Politicization of Payments is Bad News

Australian politicians get their grubby hands on payment policy – its bad news!

Payment policy in Australia has been ‘non-political’ and largely in the hands of the central bank and its payments board since 1972 (authority is from 1959 RBA Act).

Australia has had a plethora of inquiries, reviews and general discussion about payments – major ones are the Campbell Inquiry 1979, Wallis Inquiry, Murray Inquiry, Productivity Review, numerous Treasury Inquires, Banking Royal Commission.

All of these Inquires and reviews concluded that payments are strategically vital for Australia and that policy should be independent (as much as that is possible).

This changed following the quick fired Treasury Payment Inquiry headed by Malleson lawyer Scott Farrell. The Inquiry was launched in October 2020 and published in August 2021 – a very quick review indeed – no hint of an agreed agenda or outcome?

The Inquiry by Treasury recommended that Treasury itself should take over responsibly for payment regulation – no conflict of interest here!

In his first shot a setting the agenda Treasurer (and ex Malleson lawyer) Josh Frydenberg hit the airwaves extolling the virtues of regulating three areas - ?crypto, BNPL and those pesky mobile wallets mostly run by BIG tech companies.

Why feature these three you ask?

Must be all three are strategically important and dominate payments you ask?

Well…… No!

?Crypto according to ATO is used by 800,000 Australians (up from 600,000 last year)

BNPL – RBA says sales are 1.7% of card spend (or 68 basis points of retail payments)

Mobile Wallets – RBA says 2- 4% retail payments are wallets – vast majority of electronic payments are ‘tap and go’.

So why these three issues – could have nothing to do with the upcoming election you ask?

Now there are substantial issues: least cost routing, debit/credit card interchange, single issue cards, real time payments, new payment types – crypto, stable coins, CBDC’s, ISO 20022, Fintech regulation, cross border real time payments, surcharging, loyalty and reward program costs, economics of payments, security and integrity of payments, fraud, credit risk, global interoperability to name a few.

STRATEGIC IMPORTANCE

The EU states that ‘Payment Systems are the 2nd or 3rd most important infrastructure/network in any country outside national security and military issues’.

Payments impact every government, business and household as well as every import and export transaction, every consumer and business payment transaction which make payments truly ubiquitous.

Strategically the retail payment network is far more important and has a wider reach than mobile phones, broadband, 5G coverage and fixed line phones – yet receive scant coverage by comparison. The NBN when complete will only reach 70% of households at best.

Australia has an expensive US/Anglo legacy based payments system which will be challenged by new technology, new data uses, new players and the need to protect consumer rights and data. The need for updating systems and change comes at a cost, who will pay?

The need for real competition is the single biggest issue – yet barely rates a mention.

POLITICIANS IN CHARGE?

Having a politician in charge with all the lobbying and access issues creates the environment where the biggest or best lobby groups will no doubt carry huge sway.

?In short - ?Australian payments will see more change in the next 10 years than the last 40 years combined.

Yet apparently it’s OK to let politicians decide these critical issues? ?

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Michael Pascoe: Would you trust these politicians with our payments system?

?The New Daily Michael Pascoe Contributing Editor

?If you give politicians new leverage over policies with major impact on companies’ profitability, what do you think happens?

For a start, the rent seekers come calling – and the track record of recent decades says those who seek shall indeed find.

With their lobbyists, donations, industry lunches and fundraising dinners, their conferences, photo opportunities, employment prospects post-politics, general duchessing and all the grease that helps wheels turn, the rent seekers have no trouble transmitting their desires to the pollies.

And it comes served with any number of arguments for said desires being desirable for all. Add lashings of neoliberal sauce for neoliberal politicians and – surprise, surprise – it tends to go down a treat.

It’s what Bernard Keane book,The Mess We’re In,?described as “the corporatisation of economic policy”. It’s been hiding in plain sight this week.

It is the subtext everyone seems to have missed in the telegraphing of Liberal Party desires to take control of Australia’s payments system away from an independent board and house it somewhere that is not independent – in the Treasurer and Treasury.

(No, Virginia, Treasury certainly isn’t independent, as can be seen in the budget papers and Intergenerational Reports it publishes and in keeping with the Morrison government’s dictate that the public servants’ job is to do what the government tells them to do.)

