The Cash Restrictions Bill just keeps giving as Economist John Adams and Analyst Martin North reveal a dirty secret.
With a few days before the Senate Economics Legislation Committee delivers their report following the recent hearings, what does this say about the political processes which drives our legislative machine? No wonder the proposed Bill is a mess..
Today I want to consider the social impact of going digital, and the problems associated with financial stability in a disaggregated digital payments world.
More evidence I think that banning cash is clueless.
The Senate hearing on the 12th December 2019 relating to the Restriction of Cash Transactions Bill revealed the lack of facts, data and rationale for the proposed legislation. This is a 5 minute highlights package underscoring this – and something which your Senators and MP’s must see before its too late.
It is not too late to take action to help drive home that point that this Bill should not be passed.
The CEC just released a “highlights” package drawn from the Senate hearings. There is no evidence of the effectiveness of the ban, no business case, no data; just anecdotal hearsay. This is ideological claptrap.
What a vague basis for supporting a bill which narrows our human rights. A public disgrace!
Over the past few months we have been tracking the passage of the Cash Restrictions bill, which proposes to restrict cash transactions between companies and individuals over $10,000. Our post on the Real Issues surrounding the Cash Ban is our most watched show, ever.
As we highlighted recently, following the December Senate hearings, there is no clear rationale for the $10,000 dollar limit, it will have limited impact on money laundering and gang finances, and yet will remove a right we currently have to use cash as we please, thus narrowing the definition of legal tender. Some will be effectively debanked. And there is no clear business case at all. See our Post the Cash Ban Cowards Cannot Hide The Truth.
Plus the recent bush fires underscored the need for cash as an alternative to electronic payments see my post “Another Reason to Smash the Cash Ban”, where I argue that cash in a crisis is the only game in town – and the claimed protections proposed in the bill are unsatisfactory.
This bill has already been passed in the lower house, during
a pretty shameful and poorly attended debate, but the Senate determined to
investigate it before allowing it to pass. Good on them. As well as the minor
parties, Labour supported this inquiry which is due to report on the 7th
February. My suspicion is that the report has already been written, ahead of
another hearing which is tentatively scheduled for 30th January in Sydney.
Things have gotten more complex because the Labour party member Senator Gallagher, who asked some important and penetrating questions in the first round of hearings, has announced that he will take no further part in the review due to ill health. We wish him well.
As a result, it is not clear yet whether Labour will offer
up another Senator to continue the investigation, or whether this effectively
marks the end of any attempt to stop its passage. Indeed the 30th
hearing is now not ever certain.
All eyes are now on Labour, who appear from a distance to be
disengaged on the issue, despite their earlier support for the Senate inquiry.
So I wanted to highlight three important points.
First, the reduction of our personal freedoms to use cash as
legal tender is a big deal. The $10,000 limit will be eroded by inflation over
time and may be reduced in a subsequent bill to $2,000 or less, as has been
done in a number of other countries.
Second, the structure of the bill is a total restriction on cash transactions above $10,000 for any purpose, then diluted by a parallel regulation, which excludes for now cash withdrawals and payments from a bank, transactions between individuals for non-commercial purposes, and payments using cryptocurrencies. However, all these exclusions can be changed at a stroke of a pen, without any further direct Parliamentary intervention. This leaves the door open to restricting cash transactions more widely, for example in a banking crisis, including restricting cash withdrawals, as happened in the Bank of Cyprus crisis a few years back. And cryptos could be included later, if their use expands. The $10,000 limit is actually in the bill.
Third, the authorities carefully steer around the recent IMF
papers and blogs, where they discuss the need to take interest rates firmly
into negative territory, to react to a financial crisis. Typically, a cut of
around 4% would be required they say. Given we are already have a 0.75% cash
rate, negative rates may follow. But in a negative rate environment, people
will pull funds from the banking system, and hold cash, as their value will not
be eroded, relative to negative rates, where depositors must pay for the
privilege of keeping money in the bank. The
link to monetary policy was discussed in the Black Economy Task-force papers,
yet has been downplayed since in official circles.
So, the risks of the cash ban being made law are real.
Which begs the question, what can we do if we want to resist
this bill?.
