Purchased payment facilities, such as smart cards and electronic cash, are facilities which consumers pay for in advance and use to make various types of payments. Consumers rely on the holder of the stored value backing such a facility (that is, the entity receiving the proceeds from the sale of the facility) to subsequently redeem that value on demand.

In the interests of protecting consumers and promoting public confidence in such schemes, a framework for the regulation of purchased payment facilities was included in the Payment Systems (Regulation) Act 1998. This Act requires a holder of stored value to be an authorised deposit-taking institution subject to supervision by the Australian Prudential Regulation Authority (APRA), or have an authority or exemption issued by the Reserve Bank.

The stored value backing a purchased payment facility represents a promise by the holder to repay in full. Where the customer is entitled, under the terms of the facility, to demand repayment in Australian currency of part or all of the balance of the stored value, the facility is akin to a deposit. For this reason, the Reserve Bank and APRA have agreed that it would make sense to have such purchased payment facilities, whether issued by an authorised deposit-taking institution or otherwise, regulated by APRA under a common regime. This will ensure consistency in regulatory treatment of these emerging payment instruments and is in line with the approach taken in a number of other countries. The Commonwealth Government has endorsed the revised arrangements.

To give effect to these arrangements, a Regulation has been enacted under the Banking Act 1959 which defines the holder of the stored value in relation to a purchased payment facility to be "carrying on banking business" (thus bringing the holder under APRA's supervision) where:

(i) the facility is available for purchase and use on a wide basis; and
(ii) all, or part, of the facilitys unused value is repayable on demand in Australian currency.

The Regulation takes effect from 15 June 2000.

Enquiries:

RBA
BM Egan
Senior Manager
Payments Policy Department
Reserve Bank of Australia
SYDNEY
(02) 9551 8705

APRA
Gloria Peterson
Public Affairs Manager
Australian Prudential Regulation Authority
SYDNEY
(02) 9210 3385