A useful starting point for assessing potential gaps in the payments systemis to establish a set of desirable attributes for such systems. This does notof course mean that each payment instrument must deliver all these attributes.But ideally the payments system overall would offer a mix of payment methodsthat collectively offer each of these attributes in a way that allows end-users– businesses, consumers and government – to meet their needs ata reasonable cost.
While not exhaustive, the following are some of the key attributes that canbe important to end-users.
2.1 Attributes Valued by End-users
Timeliness
Not all payments are time-critical, but users of the system should at leasthave options available that provide timely payment. Timeliness has at leasttwo elements. In some cases, such as emergency government payments, the timingof the availability of funds to the recipient is critical. In other cases,such as point-of-sale or online retail transactions, it is important that themerchant has immediate confirmation that the payment is on its way so thatthe transaction can be completed, even if the funds will not be available untilsome time later.
Accessibility
It is desirable that everyone who needs to make and receive payments shouldhave ready access to the payments system. Once again this may have differentelements. One is the ability to access the payments system when and where required.Cash, and more recently credit and debit cards, have provided ready accessfor face-to-face transactions, but ‘remote’ transactions have historicallybeen more difficult, typically requiring the use of cheques or a visit to abank branch. Innovations over recent years have of course dramatically improvedaccess, with first telephone, then internet banking, and more recently mobilebanking and payments.
Another element of accessibility is the availability of accounts on which paymentscan be made. Australia has a highly banked population, which means that accessto bank-based payment methods is ubiquitous. In many lesser developed countriesthis is not the case. In some of these countries the introduction of mobilephone based payment systems has dramatically increased access to the paymentssystem, even if one not necessarily based on banks.
Accessibility should not be thought of just in a domestic context. Many end-usershave a need to make and receive payments across national borders.
Ease of use
It goes without saying that systems that are easier to use are preferable tothose that are more cumbersome. But this is not just an issue of convenience.Systems that require manual entry of account and transaction details are proneto errors that can be costly to correct and can discourage use. That is onereason why payment cards are popular – because most of the need for manualentry is removed. The need to know a recipient's account details is anotherchallenge for many payment instruments. One of our oldest payment methods –the cheque – deals with this by requiring only the recipient'sname. The burden of course is placed on the recipient who must then manuallydeposit the cheque, providing their own account details. The challenge forelectronic payment systems is to provide solutions that are easy for both thepayer and the recipient.
Ease of integration with other processes
Payments are rarely made in isolation. Typically they are made as part of aprocess that requires some form of information exchange and reconciliation.Payment systems should be able to integrate efficiently with these processes.Key examples are the capacity of payment systems to carry additional informationrelevant to the payment and the ability of payment messages to be easily integratedwith accounting and other business systems.
Safety and reliability
End-users of a payment system need to have confidence that the system will beavailable when expected and that payments will reach the intended recipientat the time promised. They also need to be confident that the system is secure,so that using it will not expose them to future losses as a result of informationbeing fraudulently obtained. Some of these problems can be addressed by systemparticipants providing a guarantee of one form or another, but good systemdesign is a more fundamental solution.
Low and transparent prices
If two systems perform exactly the same function, users can be expected to preferthe cheaper one. However, each system typically has different attributes, andend-users make choices by weighing up those attributes and relative pricing.This means that both prices and the systems’ attributes need to be transparent,so that those choices can be well informed. Given the two-sided nature of paymentsystems, this does not of itself guarantee economic efficiency because pricesare often skewed in favour of the party with the greatest decision-making power.Pricing is most likely to be efficient where there is a reasonable alignmentbetween the relative prices faced by those with decision-making power and therelative resource costs of different payment instruments.
2.2 Desirable Attributes for Payment System Design
The above attributes are those that are directly relevant to the end-users ofpayment systems. There are other attributes of the design of payment systemsthat are less obvious to end-users, but which are important to ensuring thatpayment systems are efficient and are well placed to deliver the sorts of attributesdiscussed above. These include the following.
Efficient design
Payment systems should be designed in a way that achieves the system'sobjectives in an efficient and cost-effective manner.
Security and robustness
The system should have a level of security and operational robustness commensuratewith the importance of the system. For instance, disruption of a system deliveringsalary and social security payments can have widespread impacts, even if notconsidered to have implications for financial stability.
Interoperability
Payment systems should aim to achieve a high degree of interoperability withother systems. For instance, to the extent possible, message standards shouldbe consistent with international standards to allow the easy flow of paymentsacross borders and to simplify access for new entrants. It is also desirableto maximise the extent to which different payment systems can use common infrastructure.
Open access
Systems should be designed in a way that makes the entry of new participantseasy, quick and inexpensive for both the new entrant and incumbents. This maybe dependent on the architecture of the system, the standards applied and thebusiness arrangements in place.
Risk management
Payment systems have the potential to generate a number of risks for participants,most notably credit risk. Managing these risks is an important focus of designfor systems processing large values, but all systems should have risk-managementfeatures commensurate with the level of risk generated.
Ease of adaptation to changing needs
For many reasons the needs and preferences of both payment system users andoperators evolve over time, often in response to changing technology. Systemsshould be as adaptable as possible so that changing needs can be met in aninexpensive manner. The ability to do so would ease some of constraints oninnovation discussed later in this paper.
