RBA changes ESA Policy: will fintechs or tech giants benefit?

RBA changes ESA Policy: will fintechs or tech giants benefit?

Last month, following two cash rate cuts in as many months, the Reserve Bank of Australia (RBA) made yet another change to the nation’s monetary policy, this time the ESA.

On Friday 26th July, the RBA updated their Exchange Settlement Account (ESA) Policy, in what has been seen as a move to promote increased competition in the financial market.

The changes allow for a wider variety of non-ADI* lenders – including financial technology businesses (fintechs) – to compete directly with other entities in the Reserve Bank payments system.

However, what is yet to be determined is whether the smaller fintechs will be the beneficiaries of the policy update, or if international technology giants like Amazon, Google, Apple and Facebook will be the ones to profit.

What is an Exchange Settlement Account (ESA)?

To put it simply, an ESA is an account that all banks must have in order to make payments between each other within the Australian payments system. These Exchange Settlement Accounts are owned by the Reserve Bank of Australia, must have positive balances and are used to settle obligations that have accrued in the clearing process.

EXAMPLE

Jill owes Jack $20. Jill banks with Bendigo and Jack banks with Suncorp. When Jill transfers Jack his $20 from his Bendigo account, it will need to move through Suncorp’s ESA, before landing in Jack’s account.

ESAs are also used as a security measure, as the Reserve Bank commits to cover any gaps in payments between members, to ensure the Australian payments system functions at all times.

RBA changes to the ESA policy

Mandatory for Authorised Deposit-taking Institutions (ADIs) in Australia, the last major revision to the ESA Policy was in 1999 and allowed non-ADI providers to apply for an ESA, to settle clearing obligations with other payment providers.

Two decades later, the recent revision has made it easier for non-bank lenders and fintechs to join the Exchange Settlement Account arrangements, without getting regulatory licenses to become banks.

In what could be seen as a move to increase competition in a market dominated by the big four, the RBA has made it easier for non-bank lenders to use an ESA, announcing:

“The updated policy now also requires that any Australian securities settlement facilities that are determined to be systemically important in Australia, and that face Australian dollar liquidity risk from their settlement related activities, must use an ESA.”

Will the changes benefit fintechs or tech giants?

These ESA changes, whilst paving the way for fintechs to compete on a more even playing field, do not stipulate any restrictions on multinational technology giants.

This means the likes of Amazon, Google, Apple and Facebook could gain direct access to the Exchange Settlement Accounts payment system, settling their own transactions without needing the services of a bank per se.

The effect these changes will have on competition within the Australian financial industry is yet to be seen. However, what is interesting to note is the RBA’s reference in their 26th July Media Release, highlighting the ability to manage ESAs off shore.

“Australian-licensed clearing and settlement facilities may also apply for an exemption from the requirement to maintain management and resources in Australia, so as to be able to manage their ESA from an approved offshore location.”

Will this change in policy encourage international fintechs to make the move down under?

Only time will tell.

*ADIs are Authorised Deposit taking institutions, as granted by the Australian Prudential Regulation Authority (APRA) under the Banking Act 1959 (Commonwealth). ADI’s include banks, credit unions and building societies.

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Learn more about bank accounts

How do I close a bank account?

Closing a bank account is one of those tasks that’s easy to put in the too-hard basket. There are quite a few steps involved, some which may require you to hang on the phone for a while.  

Here’s a handy checklist of items to tick off, so the job gets done quicker. If you don’t do your banking online, the following steps can also be done at a branch.   

  • Cancel any scheduled or recurring payments
  • Update your direct debit details (such as loan repayments) with creditors
  • Export your payee address book (to keep a record of saved third-party bank account details)
  • Transfer the balance of your account (to the new bank account)
  • Close your account online, or by calling the bank or visiting a branch

How do I close my bank account online?

You can usually easily open a bank account online, but you often can’t close it online.

Many banks and credit unions will only let you close an account if you go into a branch or call them on the phone.

However, some banks will let you request to close the account via your internet banking. Check your financial provider’s website for details.

Just remember: If you still have funds in the bank account, transfer them to another account, or withdraw the cash. Also, if you have any payments like direct debits going in or out of the bank account, these will also stop when you close your account.

How do you open a bank account in Australia?

Opening a bank account in Australia is usually a straightforward process. Some banks give you the option of opening an account online, while others require you to visit a branch.

Different bank accounts offer different features, so it’s best to compare your options to find one that suits you.

All banks require you to pass an identity check to open a bank account. Australia uses the 100-point identification system, which means you’ll need to show a number of forms of ID that, together, add up to 100 points.

Common ID types include a driver’s licence, passport, Australian visa in a foreign passport, and Australian Medicare card. You’ll find out what types of ID are accepted when you go through the sign-up process online or at a branch.

Once your account is open, you’ll be given or sent a debit card that you can use to make purchases and withdraw money from your account.

Can you open another account at the same bank?

Yes, you can open another account at the same bank if you already have an account there, but some banks place a limit on how many specific accounts you can open.

