Thursday, 28 October 2021
Corporations and Financial Services Joint Committee; Report
() (): On behalf of the Parliamentary Joint Committee on Corporations and Financial Services, I present the committee's report, incorporating dissenting reports, entitled Mobile payment and digital wallet financial services.
Report made a parliamentary paper in accordance with standing order 39(e).
by leave—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systems, while the effectiveness of the multitude of regulators covering the payments ecosystem has been undermined by outdated concepts of what constitutes a payment platform.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.
by leave—I will pick up where the chair left off, and acknowledge the good work of the secretariat. I also thank the chair for his leadership of the inquiry. I think everyone got a fair say and the evidence was robust and well tested.
The chair said that there was a dissenting report; we tried to style it as 'dissenting comments' in that the Labor members who have signed these dissenting comments agree with the vast bulk of the report and back in the comments the chair has made, even in his tabling statement. So I want to outline on behalf of all Labor members and the deputy chair, who can't be here today, the four areas where we don't agree with the committee's findings and issue these dissenting comments, but overall the report is robust and the recommendations are supported.
The first one relates to the government's poor track record. They are in their ninth year, and there is an optimistic sentence in the report, at 473, where they say:
with the release of the Farrell Review, the committee is cautiously optimistic that much-needed reforms are progressing.
Labor members of the committee don't share the government's unfounded optimism that urgently needed action on payments policy and regulation may finally happen. Whilst we may hope for action, the government is in its ninth year and they've received yet another review but they haven't done anything with the years of reviews they already have. During that time, as the chair well outlined, the payments landscape has transformed rapidly with the rise of Google Pay, Apple Pay and Buy Now Pay Later. It's been transformed in the terms of this government. But the government has received multiple reports over eight years with increasingly urgent recommendations for change, yet has implemented few to none of those reforms. The stored value facility recommendation, to use that as a case study, was recommended to the Abbott government in the 2014 financial system Murray inquiry, then again in the 2018 Productivity Commission report into competition and financial services, by the Council of Financial Regulators in 2020 and now the 2021 Farrell review. The government's done nothing for eight years with these recommendations, so excuse the Labor members if we don't share your optimism that now something might happen. I do note Scott Farrell completed two previous inquiries for this government, the first of which has been responded to, but the government hasn't even responded to his previous inquiry received in October last year and released in December, so I think the context is important. But, look, if something happens, that's terrific.
The second point is the need to avoid the politicisation of payments regulation. Recommendation 1 of the report calls for Treasury to exhibit 'leadership' in the payments space. We're not convinced that payments policy and regulation should be led by Treasury under this Treasurer. We do agree that the Treasury clearly needs to enhance its capability and capacity to engage in this. Their performance at the public hearings was woeful; it really was. But, as the chair has kindly written in the report, we'll sheet that home to the systemic issues in Treasury and not the poor bunnies who happened to appear on the day. But we do risk a very different approach under this Treasurer if payments policy is rested off the independent Reserve Bank of Australia, as the government is trying to do. There have been media reports that the well-respected head of payments from the Reserve Bank has quit and that the government's looking to take the entire payments division from the Reserve Bank, where it's been, and put it under the political control of the Treasurer in the Treasury. We've seen this Treasurer's decision-making record—delays, capriciousness, accommodation of vested interest close to the Liberal Party. He has again and again failed to put the interests of consumers first and ensure appropriate policies. So, in our view, significant regulatory changes are absolutely urgently needed in the payments space—there's no doubt—to set the system up for the future, and they may well need to be designed outside, or at least with, the Reserve Bank of Australia. The Reserve Bank is characterised by a very cautious, prudent evolutionary culture. That's probably what you want in a reserve bank, and it might not be the best culture to do rapid policy change, but there may be benefit in allowing payments policy still to be led by an independent regulator or body outside of the direct control of the Treasurer and hence impervious to vested interest, lobbyists, rent-seeking behaviour and politicisation.
The third point, which is of great public interest I know, is access to Apple's NFC chip. It's a controversial issue which has vexed parliaments and regulators across the world. Government members conclude:
the committee does not recommend Apple be forced to grant direct operating-system-level third-party access to its NFC antenna at this time—
going on to note the ACCC's examination of this issue now. Labor members—and we've thought about this carefully—consider the onus needs to be reversed. This is really important. The default position should be a presumption of open access of critical hardware on reasonable commercial terms, and this should include Apple.
Parliament is no stranger to these regulatory issues. Sectors such as the railways, telecommunications and ports have long had regulatory architecture and access regimes to promote competition and innovation and prevent unfair or uncompetitive use of market power or dominance. A reasonable analogy, if you like, is the telecommunications network infrastructure where the network cables that send the signals are subject to open access regulation that the parliament has put in place. This is our point of principle: the presumption of parliament and regulators should be in favour of open access regimes on reasonable commercial terms to maximise competition and innovation, and it should then be up to Apple or any other handset manufacturer to argue why they should be an exception. Of course there can still be controls for security and privacy, and it's acknowledged that new payments technology—we understand QR codes are coming into supermarkets later this year—may mitigate or reduce competitive concerns about Apple's behaviour in banning third-party access to the NFC chip, but Apple can make these arguments to the ACCC.
The final point: recommendation 13, regarding BNPL, is vague and unnecessarily obtuse. We can't go into what happened in the committee, so that will remain a mystery, but industry self-regulation via the BNPL code of practice has been a reasonable approach to date as the sector has developed and matured. But industry self-regulation of BNPL is unlikely to be appropriate forever, and there's a prima facie and growing case for fit-for-purpose regulation of the BNPL sector to entrench consumer protections, to ensure that credit providers are placed on a fair regulatory playing field and promote competition and reduction in fees. Interestingly, on Friday the Reserve Bank saw fit to land a report about merchant surcharging in the BNPL sector. I think it, in some sense, contradicts aspects of the report and backs up this view in favour of competition and consumer regulation and transparency.
This should be the subject of a focused inquiry in the next term of parliament, and it would have been preferable if the committee had simply said so. I will leave it there. I commend the rest of the report, and again thank the chair for his work leading this inquiry.