Fintechs will soon need to dust off their licensing advices as Australia takes another step towards implementing its new payment licensing laws.
In March 2026, Treasury released the exposure draft of the Treasury Laws Amendment Bill 2026: Payments System Modernisation (Tranche 1 Bill) for public consultation.
The Tranche 1 Bill is the first of a two-part Treasury-led reform to modernise Australia’s existing regulatory framework for payment service providers (PSPs) which is considered to have not kept pace with technology advancements and the disaggregation of functions in the payments industry.
If the Tranche 1 Bill is implemented, the Australian payments industry will undergo one of its biggest regulatory changes since the Australian financial services (AFS) regime was introduced in 2001.
Here is a snapshot of what it is proposing.
Non-cash payment facilities are out; payment products and payment services are in
Under the existing payments licensing framework, PSPs will generally require an AFS licence from the Australian Securities & Investments Commission (ASIC) if they (amongst other things) carry on a business in Australia of dealing in or providing advice on a non-cash payment (NCP) facility.
NCP facilities are facilities through which a person makes a payment, or causes a payment to be made, other than by the physical delivery of notes or coins. This definition has remained relatively untouched since its introduction with the AFS regime in 2001 and, unlike other kinds of financial products, its scope has also largely remained untested by Australian courts.
The scope and breadth of the NCP facility concept has caused uncertainty in the payments industry over the services intended to be captured, with PSPs that provide the same service forming different views on whether they require an AFS licence. The current definition also does not distinguish between different types of payment activities which pose differing levels of risk to consumers.
The Tranche 1 Bill proposes to remove the ‘NCP facility’ concept from the AFS regime altogether and replace it with:
- a new category of financial product – the payment product, which in turn refers to payment instruments and stored value facilities; and
- a new category of financial service – payment services, which in turn refers to payment initiation services, payment facilitation services and payment technology and enablement services.
Below is a summary of the proposed new financial products and services:
| Product / Service | What it is intended to cover | What it is not intended to cover | ||
|---|---|---|---|---|
| Payment Products | ||||
| Payment instruments |
Payment instruments are facilities that provide a method for a person to make non-cash funds transfers using funds standing to the person’s credit under the facility. A person makes a non-cash funds transfer if funds standing to the credit of the payer under a facility are transferred on the instruction of the payer or payee, and the transfer does not involve the physical delivery of notes or coins. While payment instruments will often be provided by the issuer of the account or facility that is the source of value (e.g. bank-issued debit card), they may also be issued by a separate PSP. |
Payment instruments will not include:
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| Stored value facilities (SVFs) |
SVFs are facilities through which funds may be transferred to a person without any instruction as to the further transfer of the funds and are available for redemption by one or more methods by that person or some other person who obtains the right to redeem the amounts transferred.
