Financial system in Australia

Banking in Australia is dominated by what are known as the "big four", which are also referred to as the pillars of Australia's financial system:

• Commonwealth Bank of Australia (Commbank)
• Westpac Banking Corporation (Westpac)
• Australia and New Zealand Banking Group (ANZ)
• National Australia Bank (NAB)

There are several smaller banks with a presence throughout the country, and a large number of other financial institutions, such as credit unions. Many large foreign banks have a presence, but few have a retail banking presence. The central bank is the Reserve Bank of Australia (RBA). Since 2008 the Australian government has guaranteed deposits up to $250,000 per customer per institution against banking failure.[2]

Australia's insurance market can be divided into roughly three components: life insurance, general insurance and health insurance. These markets have been fairly distinct, with most larger insurers focusing on only one type. However, in recent times several insurance companies have broadened their scope into more general financial services, and have faced competition from banks and subsidiaries of foreign financial conglomerates.

Superannuation in Australia is government-supported and encouraged, and minimum provisions are compulsory for employees. Superannuation arrangements are provided by banks and insurance companies, though most funds are self-managed. Superannuation funds are tightly regulated.

The Australian dollar is Australia’s currency and legal tender in Australia. Clearing and settling of cash payments (also called CS5) are regulated by AusPayNet as the Australian Cash Distribution Exchange System (ACDES).[3]

Cheques are still the most important non-cash payment instruments in Australia, in terms of the value transferred. The number of monthly cheque transactions in 2008 was 33.7 million with a value of $139.3 billion.[4] Cheque use is in decline worldwide, but it is declining faster in Australia than many other countries. Between 2010 and 2014, cheque use in Australia declined by 42.8% with just over seven cheques written per person in 2014. In 2014, 166.6 million cheques were used in Australia, compared to 291.1 million in 2010.[5] In 2015, cheque usage fell by a further 16.3%.

Cheques and other payment instruments (such as travellers cheques and warrants) (also called CS1) are cleared and settled in accordance with the regulations and procedures set by APCS.[6]

Cheques use MICR encoding containing the BSB and account number to identify the bank and account to debit, as well as other information to streamline the processing of cheques. In 2014, the cost of processing cheques was the highest of all modes of payments at $5 per transaction, compared to about $0.20 for direct debits.[7]

A recent innovation has been digital cheque imaging, which involves images of cheques being captured by financial institutions and exchanged electronically between the relevant financial institutions rather than the previous costly practice of physically transporting paper cheques around Australia. This has also ended the need for maintaining long-term storage and retrieval systems.[7] The new system speeds up the clearing process, with cheques being able to be cleared at the end of the next weekday after being presented, as opposed to up to the six weekdays under the old system.

Direct entry (also called CS2)[8] can be used to transfer funds between bank accounts in Australia. Clearing and settling is regulated by AusPayNet as the Bulk Electronic Clearing System (BECS).

Direct entry uses the BSB and account number to identify the bank and accounts to debit and credit. Some common uses of the direct entry system include:

• setting up monthly direct debits to pay recurring bills such as credit card bills
• transferring funds to other bank accounts, also known as third party transfers
• payment of wages and salaries
• government tax refunds and payments.

Participants of BECS exchange direct entry (DE) files at intervals through the day. Net positions are usually cleared daily.

EFTPOS (Electronic Fund Transfer Point of Sale) and ATM transactions (also called CS3)[9] occur over the EFT network. Clearing and settling of EFTPOS and ATM transactions are regulated by the AusPayNet as the Consumer Electronic Clearing System (CECS). Between 2005 and 2015, ATM withdrawals dropped by 11.5% but increased 5.1% in value.

Several credit card systems are active in Australia including MasterCard, Visa, Diners Club and American Express. The Bankcard scheme is no longer in use.

BPAY is a bill payment system used in Australia, which is regulated by the four major banks and not by AusPayNet. As of January 2015, the BPAY payments system covered more than 156 participating Australian banks, credit unions and financial institutions.[10] More than 45,000 businesses accept payments using BPAY[10] and each month approximately 30 million bills are paid to the value of $24 billion.[10]

High value payments (also known as CS4) are regulated by AusPayNet under the Regulations for High Value Clearing System Framework.[11] The main high value payment systems in Australia are:

• Society for Worldwide Interbank Financial Telecommunication Payment Delivery System (SWIFT PDS)
• Clearing House Electronic Subregister System (CHESS): CHESS is an automated share transfer and settlement system developed by the Australian Securities Exchange. For a CHESS transaction, an interbank request is sent to RITS via SWIFT FIN, the service which sends financial information from one financial institution to another.[12] When RITS notifies CHESS of settlement of the gross amount across ESAs, CHESS finalises the transaction by transferring share holdings at the participant level.
• Financial Transactions Recording and Clearance System (FINTRACS)
• Reserve Bank Information and Transfer System (RITS) is used by banks and other approved institutions to settle their payment obligations on a real-time gross settlement (RTGS) basis.[13] Final and irrevocable settlement is achieved by the simultaneous crediting and debiting of Exchange Settlement Accounts (ESAs) held at the Reserve Bank.

The New Payments Platform (NPP)[14] is open access infrastructure for fast payments in Australia. The NPP was developed via industry collaboration to enable households, businesses and government agencies to make simply addressed payments, with near real-time funds availability to the recipient, on a 24/7 basis. Each payment message is capable of carrying much richer remittance information than other systems. The NPP infrastructure supports the independent development of ‘overlay’ services to offer innovative payment services to end-users.