Much risk, little urgency for Australia's payments infrastructure

The Australian banking industry is displaying a worrying lack of urgency when it comes to plugging the strategic holes in our payments infrastructure after the floods in NSW and Queensland.

Global threats to our payments system are numerous and growing. The consequences are too great to delay fixing these problems in the hope that it won’t happen to us.

The fragility of Australia’s payments system was brought home at the inaugural Real Time Payments Summit from the New Payments Platform earlier this month.

The Australian financial system exists with a series of well known international dependencies. One is the reliance of the digital payment system on Visa and Mastercard. If they go down, we’re back to the stone age. There will not be enough cash in the Australian economy to keep everything going. That’s run on the bank territory.

As regional centres in NSW and Queensland can attest, long outages in telecommunications, broadband and power services from the floods can lead to a situation where the government is forced to physically hand out cash to households to buy essentials.

This illustrates what would happen under a major outage scenario for Visa, Mastercard, or another major piece of international payments infrastructure at a national level. According to the most recent Global Risks Report from the World Economic Forum, 2020 saw malware and ransomware attacks increase by 358% and 435% respectively. More concerningly, global efforts to get ahead of the threat are failing, we are falling further behind.

“Lower barriers to entry for cyberthreat actors, more aggressive attack methods, a dearth of cybersecurity professionals and patchwork governance mechanisms are all aggravating the risk,” the report said.

The situation in Ukraine is another example of what happens when a major disruption, in this case an unforgivable invasion by a madman, can do to an economy. I was born in Russia, but thankfully I emigrated to Australia in the early 2000s. I have a lot of family, friends and business contacts in Russia and Ukraine.

Ordinary people go to the bank each day. They take out what they can, usually in the order of one hundred Australian dollars. Savings have been frozen, the Russian currency has slumped, costs will rise sharply.

Their plight has made me even less comforted by the thought that a disruption like that Ukraine is facing can’t happen to Australia, or other pockets of the western world. With growing interference in our region from China, that comfort grows even dimmer.

Indeed, the Global Risks Report highlights the fact that the real growing concern amongst international business leaders isn’t military conflict or cybersecurity threats. It's an environmental disruption due to climate change. The flooding of Queensland and NSW will become more frequent and severe as global warming gets worse. It will happen to us, it already has.

The solution to a major international outage is to get money into the country quicker. One of the goals of PayTo is to make incoming international payments faster. The more blood there is in the system, the longer the patient can survive without an infusion (of cash). The NPP, Open Banking and PayTo are all initiatives that make headway for Australia. But more needs to be done.

At the Real Time Payments Summit, audience members heard statistics that the downtime of our fast payments has been four times higher than credit cards. You can’t build systemic resilience in that kind of environment. Reliability of that system has to be improved.

The Reserve Bank of Australia knows the Australian banking industry has concurrent priorities. The line the regulator is given over and over again is “it’s an issue of resourcing”.

In my experience, there are more than enough people in the Australian banking system to execute on new payments technologies. But the institutional inertia in the beginning slows everything down.

The tool at the RBA’s disposal is to institute mandated deadlines, so some of the initiatives that are still to come can’t be pushed back.

This conversation is not happening in a vacuum either. While Australia’s adoption of real-time payments on a per capita basis has been ahead of some international rivals, the Real Time Payments Summit audience was astounded to see Brazil and India were ahead of us at the one and five year mark respectively. We need to learn from them.

Between Brazil and India they have skipped landline to go straight to mobile adoption, converted voice to numbers and, in Brazil’s case, built in compliance mechanisms that strengthen the system as it grows. India has also broken down the language barrier, an essential lesson for Australia with its multicultural heritage.

We can and must learn from these BRICs economies to bolster our own payments systems in time for the next crisis.