Tokenised SVFs are SVFs where the right to redeem amounts is attached to a digital token (i.e. stablecoins). While a token SVF will be a financial product, the redemption right will expressly be excluded as a financial product under the amended AFS regime. Accordingly, actions taken in relation to the redemption right (i.e. the stablecoin) will generally fall outside the scope of the AFS regime. The reforms also restrict the use of certain terms related to SVFs by persons not holding the appropriate AFS licence. |
SVFs will not include:
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| Payment Services | ||||
| Payment initiation services |
A person will be providing a payment initiating service if they take action which has the effect of initiating a non-cash funds transfer to be made by another person, and the person is not the issuer of the facility from which the funds are transferred, the issuer of the payment instrument that relates to the facility, the payer for the non-cash funds transfer or the payee acting other than on behalf of the payer. Payment initiation services can be provided to either the payer or payee, depending on who the provider has an arrangement with for performing those activities. |
Payment initiation services are not intended to cover activities that are merely preparatory to the initiation of a transfer where the person performing an action cannot, under the arrangement with the client cause the making of the transfer (e.g. the person compiles the payment instrument but is not authorised to also give that instruction to a financial institution to cause the transfer to be made). They will also not include self-custodial wallet software that allows a person to factually control digital tokens on their behalf (as, in this scenario, it is the token holder (rather than the software provider) that takes action to initiate the transfer). |
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| Payment services – Payment facilitation services |
A person (the provider) provides a payment facilitation service if, under an arrangement with another person, funds are transferred to the provider in connection with the making of a non-cash funds transfer, and the funds are transferred on the basis that the provider will further transfer the funds in accordance with the instructions for the non-cash funds transfer. Payment facilitation services can be provided to either the payer (e.g. remittance services) or payee (e.g. merchant acquiring services). |
Self-custodial wallet software that allows a person to factually control digital tokens on their behalf is not a payment facilitation service (as, in this scenario, digital information is stored in the wallets but the token and rights attached to the token are not transferred to the software provider – who is merely providing the software). | ||
| Payment services – Payment technology and enablement services |
A person (the provider) provides a payment technology and enablement service if they take any of the following actions for the dominant purpose of enabling a person to make or receive a non-cash funds transfer:
and the provider is not the issuer of the facility from which the funds are to be transferred, the issuer of the payment instrument that relates to the facility or the payer or payee for the non-cash funds transfer. Payment technology and enablement services can be provided to either the payer (e.g. digital wallet services where virtual cards can be added to a wallet application held by a customer and then used to make payments) or payees (e.g. payment gateways that enable payees to accept payments). |
They will also not cover self-custodial wallet software that allows a person to factually control digital tokens on their behalf as, in this example, the provider is merely providing the software, and it is the person using the software who transmits information for making or receiving of the transfer. | ||
The Tranche 1 Bill indicates that some of the existing NCP facility related exemptions will remain under the new regime (with some modification), such as exemptions for single payee or low value facilities. There will also be notable changes to the other exemptions, however – for example, the intermediary authorisation will not apply in relation to payment products. Similarly, the retail client exemption for certain sophisticated investors will not apply to the provision of payment product-related services or payment services.
Additional obligations of PSPs under the new regime
Under the new regime, PSPs dealing in or providing advice on payment products or engaging in payment related services will be subject to the AFS licensing requirement (unless an exemption applies), as well as other obligations and restrictions arising under the AFS regime, including (among other things) disclosure requirements, design and distribution obligations and being subject to the consumer protections such as the prohibitions against misleading or deceptive conduct. In addition to the existing general requirements applicable to financial products and financial services, certain PSPs will also have additional obligations under the new regime.
Safeguarding obligations in relation to relevant PS money
Similar to the existing client money obligations under the AFS regime, licensed PSPs who provide payment services or issue payment products (referred to as payment system licensees) will be subject to new safeguarding money obligations in relation to relevant PS money (broadly referring to money received by the licensee for the purpose of the relevant service or the amounts credited to a SVF issued by the licensee) which aim to support the return of funds in the event of the licensee becoming insolvent or ceasing their business.
Under the new payments licensing regime, relevant PS money will be deemed to be held on trust for the relevant end user of money, and payment system licensees will have fiduciary duties as the trustee of that statutory trust. While certain functions in relation to relevant PS money may be outsourced, payment system licensees will ultimately remain liable as trustee.
Payment system licensees will also be subject to obligations to safeguard relevant PS money, generally by segregating such money into one or more trust accounts held with an Australian ADI (unless ASIC approves another safeguarding method for the licensee). Further safeguarding requirements may also be introduced from time to time, including requirements relating to the minimum balance to be maintained in the trust account, how interest is to be dealt with or how interest or other earnings on an investment of money may be dealt with.
ASIC may also from time to time introduce reporting requirements in relation to relevant PS money, such as in relation to reconciliation information.
