December 6, 2023 | Amanda Khatri
Estimated reading time: 4 minutes
Digital compliance transformation down under: Australia to regulate payments firms
The Australian federal government is proposing to regulate digital payment services and wallet providers like Apple Pay and Google Pay under the new legislation.
The soaring popularity of digital payments has prompted lawmakers to consider new powers for the Reserve Bank of Australia, the country’s central bank, that will allow it to oversee payments firms and any emerging technologies.
Currently, digital wallets such as Apple, Google, and WeChat are not monitored or regulated under existing Australian laws.
The proposals would address the risks of the currently unregulated sector, offer consumers more protection, and boost competition, the government said.
Under new laws, the Reserve Bank of Australia would be given additional oversight of particular payment services or platforms that present risks of national significance, the government said.
The draft legislation was released for public consideration and will be introduced to parliament later this year, per the announcement.
“We are modernising Australia’s payments system to ensure it meets the needs of our economy now and into the future,” said Treasurer Jim Chalmers. “We want to make sure the increasing use of digital payments occurs in a way that helps promote greater competition, innovation, and productivity across our entire economy.
The draft law seeks to expand the definitions of “payment system” and “participant” in Australia, enabling the Reserve Bank of Australia to monitor digital wallet payments in a similar manner to credit card networks and other transactions.
By bringing digital wallet providers under the regulatory framework, the government aims to ensure that these services adhere to the same standards and safeguards as traditional payment systems, Chalmers said.
The Australian Banking Association, which represents the country’s finance sector, has noted a significant shift in payment behaviours in recent years. Mobile wallet transactions have soared from 29.2m in 2018 to 2.4bn in 2022, it said.
It is understood both Apple and Google are opposed to being designated as payment providers, per a report by Reuters. They believe that customers only use phones to make payments using cards issued by banks, and their role in the payment system is limited and indirect.
Australia’s government said in a June report that it aims to phase out the use of cheques over the next few years, adding that have declined by nearly 90% over the past 10 years.
Australia joins other nations in catering to a society that has shifted towards digital solutions. The proposed amendment is expected to be introduced in parliament in the next couple of weeks.
Australia following US lead
Earlier in November, the US Consumer Financial Protection Bureau (CFPB) announced that it wants to regulate fintech firms that process payments under the same rules that apply to banks.
The consumer protection regulator wants to ensure big tech firms offering financial services products, including the likes of Apple, Amazon, Google, Meta, Square, and PayPal, are regulated in such a manner.
Senior CFPB officials said it has identified 17 companies, these are non-bank organisations that process 5 million or more transactions and $13 billion in transactions yearly and have 88% of the market share.
“Payment systems are critical infrastructure for our economy. These activities used to be conducted almost exclusively by supervised banks,” CFPB director Rohit Chopra said.
Like Australia, the CFP aims to “crackdown on one avenue for regulatory arbitrage by ensuring large technology firms and other nonbank payments companies are subjected to appropriate oversight”.
The rule expects large nonbank firms to:
- Adhere to applicable funds transfer, privacy, and other consumer protection laws, putting a stop to deceptive or unfair practices and protecting the rights of consumers.
- Play by the same rules as banks and credit unions for greater supervision and promote fairness of markets.
If tech firms offering payment services are found to be non-compliant, CFPB employees could file a report against the firm or even sue over any violations.
For many years, tech firms could introduce payment services without the need to comply with standards banks must adhere to. Regulators believe this blurring of lines has put consumers at risk.
Mindful of soaring volumes, digital payments and the companies who facilitate them are under the regulatory magnifying glass as privacy and consumer protection issues arise.
The trend to regulate digital wallets is increasingly evident, which will have consequences for every player in the fintech, big tech, and non-bank payment sectors.
The only way to protect against regulatory risk is by developing a compliance strategy that is robust enough to ensure your firm is operationally at its best to face the coming challenges.