Well, first it is not too late to contact your members and senators and make sure they are aware of your concerns, and I think we should focus on Labour Party members – on two fronts, demanding they nominate a replacement for Gallagher, and that they resist the bill. Make sure they know you are opposed to the bill. Contact details for every member and senator are available in the Government website.
Second, I think it is worth writing to your local newspapers, and highlighting the issues around the cash ban. I made an earlier show when I went through all the main points – see “What I Said to The Senate On The Restrictions On The Use Of Cash Bill” in my video, and on the DFA blog. I included a series of arguments which you can leverage.
Third, please share this post via your social media channels
to widen the awareness in the community of this issue. I still find many people
are unaware of the implications of this bill – and because they never make big
cash payments, do not see it as an issue. But I want to underline that personal
freedoms are being eroded again, on the flimsiest of arguments; that we will be
trapped inside the banking system, and thus forced to pay for banking services;
and that the Senate has the ball but might just hook it if they are allowed to.
We literally have less than 3 weeks now to make a difference. Our civil liberties depend on it….
Bank of Ireland has caved in to public pressure following a public outcry over its plans to heavily restrict cash transactions in its branches, via Irish Independent.
The bank came in for sustained criticism
after the Irish Independent revealed yesterday that it plans to restrict
over-the-counter cash withdrawals to a minimum of €700 and cash
lodgements to a minimum of €3,000 in an effort to push customers towards
using ATMs and self-service machines.
However, after criticism from Finance
Minister Michael Noonan, as well as groups representing consumers,
farmers, older people, rural dwellers and bank workers, the bank
conceded that what it called “vulnerable” customers could continue to
get cash and make withdrawals of smaller amounts of money at branch
counters.
The changes prompted fears of a renewed
bout of bank branch closures and staff lay-offs in the wake of the
bank’s move to severely restrict counter-based cash transactions.
Mr Noonan described the changes as
“surprising and unnecessary”, adding that he expects the bank to “fully
honour” its commitment to “vulnerable customers”.
Bank of Ireland said it would continue to
allow older customers and those unfamiliar with technology to make cash
transactions over the counter.
“Bank of Ireland would like to confirm
that vulnerable customers, together with those elderly customers who are
not comfortable using self-service channels or other technology
solutions, will be assisted by branch staff to use the available
in-branch services.”
However, other banks are now expected to
follow the lead of Bank of Ireland by moving to set strict limits on
over-the-counter cash handling.
It comes after around 200 bank branches
were closed, mainly in rural areas, during the financial collapse, with
at least 10,000 retail bank staff laid-off.
Banks including Bank of Scotland, Danske, ACC and Irish Nationwide have already closed, limiting banking options for customers.
Now there are concerns that the move by
Bank of Ireland to effectively become a cashless bank will prompt more
branch shut-downs and redundancies.
Deputy chairman of the Consumers
Association Michael Kilcoyne said other banks were set to mirror Bank of
Ireland and discourage customers from withdrawing and lodging cash over
the counter.
This would make branches in rural areas less viable, he warned.
“The implications of the Bank of Ireland
move are very severe. If it gets away with this it will get rid of more
staff and close branches.
“This will be a further blow for rural Ireland,” he said.
Mr Kilcoyne predicted that AIB, Ulster Bank and Permanent TSB would make similar moves to curtail cash handling.
And banking union IBOA said it is seeking a
meeting with Bank of Ireland boss Richie Boucher over concerns the
changes would mean more job losses.
The Irish Farmers’ Association said the
changes would cause great difficulty for some farmers who are not
familiar with the bank’s online system.
Age Action accused the bank of ignoring the needs of older people by setting high limits on over-the-counter transactions.
Governor Lowe spoke at the Australian Payments Network Summityesterday. He discussed the rise of electronic transactions, especially though the New Payments Platform, the high relative costs of international retail payments, and the need for, and potential of a Strong Digital Identity System. He also highlighted the decline in cash transactions which now accounts for just around a quarter of day-to-day payments.
A recurring theme across these summits has been the need to improve customer outcomes. I am very pleased to see that this focus has been continued at this year’s summit. The focus on customer outcomes aligns very closely with the focus of the Payments System Board. The Board wants to see a payments system that is innovative, dynamic, secure, competitive, and that serves the needs of all Australians.
