Graduate School of Business and Law
GPO Box 2476
Melbourne VIC 3001
Australia
Tel. +61 3 9925 5700
Fax +61 3 9925 5741
Mr Christopher Kent
Head of Payments Policy Department
Reserve Bank of Australia
GPO Box 3947
Sydney NSW 2001
31 August 2011
Dear Mr Christopher Kent,
I am attaching my submission to the Strategic Review of Innovation in the Payments System.
Yours sincerely,
Supriya Singh
Professor Supriya Singh
Deputy Head, Research
Graduate School of Business and Law,
RMIT University
GPO Box 2476
Melbourne, Vic 3001
Submission: Strategic Review of Innovation
in the Payments System
Overview
This submission will identify four areas where the Australian payments system is not currently
meeting the needs of end-users and is at risk of lagging behind other countries in the next five to ten
years. These areas relate to international remittances, mobile money, appropriate privacy and security
of online payments, and ensuring the availability of a mix of payment instruments and channels for
end-users.
1. International remittances are one of the largest international flows of money. Though central
banks and commercial banks are involved in initiatives to lower the cost of money that
migrants send home, Australia has some of the highest costs of remittances in the region.
2. Mobile money transfers with or without a bank account are revolutionising money transfers
and payments in the developing world. In Australia, banks have not gone beyond mobile
banking to seek partnerships with telecommunications companies to enable the transfer of
mobile money between persons or between a person and a business without going through a
bank account. Mobile money can potentially increase access to payments and money transfers
in rural and remote areas and may replace some cash and cheque payments.
3. Comfort with online payments and transfers would increase if there was appropriate privacy
and security that matched social practice.
4. People use a mix of payments instruments and channels to suit different activities and
recipients. Cheques and cash remain an important part of the mix of payments. The emphasis
needs to be on responding to user needs while reducing unit costs.
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High Costs of International Remittances
Remittances to developing countries in 2010 are estimated at US$ 325 billion (The World Bank 2011).
For individual countries, remittances can be greater than foreign direct investment (Mohapatra, Ratha,
and Silwal 2010). The total value of remittances is even greater as informal remittances are estimated
to be at least 50 per cent of recorded remittances (Development Prospects Group 2007). The
International Organization for Migration (IOM) (Swing 2010) estimates that in 2009, recorded
remittances ‘were nearly three times the amount of official aid and almost as large as direct foreign
investment flows to developing countries’(p.2).
Table 1: Remittance costs for sending US$ 200
Sending
country▲
First quarter 2011
Sending US$ 200
Receiving
country
Fee
Australia
Exchange rate
margin (%)
Percent
(%)
Total
Cost
Pakistan
17.91 1.99
10.94
21.89
Vietnam
22.04 0.47
11.49
22.97
Tuvalu
26.22 0.00
13.11
26.22
Kiribati
26.35 0.00
13.18
26.35
Vanuatu
26.22 1.09
14.20
28.41
Tonga
23.05 3.34
14.86
29.73
Solomon
Islands
26.59 2.01
15.31
30.61
Fiji
24.50 3.38
15.63
31.26
Samoa
23.43 4.92
16.63
33.26
Papua New
Guinea
26.22 7.31
20.42
40.84
Source: (International Finance Corporation (IFC))
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The World Bank estimates outward remittances from Australia in 2009 at US$ 3 billion (Ratha,
Mohapatra, and Silwal 2011). More up to date data is not available. Though 27 per cent of Australia’s
population was born overseas (Australian Bureau of Statistics 2011) and thus most likely belong to
transnational families, we do not have data for remittances from Australia to different countries. It is
however known from the available data that sending money from Australia to Papua New Guinea is
the fourth-highest in the world (International Finance Corporation (IFC)). These high costs of
remittances go against worldwide trends where central banks together with commercial banks
cooperate to bring down the cost of remittances, thus reducing the level of informal remittances.
It is important that data for remittances from and to Australia are more comprehensive and
detailed, so that this important money transfer can become transparent, cheaper and more efficient.
Mobile Money
Mobile money transfers are increasing access and reducing costs of money transfers and payments in
many parts of the developing world, where a large percentage of the population is unbanked. Mobile
money refers to the transfer of money to persons or businesses via mobile phones, by people with or
without a bank account (Singh and Shelly 2010). Gartner's latest research report says there will be
more than 141.1 million mobile payment users worldwide in 2011, representing a 38.2 per cent rise
from last year. Globally, mobile payments are forecast to total US$86.1 billion, up 75.9 per cent from
last year (Mochiko 2011).
Australia, like many other developed countries is lagging behind, though it has its pockets of
people, particularly in remote Australia with little access to physical banking services or access to
cash. The emphasis in Australia has been on mobile banking, which adds another channel of
payments, rather than introduces a new form of payment. In Australia, one can see an obvious
application of mobile banking in remote and rural Australia and particularly in remote indigenous
communities with little access to cash (See (Singh et al. 2007)).
Mobile money can also be transferred face-to-face and instantly, thus mimicking some of the
properties of cash and improving on the speed of cheques. With appropriate regulation of business
correspondents and/or cash-in and cash-out agents, mobile money can be withdrawn as cash, or
transferred to a bank account. With safeguards for privacy and security, mobile money can reduce the
exploitation of the corner store, increase access and convenience to money transfers and payments,
and possibly increase savings.
Page 4 of 7
Appropriate Privacy and Security
The Reserve Bank of Australia has noted in its paper (Reserve Bank of Australia 2011) that Australian
consumers ‘appear to be reasonably comfortable with current online payment methods’ (p. 7). One of
the reasons for this comfort is that consumers have learnt to trust the consumer protection built into the
use of credit cards. The limiting of consumer liability in case of fraud with credit cards has now been
also extended to internet payments.
