Christopher Niesche: Australia updates its payment system rules for the age of the digital wallet

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If any of us still owns a cheque book, odds are that it's sitting in a rarely opened desk draw, along with obsolete mobile phone chargers and a random assortment of rubber bands and paper clips.

And that $50 note we've got in our wallets has probably been there for months, tucked away for an eventuality that seems increasingly unlikely to arise.

More and more, we're using our phones to store virtual credit cards to buy thing with our thumbprints and purchasing goods with buy-now, pay-later services such as Afterpay.

Despite the huge changes in the way we pay for things, Australia's payment system still operates under rules set a quarter of a century ago, when most of us were still writing cheques and using mobile phones primarily to make telephone calls. This brings risks both to the consumer and to Australia's economy as a whole.

The Government is trying to ensure the new payment methods will be regulated in the same way as traditional ones.

In plans announced last week, it hopes to regulate the tech giants moving into the payments space, such as Apple and Google's digital wallets, and the rapidly growing buy-now, pay-later companies in the same way it regulates other payments providers, such as banks.

The plan to regulate serves two purposes.

Firstly, it levels the playing field with local banks, which between them fund Australia's payment system infrastructure but are losing revenue to foreign-owned payment providers who make no contribution.

Secondly, and more importantly, there are risks that these new payments methods could destabilise Australia's financial system, for instance, if a digital wallet system failed or if cryptocurrencies became dominant over the Australian dollar.

Explaining the changes, Treasurer John Frydenberg said Australia had to retain sovereignty over its payment system.

"Given the pace of change and those leading it, if we do not reform the current framework, it will be Silicon Valley that determines the future of our payments system," he said.

The overseas payment providers are becoming increasingly influential in the Australia market. The Commonwealth Bank of Australia has projected by the end of this year about half the payments made on its debit and credit cards will be processed via a digital wallet. Eighty per cent of these will be made through Apple Pay, which currently operates outside Australian payment regulations.

Chinese payment provider Alipay – part of the ecommerce group Alibaba – is also gaining traction in Australia and the Government will want to ensure a Chinese company doesn't end up with unchecked control over a large part of the nation's financial infrastructure.

The Government is ensuring the legislation is futureproof and quick to adapt by giving the Federal Treasurer the power to designate a company as a payment service provider, thus ensuring it immediately becomes regulated.

Frydenberg also plans to regulate cryptocurrency exchanges to the same level as licenced financial services providers, such as banks, payments companies, insurers and so on, to ensure a minimum level of investor protection.

Over 800,000 Australians have invested in cryptocurrencies since 2018, according to Australia Tax Office data, and many risk their cash in unregulated offshore cryptocurrency exchanges which can fail at any time.

The push to regulate the activities of foreign-domiciled payments providers comes as businesses become increasingly multinational and as the digital economy breaks down national borders, allowing businesses based in one country to "reach into" another country and operate there while not actually setting up a tax base there.

The new regulations – likely to be introduced later next year – are the latest attempt by the Australian Government to ensure it does not cede control over what goes on inside the country to overseas entities, particularly tech giants.

Earlier this year it cracked down on Facebook and Google by forcing them to pay media companies for news content, arguing they profited from the content but made no contribution to its creation, undermining local journalism and the important civic role it plays.

And the Government is moving to shore up its tax base and trying to ensure tech companies pay tax on the profits they earn in Australia rather than moving the revenue offshore through a series of trusts and tax havens which allow them to not pay any tax anywhere.

Australia's payment regulations were made at a time when mobile phones were used only for making telephone calls and sending emoji-free texts.

So it's time the new payment providers were brought inside the tent.

At the same time, however, the Government must ensure it remains flexible enough not to stifle innovation that makes financial services cheaper and easier to use.

We should remember that if it weren't for Google, Apple and others, we would still be stashing carbon copies of signed credit card slips into our wallets.