Australian Payments – Navigating complex regulations for growth in 2025
Payments have been a strong source of revenue for financial institutions and contribute to the top line. Though payments represent opportunities for growth, they also represent substantial costs in the context of regulations and technology stacks. Growth opportunities that banks, and even large scale-ups and large fintechs have, can be categorised in broadly three segments: Domestic, Regional and International.
First, domestic, retail, business and corporate banking all represent growth opportunities, some more than others. Retail banking is critical for survival but represents lower margins and high competition. Transactions equal revenue, and as digital transaction volume grows, so does revenue. Low value payments such as e-commerce, P2P or bill payments, represent most of these transaction types. Remittances are higher value relatively and have better margins. WithAustralia being home expats from all over the world, this is a lucrative business for banks in the country. Then there is lending, which probably represents the largest revenue potential but also substantial risk. However, if done right, this is healthy for the financial institutions and the economy at large.
On the business and corporate side, which essentially translates to business-to-business (B2B) payments, there is a lot of movement across trade corridors courtesy of geopolitics, which is unlikely to stop anytime soon. Spaces are being formed, and banks can essentially find corridors to grow into. Across all these segments, with economic growth, a major change that is happening is that the “customer segments” are “shifting”. From financial inclusion to retail to business banking to corporate banking and investment banking, there seems to be a shift in customer segments who were considered in financial inclusion, moving to retail, a part of retail customers moving to business banking and so on and so forth. This could potentially mean that revenue per customer could also increasing, and banks must leverage that.
Australian Payments Network (AusPayNet) and Australian Payments Plus essentially manage “everything payments” in the country, overseen by Reserve Bank of Australia and the Payments System Board. The Australian Payments infrastructure is likely to look very different in 3 to 5 years, and the impact could be substantial on the payments industry. The New Payments Platform (NPP) instant payments scheme, is expected to become systemic over the next few years, according to the Payments System Board. Reserve Bank of Australia (RBA) considers RITS, the HVPS/RTGS and CLS (PvP FX service) as systemic today, but considering the growth of NPP and its potential, it is expected to move much higher in importance for the industry.
The Bulk electronic clearing system, “Direct Entry” is expected to be decommissioned by 2030 and is expected to be the alternative to account-to-account payments in the country. NPP for international payments is a service that uses NPP for the incoming dollar leg of cross-border payments, and this is expected to grow. NPP is poised to impact corporate payments (B2B) as it does not have a transaction value limit, and banks can have bespoke limits, hence a substantial chunk of corporate payments can be moved to NPP. RBA is exploring, like most of the major countries with instant payments, how to link into other countries, for faster cross-border payment settlement. Scam accords, with services like beneficiary verification, will help manage various risks as adoption of NPP grows.
Legislation to modernize PSRA, “Payments Systems Regulation Act 1998” is in play, a new license and regulatory framework for Payment Service Providers (PSPs), opening up the market further to competition. It will enable common access requirements for non-bank players, including PSPs, seeking direct access to payments systems. This will accelerate the entry of new players in the market, increasing competition, and eventually lead to better services for consumers. But as a PSP, building the tech stack to connect direct could be expensive.
Second, regional growth opportunities exist outside of the domestic Australian market in expanding into new countries which represent strong GPD, robust payments and financial infrastructure, and a market which is more conducive to proven models that a bank here in the domestic market must execute. Southeast Asia represents one of those markets, with a large GDP combined for 7 or 8 countries, about $3.6 trillion. Payments innovation is driving growth in big segments of the regional economy. This is the case in North Asia as well. China is one example, but the relationships with Australia are a bit strained as geopolitics plays a role. But what we know is other markets within North Asia, such as Vietnam, are opening up, along with bespoke corridors built into markets such as India. Theserepresent important aspects of growth for larger banks in Australia. International projects such as the Bank of International Settlements (BIS) Project Nexus, aims to connect instant payments across multiple countries in Asia and eventually into Europe. These paths offer banks in Australia opportunities to enter new markets and essentially access new customer segments, business and corporate, which in their domestic home base might be limited.
Cross-border payments infrastructure is diversifying beyond SWIFT. Not for every use case, as SWIFT is very relevant, very strong, but a lot more B2B fintech networks are coming up, and Australia seems to be of interest to these fintechs. Some of these fintech claim to do remittances, corporate payments, 90% cheaper than SWIFT. They bring reach and better margins for certain markets and fintechs can be leveraged to execute in certain corridors.
As there are opportunities, so are there risks for Australian banks in these segments. Fintechs for cross border payments, not exploring new markets and corridors, and not building for the tokenized ecosystem – these all represent risks that the traditional financial institutions will have to consider.
Third, across international markets, what we see is geopolitics becoming more intense. BRICs recently launched a currency, which will have a digital version as well. Petro-dollars have competition, but ironically the demand for USD in secondary markets is increasing as well. Now what we also see is CBDCs becoming a reality. BIS Project m-bridge has moved to MVP stage in the last couple of months with People’s Bank of China, Hong Kong Monetary Authority, UAE Central Bank and Bank of Thailand moving in, focused on corporate and institutional use cases. and tokenization are gaining traction in key customer segments.
Digital currencies, including Central Bank Digital currencies, are a digitally native, updated form of cash which has seen traction in terms of research and experiments. Though a retail use case is not a priority and has seen limited applications in the Australian context, a wholesale CBDC for settling tokenized assets has strong potential according to the payments board. Tokenized assets, essentially securities, will need cash that can operate on chain and a wCBDC is the only way that RBA will have visibility on this relatively new form of “financial markets”.
These initiatives are set to open up the payments market to new players, new services and new risks. These changes could offer competition to the current business model for the Australian banks and have to be considered in order to retain the current revenue base along with leveraging these opportunities to grow.
A robust payments technology stack will be essential in this context. Temenos offers a payments technology platform, which offers strong capabilities for global transaction preprocessing, processing, clearing and settlement, and is “abstract” in nature to enable financial institutions to control their “build” as the regulatory and competitive ecosystem evolves.