Increasingly, this means that the payments system needs to support Australia’s digital economy.
With the digital economy being an important key to Australia’s future economic prosperity, we need
a payments system that is fit for purpose. We will only fully capitalise on the fantastic opportunities
out there if we have a payments system that works for the digital economy. The positive news is that we
have made some substantial progress in this direction over recent years and in some areas,
Australia’s payments system is world class. However, in the fast-moving world of payments, things
don’t stand still and there are some important areas we need to work on.
In my remarks today, I would like to do three things.
The first is to talk about some of the progress that has been made over recent years.
The second is to highlight a few areas where we would like to see more progress, particularly around
payments and the digital economy.
And third, I will highlight some of the questions we will explore in next year’s review of retail
payments regulation in Australia.
Progress Is Being Made
Over recent years there have been significant changes in the way that we make payments. We now have
greater choice than ever before and payments are faster and more flexible than they used to be.
The launch of the New Payments Platform – the NPP – in early 2018 has been an important
part of this journey. This new payments infrastructure allows consumers and businesses to make
real-time, 24/7 payments with richer data and simple addressing using
PayIDs.
After the NPP was launched, it got off to a slow start, but it is now hitting its stride. Monthly
transaction values and volumes have both tripled over the past year (Graph 1). In November, the
platform processed an average of 1.1 million payments each day, worth about $1.1 billion. The
rate of take-up of fast retail payments in Australia is a little quicker than that in most other
countries that have also introduced fast payments (Graph 2).
I expect that we will see a further pickup in usage once the CBA has delivered on core NPP
functionality for all its customers. The slow implementation has been disappointing and we expect the
required functionality to be available soon.
There are now 86 entities connected to the NPP, including 74 that are indirectly connected
via a direct NPP participant. There are at least six non-ADI fintechs that are using the NPP’s
capabilities to innovate and provide new services to customers. All up, approximately 66 million
Australian bank accounts are now able to make and receive NPP payments.
Use of the PayID service has also been growing, with around 3.8 million PayIDs having been
registered to date. If you have not already got a PayID, I encourage you to get one. I also encourage
you to ask for other people’s PayIDs when making payments, as an alternative to asking for their
BSB and account number. It is much easier and faster.
One specific example of where the NPP is bringing direct benefits to people is its use by the
Australian Government, supported by the banking arm of the RBA, to make emergency payments. During the
current bushfires, the government has been able to use the NPP to make immediate payments to people at a
time when they are most in need, whether that be on the weekend or after their bank has shut for the
night.
One other area of the payments system where we have seen significant change is the take-up of
‘tap-and-go’ payments. Around 80 per cent of point-of-sale transactions are now
‘tap-and-go’, which is a much higher share than in most other countries. This growth has
been made possible by the acquirers rolling out new technology in their terminals and by the willingness
of Australians to try something different. There has also been rapid take-up of mobile payments,
including through wearable devices.
Progress has also been made on improving the safety of electronic payments, particularly in relation to
fraud in card-not-present transactions. The rate of fraud is still too high, but it has come down
recently (Graph 3). I would like to acknowledge the work that AusPayNet has done here to develop a
new framework to tackle fraud. This framework strengthens the authentication requirements for certain
types of transactions, including through the use of multi-factor authentication.[1] This will
help reduce card-not-present fraud and support the continued growth in online commerce.
As our electronic payments system continues to improve, we are seeing a further shift away from cash
and cheques. The RBA recently undertook the latest wave of our three-yearly consumer payments survey. We
are still processing the results, but ahead of publishing them early next year, I thought I would show
you the latest estimate on the use of cash (Graph 4). As expected, there has been a further trend
decline in the use of cash, with cash now accounting for just around a quarter of day-to-day
transactions, and most of these are for small-value payments. Given the other innovations that I just
spoke about, I expect that this trend will continue.
Further Progress Needed
The progress across these various fronts means that there is a positive story to be told about
innovation in Australia’s payments system.
At the same time, though, there are still some significant gaps and areas in our payments system that
need addressing and where progress would support the digital economy in Australia. I would like to talk
about four of these.
