Treasury's Payments Licensing Reforms: Safeguarding, PSP Licensing, and the New ePayments Code

Treasury has unveiled sweeping reforms to Australia's payments licensing framework that will fundamentally change how payment service providers operate — and yes, this includes many remittance businesses. If your remittance operation holds customer funds in digital wallets, offers stored value accounts, or processes payments through an app, these changes will likely affect you.

The reforms introduce mandatory safeguarding rules for customer funds, new licensing requirements for payment service providers (PSPs), and a compulsory ePayments Code. For remittance operators already juggling AUSTRAC compliance, this adds another layer of regulatory obligations that could impact your business model, technology choices, and operational costs.

Key Takeaways

• New PSP licensing regime will require many remittance operators to obtain additional licences beyond AUSTRAC registration
• Mandatory safeguarding rules mean customer funds must be protected through trust accounts, guarantees, or insurance
• Revised ePayments Code becomes mandatory for all payment service providers, not voluntary
• Clearer definitions of payment functions help determine which rules apply to your business
• Transitional arrangements give existing operators time to comply, but preparation should start now

Understanding the Treasury Reforms: What's Actually Changing

The reforms stem from Treasury's recognition that Australia's current payments regulatory framework — largely built around banks — doesn't adequately cover the diverse range of payment service providers operating today. This includes digital wallets, buy-now-pay-later providers, and crucially for this audience, remittance operators offering app-based services or stored value accounts.

Treasury's consultation paper (c2023-469663) outlines three core changes:

1. Clearer definitions of payment functions and who performs them
2. Mandatory safeguarding of customer funds held by non-bank PSPs
3. A revised, mandatory ePayments Code replacing the current voluntary code

These aren't minor tweaks. They represent a fundamental shift in how non-bank payment providers are regulated in Australia.

Payment Function Definitions: Where Remittance Fits

Under the reforms, Treasury defines specific payment functions that trigger regulatory obligations. For remittance operators, the most relevant are:

Stored Value Facilities (SVFs)

If your remittance app allows customers to load money and hold a balance for future transfers, you're likely operating a stored value facility. This includes:

• Digital wallets where customers pre-load funds
• Account balances that customers can draw from
• Any system where customer money sits with you before being sent

Treasury's framework treats SVFs as a distinct payment function requiring specific safeguarding measures.

Payment Initiation Services

If you facilitate payments by connecting to customer bank accounts (like using PayID or direct debit), you may be providing payment initiation services. This is particularly relevant for remittance apps that pull funds directly from customer accounts.

Money Transfer Services

Traditional remittance — accepting cash or electronic funds to send overseas — remains a core payment function. The reforms don't change this classification but add new obligations on top of existing AUSTRAC requirements.

The Safeguarding Imperative: Protecting Customer Funds

Perhaps the most significant change for remittance operators is mandatory safeguarding of customer funds. Currently, when customers load money into your remittance app or pay you cash for a transfer, those funds often sit in your general business accounts until sent overseas.

Under the new rules, any payment-related money must be safeguarded through one of these methods:

Option 1: Trust Account Segregation

Customer funds must be held in a separate trust account, legally isolated from your business operations. Key requirements:

• Funds cannot be used for business expenses
• Protected from creditors if your business fails
• Must be clearly designated as client money accounts
• Subject to regular reconciliation and reporting

Option 2: Guarantee or Insurance

Alternatively, you can obtain a guarantee from an ADI (bank) or insurance policy covering the full value of customer funds held at any time. This option may suit smaller operators but comes with costs:

• Guarantee fees typically 0.5-2% of funds held
• Insurance premiums based on transaction volumes
• Ongoing compliance and reporting obligations

Option 3: Alternative Arrangements

Treasury allows for alternative safeguarding arrangements approved by regulators, though details remain limited. This might include:

• Escrow arrangements with third parties
• Real-time settlement systems that minimise fund holding
• Other innovative approaches that achieve equivalent protection

For many remittance operators, implementing safeguarding will require significant operational changes. You'll need new banking relationships, updated terms and conditions, and potentially new technology to track and segregate funds.

