The Reserve Bank of Australia (RBA) has issued a warning to electronic payment systems providers that it will not tolerate service outages.
Speaking at a conference in Shanghai, RBA Assistant Governor for Financial Systems Michele Bullock suggested that the Australian financial system regulators are prepared to act against banks and payment providers that do not maintain a minimum level of service reliability.
The warning comes as Australia’s economy continues its shift toward a cashless model, highlighting concerns of the damage that an unreliable payments system could do to the country’s economy.
Speaking at the Bund Summit on Fintech, Bullock said: “These sorts of outages disrupt commerce and erode trust of consumers in payment systems.
“Regulators are therefore starting to focus on the operational risks associated with retail payment systems and whether the operators and the participants are meeting appropriately high standards of resilience.”
These comments from the RBA show a shift in the nature of regulatory oversight in Australia from merely protecting consumers from fraudulent operators to also preventing fintech operators from neglecting their customers through a lack of investment in their systems.
Bullock continued: ‘Most of the regulation set for financial institutions is aimed at the stability of financial institutions. It is aimed at prudential supervision, making sure financial institutions don’t fail… that is not the concern by regulators at the moment with fintech. If some of these companies get big enough, there will be systemic issues. That then raises the issue of what standards will we then impose on them.’
The issue revolves around how much liability payment providers would need to receive when losses come about due to outages in electronic systems. For payment providers to be liable in the event of significant losses due to service outages, regulators need to have oversight of the sector, and the comments from the RBA indicate that this is the direction in which authorities are moving.
There are several options for implementing any new rules, the most likely of which is that a structured compensation scheme will act as an incentive for providers to ensure that they allocate funds by keeping their technology up-to-date.
The system is already undergoing change in the form of the New Payments Platform (NPP), a hub created by the RBA to deal with a lack of technological progress or system renewal by Australia’s big four banks and card payment providers. Bullock mentioned the NPP on Sunday, saying that it is not a ‘spontaneous creation of the industry”, instead developing after the RBA set strategic objectives for the payments system.
Bullock also suggested that the RBA sees both purely digital banks and financial services from online technology companies such as Facebook, Apple and Google as the drivers of change within the domestic payments sector, saying that they can “leverage their already extensive networks to offer proprietary closed-loop payment services”.
In May, National Australia Bank’s countrywide electronic network crashed, leaving customers unable to access their accounts through online and mobile banking, ATMs or through EFTPOS.
Bullock said of the incident: ‘With people carrying less cash, an outage in a retail payment system can mean that customers can’t undertake transactions. In Australia, for example, an outage at a major bank recently meant that its merchant customers had to turn customers away if they didn’t have cash, and many didn’t.”