NPP
The first of these is further industry work to realise the full potential of the NPP, including its
data-rich capabilities.
The NPP infrastructure can help make electronic invoicing commonplace and help invoices be paid on
time. It can also support significant improvement in business processes, as more data moves with the
payment. Real-time settlement and posting of funds also enables some types of delivery-versus-payment,
so that the seller can confirm receipt of funds and be confident in delivering goods or services to the
buyer.
The layered architecture of the system was designed to promote competition and innovation in the
development of new overlay services. Notwithstanding this, one of the consequences of the
slower-than-promised rollout of the NPP by some of the major banks is that there has been less effort
than expected on developing innovative functionality. Payment systems are networks, and participants
need to know that others will be ready to receive payments and use the network. Some banks have been
reluctant to commit time and funding to support the development of new functionality given that others
have been slow to roll out their ‘day 1’ functionality. The slow rollout has also reduced
the incentive for fintechs and others to develop new ideas. So we have not yet benefited from the full
network effects.
The Payments System Board considered this issue as part of its industry consultation on NPP access and
functionality, conducted with the ACCC earlier this year. As part of that review we recommended that
NPPA – the industry-owned company formed to establish and operate the NPP – publish a
roadmap and timeline for the additional functionality that it has agreed to develop. The inaugural
roadmap was published in October and NPPA also introduced a ‘mandatory compliance
framework’. Under this compliance framework, NPPA can designate core capabilities that NPP
participants must support within a specified period of time, with penalties for non-compliance. This is
a welcome development.
One important element of the roadmap is the development of a ‘mandated payments service’
to support recurring and ‘debit-like’ payments. This new service will allow
account-holders to establish and manage standing authorisations (or consents) for payments to be
initiated from their account by third parties. This will provide convenience, transparency and security
for recurring or subscription-type payments and a range of other payments.
Another element of the roadmap that has the potential to promote the digital economy is the development
of NPP message standards for payroll, tax, superannuation and e-invoicing payments. The standards will
define the specific data elements that must be included with these payment types, which will support
automation and straight-through processing. We would expect financial institutions to be competing with
each other to enable their customers to make and receive these data-rich payments.
Less positively, there is still uncertainty about the future of the two remaining services that were
expected to be part of the initial suite of Osko overlay services. These are the
‘request-to-pay’ and ‘payment with document’ services. We understand there
are still challenges in securing committed project funding and priority from NPP participants to move
ahead, even though BPAY has indicated it is ready to complete the rollout. The RBA strongly supports the
development of these additional NPP capabilities, which are likely to deliver significant value for
businesses and the broader community.
Digital identity
A second area where the Payments System Board would like to see further progress is the provision of
portable digital identity services that allow Australians to securely prove who they are in the digital
environment.
Today, our digital identity system is fragmented and siloed, which has resulted in a proliferation of
identity credentials and passwords. This gives rise to security vulnerabilities and creates significant
inconvenience and inefficiencies, which can undermine development of the digital economy. These generate
compliance risks and other costs for financial institutions, so it is strongly in their interests to
make progress here. It is fair to say that a number of other countries are well ahead of us in this
area.
The Australian Payments Council has recognised the importance of this issue and has developed the
‘TrustID’ framework. The Government’s Digital Transformation Agency has also been
working on a complementary framework (the Trusted Digital Identity Framework), which specifies how
digital identity services will be used to access online government services. The challenge now is to
build on these frameworks and develop a strong digital identity ecosystem in Australia with competing
but interoperable digital identity services.
The rollout of open banking and the consumer data right should bring additional competition among
financial services providers, and digital identity is likely to reduce the scope for identity fraud,
while providing convenient authentication, as part of an open banking regime.
A strong digital identity system would also open up new areas of digital commerce and help reduce
online payments fraud. It will also help build trust in a wide range of online interactions. Building
this trust is increasingly important as people spend more of their time and money online. So we would
like to see some concrete solutions developed and adopted here.
Cross-border retail payments
A third area where we would like to see more progress is on reducing the cost of cross-border
payments.
For many people, the costs here are still too high and the payments are still too hard to make. It is
important that we address this. It is an issue not just for Australians, but for our neighbours as well.