Treasurer Josh Frydenberg’s Wednesday speech?may have seemed innocuous enough.

While he claimed “the comprehensive payments and crypto reforms I am announcing today will firmly place Australia among a handful of lead countries in the world”, he didn’t announce any reforms.

As Shadow Treasurer Jim Chalmers summarised it:?“Nothing Josh Frydenberg says today will happen before the election. This is just a commitment to consult on the government’s last consultation.”

An announcement about an announcement – we’ve become used to those.

Mr Frydenberg did indicate some intent though about the announcements he intends to announce if the Coalition is returned to government.

There was an intent to belatedly do a little cleaning up around the edges of the totally unregulated crypto casino?and he went a bit further in the?Australian Financial Review?by indicating possible agreement with the Reserve Bank’s eventual decision to do the right thing on competitive neutrality –?merchants should be allowed to apply a surcharge to recover the high fees charged by Afterpay and its buy now, pay later (BNPL) imitators.

(It was bemusing that the?AFR’s front page headline was “Afterpay fees to hit consumers” – apparently oblivious to BNPL fees currently hitting consumers whether they use that form of credit or not.

“Customers of Afterpay and Zip may be forced to pay buy now, pay later fees now borne by shopkeepers under plans for more intensive regulation of the fast-growing sector,”?the paper reported, ignoring what shopkeepers tend to do with costs.)

BNPL is booming in popularity, but its customers may soon be hit with extra costs.

Of more interest was the intent between the lines –?the push to have Treasury (and, therefore, politicians) muscle in on what has been primarily RBA territory through the independent Payments System Board.

Mr Frydenberg commissioned a Treasury-supported report last year by Sydney lawyer Scott Farrell.

The report recommends much bigger roles for the Treasurer and Treasury.

The government has accepted the report’s recommendations to, among other things: Give the Treasurer “designation power” to direct payments regulators rather than extend RBA powers that were perceived as inadequate; have the Treasurer “lead payment system oversight”; and enhance Treasury’s payment policy function with increased resources to build a specialist payments capability.

What’s at stake behind those arcane phrases? Many, many billions of dollars in profits and dividends and, therefore, influence.

For example, Afterpay which has skated through and around regulatory loopholes to end up receiving a $39 billion takeover offer. In the process, it became both a stockmarket and political darling.

Mr Frydenberg also accepted recommendations from a select committee inquiry chaired by Liberal senator, fintech fan, industry superannuation critic and would-be ABC inquisitor, Andrew Bragg. One was to have?Treasury lead policy review for a retail central bank digital currency.

On Wednesday, Mr Frydenberg said Australia may adopt a central bank digital currency.

The Treasurer seemed more enthusiastic about that than the Reserve Bank governor.

BA governor Philip Lowe is yet to be convinced.

“We have been continuing to examine closely the case for a retail CBDC and working with other central banks on this issue,” Governor Philip Lowe said.

“To date, though, we have not seen a strong public policy case to move in this direction, especially given Australia’s efficient, fast and convenient electronic payments system.”

The RBA also is researching a wholesale-level CBDC in partnership with the Bank of International Settlements and three other central banks. No central bank is rushing in.

Dr Lowe repeated warnings about gambling in the crypto casino, though he didn’t use those words. (It’s a mystery to me why anyone not selling snake oil would talk about “investing” in crypto when the correct word is “speculating”.)

Little sign of reticence by Senator Bragg in his fulsome praise of the Treasurer and crypto, promising Australia will be “a world-leading crypto hub” under the Treasurer’s plan.

“The Treasurer Josh Frydenberg has put Australia on the tech map,” he enthused.

“The world is watching Australia which is now setting the global standard for crypto, payments and digital wallet reform.”

Um, no, the world is not – Australia is consulting about consultations. But the important intent was in this:

“The Australian government, not Silicon Valley, or Shenzhen or the RBA should run Australia’s payments policy. Now we are back in control of payments policy.”

Therein the neoliberal view of our independent central bank.

The politicians want their power back and Treasury, like any bureaucracy, innately wants to empire build.

A venerable policy adviser of the 1960s and ’70s used to say the pattern of finance – and therefore profits – was determined by tax and regulation.

No wonder governments want a role. Regulation is rarely innocent.