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Reserve Bank challenges payments industry to step up and innovate

Reserve Bank challenges payments industry to step up and innovate

The pace of international innovation could challenge NZ's interests, assistant governor says.

Karen Silk (Reserve Bank)

Karen Silk (Reserve Bank)

Credit: Supplied

The Reserve Bank is challenging the local payments industry to step up to ensure the country does not fall further behind technologically.

The central banks wants to see the money and payments landscape advance to address the risk that international innovation could challeng New Zealand’s interests.

"My overarching message is that we are all working and living in a period of substantive change — one that offers enormous opportunity if embraced, and potentially greater risk if it is not,” said assistant governor Karen Silk, speaking at a Payments NZ conference this morning.

“We do not yet have scalable electronic, instant, peer-to-peer payments, and our lack of real time systems for retail payments positions us as an outlier amongst OECD countries."

One huge issue was a lack of resilience in the declining cash system, which could be in a critical state, Silk said. Cash handling firms were maintaining costly infrastructure to enable distribution to all corners of the country despite a shrinking platform for distribution and declining use.

The slow pace of implementing promising developments was an issue for the economy because NZ could become more digitally competitive, including through nurturing home-grown fintechs, Silk said. 

We could also reap significant benefit through increased domestic competition and efficiency in payments and the wider financial system.

"Whilst digital innovation is beginning to occur both on top of, and in competition with, traditional payment rails we do not yet have scalable electronic, instant, peer-to-peer payments, and our lack of real time systems for retail payments positions us as an outlier amongst OECD countries," she said.

Lingering reliance on legacy systems, failure to understand regulatory impetus and focus, and limitations in the co-ordination and provision of regulatory support for innovation were inhibiting real progress, Silk said.

Recent changes to the law, the determination of financial regulators to provide a one-stop shop for fintech firms and system level work to improve cross-border payments and get domestic inter-bank payments working seven days a week were all positive steps.

However, Silk said she saw challenges arising from new players “unwittingly” introducing design or technology risks, avoiding New Zealand regulation or undermining the role of central bank money, whether cash or a possible central bank digital currency (CBDC) which the bank continued to research.

The bank today published a paper describing the current state of the New Zealand payments system and would publish another early next month consulting through until March 2023 on the potential need to regulate private cryptoassets.

Meanwhile, Silk said the Reserve Bank remained committed to improving efficiency and resilience in the cash system to ensure it continued to give choice in payments for everyone, along with financial and social inclusion for those that relied on it.  

Small 'live' experiments next year would also look at different ways to expand the role of merchants in the cash system.

“This could include supporting merchants to recycle cash at point-of-sale; remunerating them for cash out services; facilitating frequent, affordable cash delivery and collection for merchants; and consolidation within the cash system with the creation of utility entities,” Silk said.


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