Cheques out: Cheques to bounce by 2030

As part of a move to modernise Australia’s payments system, the Albanese government has released a five-point plan to update the payments framework, Strategic Plan for Australia’s Payments System, which includes a move to phase out cashier’s cheques.

The roadmap, which has been launched for consultation, aims to:

1. Promote a safe and resilient payments system by reducing scams, strengthening cyber security, and updating the RBA’s supervision frameworks
2. Update the payments regulatory framework including a new licensing framework, more competition and transparency across systems, more collaboration among regulators, and steps to reduce small-business transaction costs
3. Modernise payments infrastructure by phasing out cheques and supporting the industry’s transition to the New Payments Platform
4. Uplift competition, innovation, and productivity by aligning the payments system with other reforms including the Consumer Data Right framework, Digital ID, and the skills agenda
5. Make Australia a leader in global payments, including through work in the G20 and the Pacific to improve the availability of fast, low‑cost international transfers, and piloting a central bank digital currency

According to the Treasury, the plan aims to better reflect the move towards digital and card-based payments, given that card-based payments now make up about 75 per cent of non-cash retail payments, with a quarter of that volume coming from mobile wallets.

Cash use has also dropped significantly, with the share of retail payments made in cash falling from 27 per cent in 2019 to 17 per cent in 2022 as digital card payments have grown over the past decade, particularly accelerating and normalising following the COVID-19 pandemic.

Indeed, it has been found that there has been an almost 90 per cent decline in cheque volumes in the last 10 years, with cheques now comprising only 0.2 per cent of non-cash retail payments in Australia.

Given the decline in usage, few merchants now accept cheques as a means of payment. Moreover, the per transaction cost of supporting the cheques system has been increasing and several financial institutions have already ceased issuing chequebooks for new customers.

As such, the government has said it will focus on removing legislative and other barriers that entrench payment by cheques and wind down the cheques system in Australia by no later than 2030.

However, given that cheques are still used by some corporates and government entities as well as older Australians and those living in regional or rural areas or with limited digital proficiency or connectivity, the winding down will be phased.

Treasury has said that it will release a consultation paper on the future of cheque use in Australia, and the support required to retire the cheques system, by the end of 2023.

In the meantime, the government has said it will:

• Work to reduce Commonwealth usage of cheques (by working with agencies and departments with high cheque usage to develop a transition plan away from reliance on cheques)
• Explore changes to Commonwealth legislation that entrench the use and acceptance of cheques with a view to amending legislation
• Work to ensure that legislation mandating cheque use will become payment-neutral in the future
• Work with state and territory counterparts to encourage a coordinated approach to transitioning away from the cheques system

The plan read: “As an advanced economy with well-developed digital infrastructure, Australia is well placed for an eventual withdrawal from the cheques system…

“Transitioning away from cheques will help achieve greater efficiency, productivity and security in Australia’s payments system. It will remove barriers that entrench specific payment methods and promote payment neutrality, giving Australians greater choice in choosing how they pay.”

Federal Treasurer Jim Chalmers said the plan aims to “modernise the way Australians make and receive payments”.

“Our vision is for a modern, world‑class and efficient payments system that is safe, trusted and accessible, enabling greater competition, innovation and productivity,” he said.

“New digital products are changing the way we make payments and the way businesses provide payments services. The government is acting to ensure Australia’s payments system remains fit for purpose now and into the future.

“The plan will help coordinate action between the public and private sectors, provide certainty for industry investment, and support new entrants navigate the regulatory landscape.”

Consultation on enabling RBA to regulate new payments systems

As part of the payments reform, two consultations have now been launched to ensure regulations ‘keep pace’ with payments innovations.

One proposes updates to the Payment Systems (Regulation) Act 1998 (PSRA) to address the risks posed by new payments technologies including by giving the Reserve Bank of Australia powers to regulate new and emerging payments systems, such as digital wallet providers. It also looks to introduce a new ministerial designation power that would allow particular payments services or platforms that present risks of national significance to be subject to additional oversight by regulators.

Feedback for the Reforms to the Payment Systems (Regulation) Act 1998 consultation will be accepted until 5 July.

It is expected that legislative amendments will be introduced to Parliament before the end of 2023.

The second consultation paper, Payments System Modernisation (Licensing: Defining Payment Functions), invites feedback on the proposed list of payments functions that would be regulated under the new licensing framework.

For example, it looks to build a new tiered, risk-based licensing framework for payment service providers, based on a defined list of payment functions and reflecting the recommendations of the Review of the Australian Payments System (Payments System Review).

The proposed payment functions include stored-value facilities (SVFs) such as payment stablecoins.

It also seeks feedback on whether payment functions should be treated as financial products under the corporation’s legislation (or whether some should be treated as a financial service).

Feedback is requested by 19 July.

Further consultation on the regulatory obligations under the new licensing framework will take place later in 2023 to facilitate the introduction of legislation for the new payments licensing regime in 2024.

[Related: Consultation for sweeping payments reforms closes]