforming from batch-based overnight
processing to real time processing. This is a large and complex project for a
developed country such as Australia where banks’ core payments systems are
old, complex and with excessive interdependencies.7 Furthermore, what is
needed is for payments players to work together on this initiative because they
are changing the underlying infrastructure into which all payments players
connect. Such cooperation is understandably difficult to achieve amongst
competitors focused on protecting their depositor base and their existing
investments in payments products and arrangements. However, due to
underlying forces now driving transformative change in Australia’s payments
infrastructure it appears the ever evasive “cooperative innovation” could be
achieved.
Section II - Underlying Forces Driving Transformative Change in Australia’s
Payments System
In 2013 in Australia the time appears right for the successful development of a
payment system to enable Australians to ‘Pay Anyone, Anywhere, Anytime’ with
cleared funds. The time is right because there are currently a number of forces
driving transformative change in Australia’s payments system.8
- Reputational Risk and Legacy Systems - Banks in Australia acknowledge a
transformational change in their payments infrastructure is overdue in
order to avoid further payments incidents and reputational damage arising
from reliance on legacy systems. (See the RBA’s paper “Operational
Incidents in Retail Payment Systems: Conclusions”, November 2012, for a
detailed discussion on the problems banks in Australia are experiencing with
their core banking and payments systems and why there is a general
industry realisation that transformational change is needed.);
6 Reserve Bank of Australia, Op. cit., June 2012, pp 10 and 11.
7 As highlighted in the paper by the RBA: “Operational Incidents in Retail Payments Systems:
Conclusions”, November 2012, p3.
8 These driving forces were identified by the RBA in its paper - “Operational Incidents in Retail
Payment Systems: Conclusions”, November, 2012.
4

5. - Consumer Demand - Banks have been intensely competing on the payments
front to attract what was much needed domestic funding. Consumers have
benefitted from this intense competition as it has led to greater payments
innovations and other technological innovations. Internet and mobile
banking and payments products continue to be improved upon by banks in
an effort to differentiate their products and attract new depositors. Banks
are also competing in terms of how fast they can move money for their
customers, irrespective of the payments channels being used – be it via card
payments or the Direct Entry system or mobile and internet payments.
Examples of recent bank innovations include: assisting the customer to do
online banking in a new or easier way or to purchase products using ‘pay
and wave’ technology in addition to ‘PIN or sign’; or improving merchants’
cash flow management by reducing the time between them selling their
goods via EFTPOS or credit card channels and receiving reimbursement
from their bank for the goods sold. However, many of the innovations ride
on banks’ existing payment systems infrastructure. Furthermore, these
innovations are often ‘stand-alone’ innovations or useful for your own
banking with your bank or your banking with someone else so long as you
both bank with the same bank (i.e. in technical payments terms these
innovations often only benefit users operating in a closed network).
Banks are aware an overhaul of the underlying payments infrastructure is
needed to provide the necessary building blocks to support future
innovations and to maintain their competitive edge. Consumer demand for
increased banking convenience through greater technological innovation
and payments efficiency will drive banks to develop their underlying
systems;9 and
- RBA’s Conclusions from its Strategic Review of Innovation - Last, but not least,
as it is arguably the most important driving force for change, is the initiative
of the RBA’s PSB to now regularly set strategic objectives for the payments
system which reflect the PSB’s assessment of the public interest. The PSB’s
initial strategic objectives include a description and timetable for the
industry to work towards a “Fast Payments Solution” (which this article
refers to as a ‘Pay Anyone, Anywhere, Anytime’ payments innovation). The
PSB’s actions can be supported by broad legislated powers in the Payments
Systems (Regulation) Act 1998. However, the PSB is initially adopting a
consultative approach but has indicated if the industry is not able to reach
agreement on how to realise the objectives of the PSB then it may use its
legislated powers or “it might seek to establish infrastructure itself”.10 (See
Box A at the end of this article for more detail on why the PSB is now setting
these strategic objectives.)
9 Dr John Laker, Chairman of the Australian Prudential Regulatory Authority, noted banks’
increased focus on technological innovation as a response to the banking environment of low
credit growth – see Dr Laker’s speech to the American Chamber of Commerce in Australia, “Life in
the Slow Lane”, 11 May 2012.
10 Reserve Bank of Australia, Op. cit., June 2012, p21.
5

6. The Australian payments industry is expected to announce shortly (possibly
this month, February 2013) a proposed way forward.11 In terms of the
timetable for Australian businesses and consumers, they will have to wait
until end 2016 to see this new payments infrastructure become a reality.
This is a deadline set by the RBA, however, it reflects the major overhaul of
payments infrastructure required and the significant financial investment,
not to mention overcoming the challenges faced in getting the industry to
cooperate in what is a competitive field. However, if Australia gets this right
it could be among the world’s leading countries for this form of payments
initiative.
Section III – Conclusion and Recommendation for Developing Countries
and Aid Organisations assisting these Countries
In recent years, developing countries have been in the midst of their own
payments revolutions in attempts to discover new payment methods which are
transformational. Commercial operators are keen to develop their new
payments products in developing countries as these markets represent an
opportunity to tap into an unbanked population. Aid organisations are eager to
offer financial and technical support for, most commonly, mobile banking
initiatives in the hope such payments innovations will be transformational and
assist in the alleviation of poverty for the unbanked population through greater
financial inclusion.12
One missing piece to the puzzle, making the transformational goal difficult to
realise, is that the mobile banking and payment systems in developing countries
are often not being built as interoperable for end-users. This is potentially
limiting the chance for these systems to reach the critical mass of end-users
needed to ensure ongoing success of what are financially inclusive payments
innovations.13
The payments initiative being considered by the Australian payments industry,
with strong encouragement from the RBA focuses on benefitting the end-user.
Specifically, as outlined in Section II above, the intention to adopt international
message standards which support interoperability and greater data transmission
11 As noted by Andrew Cornell, in the Australian Financial Review, 11 February 2013, in
“Payments: banks still out of tune”, the payments industry through a committee established in
response to the RBA’s initiatives, has put its proposal to the RBA’s Payments System Board which
is meeting on Friday 15 February, 2013.
12 The list of aid organisations in this area includes (in no particular order and not limited to): the
Alliance for Financial Inclusion; the CGAP Technology Group; the GSMA Development Fund; the
UK Department for International Trade; USAID; Mercy Corps; AUSAID; the World Bank; the Asian
Development Bank; and the Bill and Melinda Gates Foundation.
13 This is not to say the issue is not being discussed among industry players. Various aid
organisations have published articles articulating the case for interoperable mobile payments
systems in developing countries, for example search “interoperability” at
http://www.gsma.com/mobilefordevelopment/programmes/mobile-money-for-the-unbanked/
to read some articles on the topic.
6