Obligations for SVF providers
Under the new payments licensing regime, certain SVF providers will have additional obligations, including the following:
- Unclaimed money: Major SVF providers (currently expected to capture providers holding more than $200 million in regulated funds on a group aggregated basis) will be required to pay all unclaimed money to the Commonwealth after the end of each relevant calendar year. Unclaimed SVF money will capture money which is credited to SVFs which has had no transaction activity undertaken in a period of 7 years (referred to as inactive SVFs). A reimbursement process will be available for clients seeking to recover any unclaimed SVF money credited to an inactive SVF money which they held. Major SVF providers will also be required to disclose their unclaimed SVF money holdings by lodging annual statements with ASIC regarding unclaimed SVF money it holds at the end of the calendar year which ASIC will then publish publicly.
- Restrictions against paying interest or like benefits: Unlike deposit product providers, SVF providers will be prohibited from paying interest or interest-like benefits (e.g. points or tokens credited to the holder of the SVF) in connection to an amount credited to an SVF issued by them. Clients seeking a return on investment will be expected to withdraw funds from their SVF and apply those funds to an investment product.
- Ongoing disclosure by tokenised SVF providers: Tokenised SVF providers will be subject to additional ongoing disclosure obligations, such as to disclose reserve assets and outstanding liabilities on a monthly basis as well as to publish notices on the internet of any material changes or significant events which may reasonably affect the value of their reserves or their ability to comply with their redemption obligations.
- Redemption rights not to be unreasonably restricted: Tokenised SVFs will be prohibited from unreasonably restricting a person, who possesses a digital token attached to a tokenised SVF that the provider has issued, from exercising the right to redeem an amount from the tokenised SVF. A restriction will be taken to be unreasonable if it is not applied equally to each person who possesses digital tokens that attach to the tokenised SVFs issued by the provider, or where the terms of the facility that restrict redemption may be capable of being applied unequally.
- Prudential regulation: In addition to regulation under the AFS regime, major SVF providers and other designated payment entities will also be subject to prudential requirements administered by the Australian Prudential Regulation Authority (APRA).
ePayments Code
Although subscription to the current ePayments Code is currently voluntary, the Tranche 1 Bill includes a new rule giving the Treasurer power to introduce a new ePayments Code which will become mandatory for ADIs, payment entities (capturing SVF providers and payment facilitation service providers) and participants under the Payment Systems (Regulation) Act 1998 (and other entities acting on behalf of those entities) (referred to as covered entities).
Matters which the new ePayments Code may address include (but are not limited to):
- the process for dealing with and liability for unauthorised transactions or mistaken payments;
- a covered entity’s conduct, terms and conditions and policies in relation to their service;
- dispute resolution processes;
- other requirements for covered entities, like joining the Australian Financial Complaints Authority scheme; and
- any other matters which the Treasurer considers to be appropriate.
- It is expected that further information regarding the new mandatory ePayments Code will be revealed in the Tranche 2 reforms of the new payments licensing regime.
Next steps
Public consultation on the exposure draft of the Tranche 1 Bill closed in early April. As at the date of this article, the new laws have yet to be introduced to Parliament.
Assuming the bill (or an amended version of it) is eventually passed by Parliament, the new laws will commence 12 months after the bill receives royal assent.
It is expected that, once the laws are in effect, transitional arrangements will apply so that PSPs providing payment product-related services or payment services under the new regime will have either 1 month (if the person held an AFS licence under the previous regime in relation to NCP facilities) or 6 months (in all other circumstances) (the default transitional period) to vary their existing AFS licence or apply for a new one. If an application is so made, then the new laws will be taken not to apply to the relevant PSP until their application is determined (or the end of the default transitional period, whichever is later). If a PSP does not apply to vary their existing AFS licence or apply for a new one during the default transitional period, they will be subject to the new laws upon the default transitional period coming to an end.
Tranche 2 of the proposed reforms is expected to be considered by Treasury in 2026.
If the reforms discussed impact you or your business, please contact the Addisons Funds & Financial services team.