Taking the user-centered approach to privacy and security means that the user should be in
control with the sharing of information and being comfortable that the money in the account and
payments are safe. At present, with most banks, there is a blanket prohibition from sharing your access
codes and passwords. However, research at RMIT University and the Smart Internet Technology
Cooperative Research Centre showed that it was common practice for consumers to share this
information with their partners or families. This was part of money management practices, or at times
a response to the lack of access to banking and payments services. Hence providers’ security
provisions collide with social practice (Singh et al. 2007, 2007).
Roy Morgan Research for the Smart Internet Technology Cooperative Research Centre and
RMIT University in September 2007 found (Singh 2008)
…that nearly half (43%) of a random representative sample of 669 Australians over 18
and with a bank account had shared their banking passwords and PINs. One third (33%)
had shared their banking passwords or PINs with their partners. 7 percent had shared
them with their children, 6 percent with other family members, and 5 percent with their
parents (p. 110).
The user-centered approach to privacy also means that consumers would like additional
information to increase comfort with online transactions. At present with some online transfers, it is
the end-user who carries the risk of sending money to the wrong account. Comfort with online
payments and transfers would increase if the match between the account number and the name of the
account holder is confirmed at the time of payment or transfer.
A Mix of Payments
The Reserve Bank of Australia’s 2010 Consumer Payments Use Study has revealed the importance of
different payments instruments and channels for consumers. It showed that cash remained the
Page 5 of 7
dominant instrument for low-value payments under $40. Cards were used mainly for mid-sized
transactions. BPAY, internet/telephone banking and cheques are important ways of paying for
transactions above $500. The choice of these payments instruments was influenced by what consumers
carried with them; the speed of the transaction and the ability to use their own funds (Reserve Bank of
Australia 2011). Other research has shown that there also needs to be a match between the information
provided by the payment instrument that fits the requirements of the activity for both sides of the
transaction. The cheque butt was an important reason for the use of cheques because it recorded
money sent that could be tracked against money taken from the account (Singh 1999).
At present the discussion is around the high cost of cash and cheques, while both are declining
in number an value as part of the total payments landscape. However, the Reserve Bank of Australia’s
2010 Consumer Payments Use Study also shows that cash and cheques remain an important part of the
mix of payments for different sets of consumers and activities. Taking a user-centered approach, the
questions are how we can respond to the needs of consumers who at present use cash and cheques.
This will mean being able to replicate the immediacy, speed, and information provided by these
payments instruments. Until this is done, providers’ concerns about unit costs can be more usefully
addressed by providers making their systems more efficient, rather than removing choice in the mix of
payments. The earlier demise of the passbook has been much mourned by people with little functional
literacy and other disabilities, for the passbook enabled them to get help from friends and family
before they reached the bank. It may be that the cheque will in time become a relic, but at present
there are few other ways of paying your plumber, handyman or garden supplier.
References
Australian Bureau of Statistics. Migration, Australia, 2009-10 (Cat No. 34120) 2011. Available from
http://www.abs.gov.au/ausstats/abs@.nsf/Products/A6B6AC80B29DE8F3CA2578B00011975
8?opendocument accessed 9 August 2011.
Development Prospects Group. 2007. Migration and Development Brief 2. Migration and Remittances
Team World Bank 2007 [cited 21 August 2007]. Available from
http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21124587~pagePK:6
4257043~piPK:437376~theSitePK:4607,00.html.
International Finance Corporation (IFC). 2011. Remittance Prices Worldwide: Making markets more
transparent [cited 24 August 2011]. Available from http://remittanceprices.worldbank.org/.
Mochiko, Thabiso. 2011. Mobile banking 'slow in Africa'. Business Day July 22.
Mohapatra, Sanket, Dilip Ratha, and Ani Silwal. 2011. Migration and Development Brief 13.
Migration and Remittances Unit, World Bank 2010 [cited 5 March 2011].
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Ratha, Dilip, Sanket Mohapatra, and Ani Silwal. 2011. The Migration and Remittances Factbook
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Reserve Bank of Australia. 2011. Strategic Review of Innovation in the Payments System: Issues for
Consultation. Canberra: Reserve Bank of Australia.
Singh, S. 2008. Secure shared passwords: The social and cultural centered design of banking The
Journal of Financial Transformation 23:110-114.
Singh, Supriya. 1999. Electronic money: Understanding its use to increase the effectiveness of policy.
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Singh, Supriya, Anuja Cabraal, Catherine Demosthenous, Gunela Astbrink, and Michele Furlong.
2007. Password Sharing: Implications for Security Design Based on Social Practice. Paper read
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Singh, Supriya, Anuja Cabraal, Catherine Demosthenous, Gunela Astbrink, and Michele Furlong.
2007. Security Design Based on Social and Cultural Practice: Sharing of Passwords In
Usability and Internationalization. Global and Local User Interfaces, edited by N. Aykin:
Springer Berlin / Heidelberg.
Singh, Supriya, and Marita Shelly. New Financial Services: Review of Mobile Money Transfers in the
Asia-Pacific. Smart Services Cooperative Research Centre 2010. Available from
http://www.smartservicescrc.com.au/PDF/New_Financial_Services_Review_of_Mobile_Mone
y_Transfers_in_the_Asia_Pacific_February2010.pdf.
Swing, William Lacy. 2010. THE DIRECTOR GENERAL’S REPORT TO THE COUNCIL. Geneva:
International Organization for Migration
The World Bank. 2011. Migration and Remittances. The World Bank 2011 [cited 27 August 2011].
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