PSP Licensing: Another Layer of Compliance

Beyond safeguarding, the reforms introduce a tiered licensing regime for payment service providers. Where you fit depends on your business model:

Tier 1: Major Payment Institutions

Large-scale operators handling significant transaction volumes or stored value will need a Major Payment Institution licence. Thresholds likely include:

• Annual transaction volumes exceeding AUD 50 million [VERIFY]
• Stored value holdings above AUD 10 million [VERIFY]
• Provision of multiple payment functions

This licence comes with substantial obligations including capital requirements, governance standards, and operational resilience measures.

Tier 2: Standard PSP Licence

Most remittance operators will fall into this category. Requirements include:

• Safeguarding customer funds (as outlined above)
• Compliance with the mandatory ePayments Code
• Regular reporting to regulators
• Maintenance of adequate financial resources

Importantly, this PSP licence is in addition to your AUSTRAC registration, not a replacement.

Exemptions and Carve-outs

Treasury recognises some payment activities pose minimal risk. Potential exemptions include:

• Cash-only remittance with immediate settlement
• Limited network arrangements (closed-loop systems)
• De minimis thresholds for small operators

However, most app-based or digital remittance services will likely require licensing.

The Mandatory ePayments Code: Consumer Protection Standards

The current ePayments Code — a voluntary framework many remittance operators ignore — becomes mandatory under the reforms. This brings significant new obligations:

Unauthorised Transaction Liability

The revised code will specify when customers vs providers bear losses from unauthorised transactions. For remittance apps, this means:

• Clear liability allocation rules
• Mandatory investigation timeframes
• Potential requirement to reimburse customers for certain frauds
• Documentation and evidence requirements

Disclosure Requirements

Detailed disclosure obligations covering:

• Fee structures and exchange rates
• Transaction processing times
• Complaint handling procedures
• Terms and conditions in plain English

Mistaken Payment Procedures

Formal processes for handling mistaken payments, including:

• Investigation obligations
• Recovery procedures
• Timeframes for resolution
• Customer communication requirements

Record-Keeping Standards

Enhanced record-keeping for all electronic transactions, complementing existing AUSTRAC obligations but with additional consumer protection focus.

Impact on Remittance Business Models

These reforms will affect different remittance models in distinct ways:

Traditional Cash-Based Remittance

If you only accept cash and immediately send funds through established corridors without holding customer money, impact may be minimal. You might qualify for exemptions, though the mandatory ePayments Code could still apply to electronic elements of your service.

App-Based Remittance Platforms

This model faces the most significant changes:

• Stored value wallets must implement safeguarding
• PSP licensing almost certainly required
• ePayments Code compliance mandatory
• Potential need for additional capital and governance structures

Costs could increase by AUD 50,000-200,000 annually between safeguarding, licensing, and compliance.

Hybrid Models (Cash + Digital)

Operators offering both traditional and digital services must comply with requirements for their highest-risk activities. This likely means:

• Safeguarding for any digital wallet features
• PSP licensing if offering stored value
• Segmented compliance approach for different service lines

The AFSL Question: Do You Need Investment Licensing Too?

A critical question arising from these reforms: do remittance operators need an Australian Financial Services Licence (AFSL) in addition to AUSTRAC registration and PSP licensing?

The answer depends on your specific services:

When AFSL Is NOT Required

Pure money transfer services — accepting funds solely to send overseas — typically don't require an AFSL. This includes:

• Traditional remittance services
• Direct fund transfers without investment features
• Basic currency exchange incidental to remittance

When AFSL May Be Required

You might need an AFSL if you:

• Offer forward contracts or currency hedging
• Provide investment advice about currencies
• Hold customer funds for extended periods with returns
• Offer services beyond basic money transmission

The intersection between payments licensing and financial services licensing remains complex. Many operators will need professional advice to determine their exact obligations.

Transitional Arrangements: Time to Prepare

Treasury hasn't finalised implementation timeframes, but indications suggest:

• 12-24 month transition period for existing operators
• Grandfathering of some current arrangements
• Staged implementation based on risk and scale

However, preparation should begin immediately given the operational changes required.

