ESA is an account that all banks should have for the purpose of making payments with each other within the Australian payments system. These Exchange Settlement Accounts are owned by the Reserve Bank of Australia, there must be positive balances and are used to settle debts that have accumulated in the clearing process.
They are also used as a precautionary measure, as the RBA has committed to cover any gaps in payments among the members, this is to ensure the Australian payments system functions all the time.
RBA has announced another adjustment following their two cash rate cuts, but this time it is for their ESA (Exchange Settlement Account). Their last major change to the ESA Policy was in 1999 and allowed non-ADI (Non-Authorized Deposit-taking Institutions) lenders to apply for an ESA. Their purpose at that time is to settle clearing obligations with other lenders.
Today, the purpose of their adjustment for their ESA Policy is to promote increased competition in the financial market. The adjustments made allows a more extensive type of Non-ADI Lenders, which also includes Fintech (Financial Technology) Businesses to directly compete with other agencies in the Reserve Bank payments system.
However, for the smaller fintechs, it has still not been determined if they will be the beneficiaries of the ESA policy update or the one to benefit will be the technology giant companies such as Google, Apple, Facebook, and Amazon.
In what can be considered as a purpose of RBA to increased competition in a market dominated by the big 4, they have somehow made the ESA easier to use for non-bank lenders.
Even if the changes made in the ESA Policy can make way for fintechs to compete on a more balanced market, they still do not specify any limitations on multinational tech giants. It only means that these tech giants can perhaps obtain direct access to the ESA payment system, which can settle down their own transactions without the need for the bank services.
The effect on competition of these adjustments within the Australian financial industry is not yet clear. On the other hand, the interesting fact is what was mentioned by the RBA’s in last month’s media release regarding the ability to manage ESA offshore.
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