7. capabilities and the plan to improve clearing and settlement arrangements to
eliminate settlement risk are initiatives benefitting the end-user.
Another missing piece to puzzle of how to achieve the transformational goal is
the limited capacity of financial system regulators in developing countries to
carry out payments system reform due to a lack of resources and trained staff.
This capacity could be strengthened by directing aid organisation funds towards
supporting payments system regulators in adopting high level strategic
approaches to payments system reform.14
In mobile banking and payments developments regulators are sometimes
viewed as creating barriers to the development of payments innovation. As an
example of such viewpoints, a Nomura Equity Research article noted regulations
such as Know Your Customers (KYC) requirements could be a “hurdle” and
referred to requirements such as KYC arrangements; agent authorisation; and
licenses for mobile banking activities as “regulatory challenges”.15 Reasoned
cases can be made for the necessity of such “regulatory challenges”, however,
that is a separate discussion.16 The point to be made here is that the RBA is not
approaching payments innovation from a micro-regulatory angle but instead it
has stepped back to take a broad strategic view on how to build the
infrastructure so as to support new and existing payments participants with
greater efficiency in new and existing payments products.
While developing countries are constrained due to a lack of funding for
infrastructure development and a lack of skills or trained staff in regulatory
agencies, they may have one advantage over developed countries; there is the
potential for developing countries to be able to “leap frog” concerns about how
to deal with the legacy systems bogging down development as such systems may
not exist or if they do they may not be too out of date.
Supporting and driving this type of payments system development in developing
countries could provide these countries with a much stronger foundation on
which to build payments products and processes accessible by all, the banked
and unbanked, thereby truly working towards the goals of financial inclusion.
14 See the Consultative Group to Assist the Poor and World Bank Group, 2010. “Financial Access
2010, The State of Financial Inclusion Through the Crisis”. This Survey found that for low-income
countries in particular they lacked the dedicated resources for implementing financial access
reforms.
15 Nomura Equity Research of Asian Telecoms, “Despite scale, can Asian telcos be banked upon?”,
July 20, 2012, pages 10 and 18.
16 See for example Malady, L., “Mobile Payments: Financial Regulatory Approaches in South East
Asia”, (http://www.slideshare.net/hipster40/mobile-banking-financial-regulatory-issues-may-
2011) and also the CGAP Technology Blog for topics relating to the regulation of mobile money.
7

8. BOX A
RBA Strategic Review of Innovation in the Payments System and Next Steps
In June 2012, following two years of research and consultation, the PSB
published its conclusions to its “Strategic Review of Innovation in the Payments
System”. As part of these conclusions the PSB undertook to change its direction
in relation to payments innovation due to what it saw as some market failures
preventing innovation in the payments system and the PSB’s belief that
innovation is important to its mandate to control risk, promote efficiency and
promote competition in the market for payment services.17
Part of the change in direction of the PSB is it will now establish high-level
strategic objectives which should be met by the payments system by a specified
time. This setting of strategic objectives will be done every three years by the
PSB. The industry will be left to determine the means for meeting the strategic
objectives, reflecting the PSB’s role as a “policy body, not a technical body”.18
The PSB will seek to ensure the objectives are met providing detailed guidance
when necessary.
The PSB’s first set of strategic objectives were outlined in its Conclusions to its
strategic review of innovation.19 The ‘Pay Anyone, Anywhere, Anytime’ concept
is a key component in these initial strategic objectives and the RBA refers to this
as a “Fast Payments Solution” or “real-time retail payments”. In November 2012,
the RBA published its “Core Criteria” which it developed to clarify the
benchmark criteria for assessing proposals for the provision of real time
payments for business and consumers. In publishing these criteria the RBA was
reminding the industry to develop a system where pricing and access
arrangements are considered important and where the project development for
the new system is done “in a way that is open, transparent and consistent with
principles of good governance”. 20
The PSB also set down two additional but related initiatives to its proposal to set
high level strategic objectives: (i) to encourage the “constitution of an enhanced
industry coordination body that is suitable to both interact with the Payment
System Board on behalf of the industry and to provide cooperative agreement on
issues that would not normally be taken up by the Board”; and (ii) to “establish a
framework for more direct interaction between this industry body and the Board
itself.”21 The PSB considers these initiatives necessary to ensure its strategic
objectives are able to be effectively implemented.
17 RBA, Op. cit., June 2012, p3.
18 RBA, Ibid., June 2012, p19.
19 RBA, Ibid., June 2012, p20.
20 RBA, Op. cit., November 2012, p1.
21 RBA, Op. cit., June 2012, p18.
8