What To Do Now

1. Audit Your Current Operations

   • Document how you handle customer funds
   • Identify which payment functions you perform
   • Review your technology stack and banking arrangements

2. Assess Safeguarding Options

   • Contact your bank about trust account options
   • Get quotes for guarantee or insurance arrangements
   • Consider whether operational changes could minimise safeguarding needs

3. Review Consumer Protection Practices

   • Compare current procedures against ePayments Code requirements
   • Identify gaps in disclosure, complaints handling, and record-keeping
   • Budget for system and process upgrades

4. Engage Professional Advice

   • Consult lawyers familiar with payments regulation
   • Discuss with your accountant about financial implications
   • Consider joining industry associations for collective advocacy

5. Monitor Developments

   • Watch Treasury's payments reform page for updates
   • Participate in consultations if possible
   • Network with other operators facing similar challenges

The Compliance Stack: How It All Fits Together

For remittance operators, these reforms add another layer to an already complex compliance stack:

1. AUSTRAC Registration and AML/CTF Program — still your foundational requirement [INTERNAL LINK: /compliance/austrac-registration]
2. PSP Licensing — new requirement under payments reforms
3. Safeguarding Obligations — protecting customer funds
4. ePayments Code — consumer protection standards
5. AFSL (if applicable) — for certain financial services

Each layer has its own requirements, regulators, and penalties for non-compliance.

Cost Implications: Budget Reality Check

Based on early analysis, remittance operators should budget for:

Cost Category	Estimated Annual Impact
Safeguarding (trust accounts or guarantees)	AUD 10,000 - 50,000
PSP licence application and maintenance	AUD 20,000 - 40,000
ePayments Code compliance systems	AUD 15,000 - 30,000
Additional legal and compliance advice	AUD 15,000 - 40,000
Technology upgrades	AUD 20,000 - 100,000
Total Additional Costs	AUD 80,000 - 260,000

These figures vary significantly based on your scale, complexity, and current systems.

Strategic Considerations: Adapt or Exit?

These reforms will likely accelerate consolidation in the remittance industry. Smaller operators face difficult choices:

Option 1: Full Compliance

Invest in meeting all new requirements. This suits operators with:

• Sufficient scale to absorb costs
• Growth ambitions requiring digital capabilities
• Strong existing compliance frameworks

Option 2: Simplification

Strip back services to avoid certain obligations:

• Eliminate stored value features
• Focus on immediate settlement
• Potentially avoid PSP licensing requirements

Option 3: Partnership or Sale

Join forces with larger operators who can spread compliance costs:

• White-label arrangements
• Acquisition by larger players
• Agent relationships with licensed PSPs

FAQ

Do these reforms replace AUSTRAC registration requirements?

No. PSP licensing is additional to, not instead of, AUSTRAC registration. You'll need both to operate a remittance business with digital payment features.

When will these changes take effect?

Treasury hasn't announced final dates, but implementation likely begins in 2026-2027 with transition periods for existing operators. However, preparation should start now given the operational changes required.

Will small cash-only remittance shops be affected?

Possibly minimally if you truly only handle cash with immediate settlement. However, if you use any electronic systems, accept card payments, or offer apps, you'll likely face new obligations.

How do these reforms relate to the AML/CTF changes from March 2025?

They're separate but complementary. The AML/CTF reforms focus on money laundering prevention, while payments reforms address consumer protection and financial stability. You need to comply with both frameworks.

Staying Informed: Next Steps

The payments licensing reforms represent the most significant change to remittance regulation since AUSTRAC registration became mandatory. While the additional compliance burden is substantial, it also professionalises the industry and may create opportunities for well-prepared operators.

For detailed analysis of how these reforms interact with existing AML/CTF obligations, see our guide on [INTERNAL LINK: /guides/complete-guide-starting-remittance-business]. To understand the current regulatory landscape before these changes, review our comprehensive [INTERNAL LINK: /compliance/aml-ctf-program-guide].