Head of Payments Policy Department
Reserve Bank of Australia
GPO Box 3947
Sydney NSW 2001
31 August 2011
STRATEGIC REVIEW OF INNOVATION IN THE PAYMENTS SYSTEM: ISSUES FOR CONSULTATION
Microsoft Australia is pleased to be able to make this submission in response to the Board’s
invitation for interested parties to provide formal written responses in relation to the wide
range of issues concerning innovation in the payments system considered during the strategic
review.
Through the provision of software solutions for financial institutions and as an innovator in the
provision of consumer online services Microsoft is pleased to be able to actively contribute to
the Bank’s discussion by providing relevant insights gained through our global experience.
Microsoft is a leading technology innovator with a mature partner and industry solution
portfolio. In addition Microsoft provides innovative services directly for customers through
businesses such as MSN.com and Xbox. In particular, through our Xbox gaming console
business and an allied on-line gaming service (Xbox LIVE) Microsoft manages over 30 million
active customers globally. Microsoft’s commercial customers are looking to our consumer
businesses for examples of innovation in customer engagement and management.
Members of the Xbox LIVE community are able to register and purchase their membership and
‘Microsoft Points’ through a standard commercial online payment arrangement.
Microsoft Points is a stored value service under which a member of the Xbox LIVE community
acquires and redeems points for certain online services and digital products. Members can
obtain selected services or digital products offered through Xbox LIVE in exchange for points.
Points can be acquired in a variety of ways including, for example, through direct purchase, as a
result of the use of certain services or as a result of using specific features of a service.
By obtaining points members gain a limited license to a digital product. Points have no
convertible monetary value. They cannot be exchanged for cash or money, regardless of how
the points were acquired. Under the terms of use of the Xbox LIVE service points are not
personal property and can only be used to obtain specific online services or digital products.
While not convertible to a monetary equivalent, the present Microsoft Points system does
illustrate the potential of a stored value online payment and value transfer environment to
facilitate acquisition, trading and purchasing either by a global community or by specific parties
within the environment. These environments are evolving and are far from mature.
Nevertheless they do represent an innovative response to a transaction based dilemma.
Microsoft is thus both partner and supplier of technology to financial institutions and
corporations to support current and future payment systems as well as an innovator in
alternative stored value online consumer payment services.
As the Issues for Consultation contain many areas of administration of the payment system that
Microsoft is not expertly placed to comment upon we have limited our response to two
particular issues raised by the Review. Our responses to those issues are set out below.
Section 6.1
Question 34. What role should messaging standards, such as ISO 20022, play in any solution for
transmission of additional data?
From a global perspective, the trend toward lower latencies in payments processing has driven
an acute requirement for real time analytics and business intelligence. A common structured
messaging standard is a key requirement for the transmission of additional data to meet this
need.
From a business perspective, the need for real time analytics and business intelligence has been
driven, on the one hand, by corporate treasurers demanding insight and visibility into their
transactions as they endeavor to implement a more integrated financial supply chain using “just
in time” concepts learned from manufacturing. On the other hand, banking regulations,
payment screening, and liquidity requirements have operations managers demanding a level of
insight not easily found from legacy batch processing environments.
Although coming from different ends of the payments value chain, these consumers of
payments information have the same basic need: reliable and timely insight into payments
processing to satisfy clients and mitigate risk.
Microsoft’s own global treasury is currently in the process of implementing ISO20022 via SWIFT
with several of its key banking partners to standardise the transmission and reception of
payments and related data.
Section 6.8 Future Trends
Question 51. Are there any significant changes in the payments landscape in prospect that have
not been considered by this paper, for instance in terms of architecture or significantly different
payment products? What will be the implications of these changes? Are there actions that
should be taken now to take full advantage of these changes?
Virtual currencies such as Facebook Credits, Microsoft Points and iTunes are continuing to
develop and are emerging as a strategic means of exchanging value within an ecosystem of
consumer loyalty programs. Virtual currencies have some key advantages driving their
adoption including the removal of the cost of multiple card processing interchange fees for low
value or micro-transactions.
While these systems are generally closed at this point of time, it is foreseeable that consumers
may desire in the future to exchange value between the various schemes and that they could
well become more widespread and prevalent within online retail environments.
Adoption and adaption of these systems may ultimately create a reference for consideration of
changes to the present interchange infrastructure - to move beyond the current reference
frame that centres on the exchange of currency to a broader arrangement that encapsulates
the transfer and exchange of things of value. This may be particularly important as the digital
economy, anticipated by the development of ubiquitous high speed broadband, evolves.
Looking into such a future from the perspective of today’s systems raises the question as to
whether the domestic payments infrastructure could be modified or adjusted in some way to
facilitate and manage the exchange of value beyond traditional currencies.
Microsoft Australia thanks the Board for the opportunity to put forward this submission. Should
the Board wish to discuss the content of this submission further please contact Mr James Bibby
by email james.bibby@microsoft.com
Yours sincerely
Simon Edwards
Director of Corporate Affairs
1 Epping Road
NORTH RYDE NSW 2113
simone@microsoft.com