Generally, though, it is possible to have more than one everyday account, one personal account and one joint account, or have different types of accounts – such as a transaction account and a savings account.

Keep in mind that some bank accounts come with fees, so you could be charged twice for having two types of the same account at the same bank.

Also, if you have more than one high-interest transaction account at the same bank, only one account will be able to earn the highest rate of interest.

Do I need to open a business bank account?

Just because you’re in business doesn’t necessarily mean you need a business bank account. You could be a sole trader not registered for GST, and use your personal bank account for business.

If you do want a business account, there are plenty of benefits attached to business transaction and savings accounts, as well as business term deposits.

There are business bank accounts designed for businesses with a high volume of transactions, and those for start-ups with a small amount of trade. You could also include an EFTPOS service with your account.

Some business bank accounts charge for the number of transactions per month, while others offer a pay-as-you-go fee structure, where you only pay fees for transactions you make.

It’s up to you whether your priority is mainly transactions, or earning the maximum amount of interest on your principal. There’s a business banking solution for you if you need one.

Can I start a bank account online?

Yes, most lenders that operate in Australia will let you set up a bank account online. The process is usually simple and takes five to 10 minutes. You will probably need to provide a passport or birth certificate, as well as a driver’s licence, Medicare card or another form of secondary identification. Requirements differ from lender to lender, so some institutions might ask for more or different forms of ID.

How do you find a bank account number by name?

For privacy reasons, Australian banks won’t hand out account numbers or other details about their customers. However, if you provide a bank with a BSB and account number, they should be able to confirm if those numbers belong to one of their customers.

Do you need a bank account to get a credit card?

To get a credit card, you need to show proof of income, which will almost certainly require you to have a bank account.

How do I overdraw my Commonwealth Bank account?

Overdrawing a bank account can happen by accident. It’s often hard to know what your balance is, particularly with direct debits, scheduled repayments and pending transactions competing for cash.

To avoid being stuck with a bank fee every time your account is overdrawn, you can apply for a personal overdraft. This will enable you to overdraw your account up to an approved amount.

A personal overdraft is connected to your CommBank Everyday Account, so you can enjoy easy access to extra funds once approved – anywhere from $100 up to $20,000.

Your overdraft funds can be accessed via your CommBank keycard or Debit MasterCard, or online through NetBank and the CommBank app.

To apply you can either call the Commonwealth Bank directly or visit your local branch.

Can I set up a bank account online?

Most Australia-based lenders will allow you to set up a bank account online. Requirements vary from lender to lender, but you will probably need to provide a passport or birth certificate, as well as a driver’s licence, Medicare card or another form of secondary ID.

What do you need to open bank accounts?

Opening a bank account is one of the simplest online tasks you could perform. The hard part is deciding which type of bank account you want to open.

All banking institutions have a website where you hit ‘apply’ on the account of your choice and step through an application in less than 10 minutes.

Here’s a list of information that is generally required for applications.

  • Identification (driver’s licence, passport, proof of age card, proof of citizenship and/or birth certificate)
  • Tax file number (so you don’t get charged the highest tax rate)
  • Address, contact email and phone number

If you decide to open a new account at the branch, make sure you ask beforehand what information you need to take with you, or take all of the above to be safe.

Can foreigners open bank account in Australia?

If you’re migrating, studying or working in Australia, you’ll be pleased to know that you can open an Australian bank account. For the most part, opening a bank account in Australia is a simple process which starts by comparing the types of bank accounts foreigners can open in Australia.

Once you’ve found a bank account that suits your needs, you can start the application process.

When you apply for the account, you’ll need to provide proof of ID which may include your passport, overseas ID or credit card. You may also need to provide a copy of your visa and proof of address in Australia.

Depending on the bank and the type of account you choose, you may be able to apply for the account online or over the phone before you arrive in Australia.

Can I open a bank account in another country?

Despite having a bad rap for facilitating tax evasion, it is possible and legal to open a bank account in another country, also known as an ‘offshore account’.

Some people choose to open a bank account in another country to invest overseas, for higher interest-earning potential or to access foreign banking services.

The process for opening an offshore bank account differs depending on the financial institution and country in which you’re opening the account.

Typically, you will need to provide identification such as a passport, a local bank statement and a signed declaration proving the source of the money being used to open your account. Usually, deposits into offshore accounts can be made by international money transfer.

How do I transfer money from Paypal to my bank account?

Transferring cash from Paypal into your bank account is simple…if you have a Paypal account that is.

Once you’re logged into your Paypal account, the account balance will appear on your home page. Below your balance are two options:

  • Add money
  • Withdraw money

Choose option two if you want to transfer money from your Paypal account to your personal bank account.

The next screen will prompt you to either enter new bank account details or choose a bank account that’s connected to Paypal. You can always add more bank accounts to your Paypal profile.

Another way to transfer out of Paypal is by jumping to the wallet tab on the top menu, and clicking ‘transfer money’. Both options will give you the same result.