I recently chaired a meeting of the Governors from the South Pacific central banks, where I heard
first-hand about the problems caused by the high cost of cross-border payments.
Analysis by the World Bank indicates that the price of sending money from Australia has been
consistently higher than the average price across the G20 countries (Graph 5). And a recent
ACCC inquiry found that prices for cross-border retail payment services are opaque. Customers are not
always aware of how the ‘retail’ exchange rate they are being quoted compares with the
wholesale exchange rate they see on the news, or of the final amount that will be received in foreign
currency.[2] There are also sometimes add-on fees.[3]
As part of the RBA’s monitoring of the marketplace, our staff recently conducted a form of online
shadow shopping exercise, exploring the pricing of international money transfer services by both banks
and some of the new non-bank digital money transfer operators (MTOs).
This exercise showed that there is a very wide range of prices across providers and highlighted the
importance of shopping around.
The main results are summarised in this graph (Graph 6). In nearly every case, the major banks are
more expensive than the digital MTOs. For the major banks, the average mark-up over the wholesale
exchange rate is around 5½ per cent, versus about 1 per cent for the digital
MTOs.
The graph illustrates why the cost of cross-border payments is such an issue for the South Pacific
countries. These costs are noticeably higher than for payments to most other countries. This is a
particular problem as many people in the South Pacific rely on receiving remittances from family and
friends in Australia and New Zealand. In many cases, low-income people are paying very high fees and it
is important that we address this where we can. As is evident from the graph, most digital MTOs do not
service the smaller South Pacific economies, which limits customers’ choice of providers.
In part, the high costs – and slow speed – of international money transfers is the result
of inefficiencies in the traditional correspondent banking process. It is understandable why some large
tech firms operating across borders see an opportunity here. Where people are being served poorly by
existing arrangements, new solutions are likely to emerge with new technologies. This represents a
challenge to the traditional financial institutions to offer better service at a lower cost to their
customers, while still meeting their AML/CTF requirements.
Central banks have a role to play here too, and there is an increased focus globally on what we can do
to reduce the cost of cross-border payments. One example of this is the promotion of standardised and
richer payment messaging globally through the adoption of the ISO20022 standard. The RBA is also working
closely with the Reserve Bank of New Zealand, AUSTRAC and other South Pacific central banks to develop a
regional framework to address the Know-Your-Customer concerns that have limited competition and kept
prices high.
Operational resilience
A fourth area where we would like to see more progress is improving the operational resilience of the
electronic payments system.[4]
Disruptions to retail payments hurt both consumers and businesses. Given that many people now carry
little or no cash, the reliability of electronic payment services has become critical to the smooth
functioning of our economy.
We understand that, given the complexity of IT systems, some level of payments incidents and outages to
services is inevitable. But it is apparent from the data we have that the frequency and duration of
retail payments outages have risen sharply in recent years. In response, the RBA has begun working with
APRA and the industry to enhance the data on retail payment service outages and to introduce a suitable
disclosure framework for these data. These measures will provide greater transparency around the
reliability of services and allow institutions to better benchmark their operational performance.
The 2020 Review of Retail Payments Regulation
The third and final issue I would like to touch on is the Payments System Board’s review of retail
payments regulation next year.
The review is intended to be wide-ranging and to cover all aspects of the retail payments landscape,
not just the RBA’s existing cards regulation. As the first step in the process, we released an
Issues Paper a couple of weeks ago and have asked for submissions by 31 January.[5] There will
also be opportunities to meet with RBA staff conducting the review.
The review will cover a lot of ground, including hopefully some of the issues that I just mentioned.
There are, though, a few other questions I would like to highlight.
The first is what can be done to reduce further the cost of electronic payments?
Both the Productivity Commission and the Black Economy Taskforce have called for us to examine this
question. It is understandable why. As we move to a predominantly electronic world, the cost of
electronic payments becomes a bigger issue. The Payments System Board’s regulation of interchange
fees and the surcharging framework, as well as its efforts to promote competition and encourage
least-cost routing, have all helped lower payment costs.
At issue is how we make further progress: what combination of regulation and market forces will best
deliver this? Relevant questions here include: whether interchange fees should be lowered further; how
best to ensure that merchants can choose the payment rails that give them the best value for money; and
whether restrictions relating to no-surcharge rules should be applied to other arrangements, including
the buy-now-pay-later schemes.
A second issue is what is the future of the cheque system?
Cheque use in Australia has been in sharp decline for some time. Over the past year, the number of
cheques written has fallen by another 19 per cent and the value of cheques written has fallen
by more than 30 per cent, as the real estate industry has continued to shift to electronic
property settlements (Graph 7). At some point it will be appropriate to wind up the cheque system,
and that point is getting closer. Before this happens, though, it is important that alternative payment
methods are available for those who rely on cheques. Using the NPP infrastructure for new payment
solutions is likely to help here.
Third, is there a case for some rationalisation of Australia’s three domestically focused payment
schemes, namely BPAY, eftpos and NPPA? A number of industry participants have indicated to us that they
face significant and sometimes conflicting investment demands from the three different entities. This
raises the question of whether some consolidation or some form of coordination of investment priorities
might be in the public interest.
Fourth, and finally, what are the implications for the regulatory framework of technology changes, new
entrants and new business models?
The world of payments is moving quickly, with new technologies and new players offering solutions to
longstanding problems. At the same time, expectations regarding security, resilience, functionality and
privacy are continually rising. Meeting these expectations can be challenging, but doing so is critical
to building and maintaining the trust that lies at the heart of effective payment systems. The entry of
non-financial firms into the payments market also raises new regulatory issues. As part of the review,
it would be good to hear how the regulatory system can best encourage a dynamic and innovative payments
system in Australia that fully serves the needs of its customers.
As the country continues its inexorable march towards a cashless society, it’s important to remember the downsides. Via The Adviser.
Australia
has been just a few years away from being a cashless society for a
couple of decades now, but it will eventually get there. Legislation
currently before the Senate aims to ban transactions over $10,000 in a
bid to hinder the black economy. From there, it’s not difficult to
imagine that the ubiquity of digital payment systems – and efforts the
by government – will see hard cash disappear at some point in the
future.
One of the supposed benefits of a cashless society is
that it cuts down on crime, the logic being that if there’s less cash to
steal, less cash is stolen. Laundering dirty money is also harder, as
every transaction is logged in some form or another.
But a cashless society comes with a number of negatives that might well outweigh the positives.
“As
payments move online, there would be an increased risk of crimes such
as identity theft, account takeover, fraudulent transactions and data
breaches, due to the higher volume of cashless transactions and more
points of exposure for the average consumer,” Dr Richard Harmon,
managing director of financial services at Cloudera, told Investor
Daily.
“Hackers
and other criminals now have new ways to get access to accounts and to
potentially set up synthetic accounts to facilitate more sophisticated
money laundering activities.”
And that’s just the risk posed by hackers. According to the UK’s access to cash report, a cashless society could heighten the risks of financial abuse. Elderly people, who might lack understanding of digital technology, would be particularly vulnerable. Couples with joint bank accounts are also at risk – money can be tracked and controlled by one person. These issues are already of great concern, but they’d be even worse in a cashless society.
That’s
not to mention that digital systems rely on topnotch digital
infrastructure, something that Australia doesn’t exactly have in spades.
That infrastructure also has to be more or less impervious to cyber
attacks, which may be carried out by state-sponsored actors with an
interest in crippling a country’s entire financial system. In the face
of that existential threat to the economy, a little bit of money
laundering doesn’t seem so bad.
A cashless society could also
make things worse for workers and the most vulnerable. It’s only a short
jump from cashless to “cashier-less”, and a cashless society would have
to deal with an explosion of unemployed low-skill individuals.
Meanwhile, those who lack access to banks – or prefer not to use them – are also at risk.
“Let
me highlight that one of the concerns about becoming a cashless society
– at least as we transition into this state – is the ability for the
underbanked or unbanked to have sufficient access to function properly
as they would within a cash-based system,” Dr Harmon said.
“This would be a key concern from a societal perspective.”
The
idea of a cashless society is promising. But hidden in that promise are
a number of caveats that any country – let alone Australia – would be
foolish to ignore.