Could Medicare make Australia Post become a Giro Bank?



As the Prime Minister sets about recasting his Cabinet and the bureaucracy prepares for likely Machinery of Government changes, the challenge of rehabilitating the nation’s two highest risk legacy transactional systems from the inside is a dilemma that will only grow in complexity.

The demonisation of outsourcing Medicare’s payments engine became the electoral lightning rod during the election campaign. By logical extension, that means replacement of Centrelink’s core ISIS system and what role payments outsourcing providers can play there is now also logically in the mix.

Prior to Labor’s brutally effective ‘Mediscare’ campaign, the outsourcing of transactional banking services and payments facilities was one of the least controversial procurement policy decisions on both sides of the political fence.

For better or worse, it’s now the most controversial – and destined to remain so until the next election. So where to from here?


Legacy’s long shadow

Most federal agencies use a transactional bank to make or take payments. They could be payments to government suppliers and contractors, the collection of fees or even just access to petty cash for everyday sundries like booking a function room or ordering sandwiches for a meeting.

Most state governments gave up on owning and running their own banks several decades ago (unless they were going broke). The Commonwealth Bank of Australia was sold off by the Labor Hawke-Keating government in three tranches between 1991 and 1996.

Telstra’s privatisation under John Howard came next.

In the intervening period, four Australian prime ministers have grappled with how to bring the federal government’s three biggest transactional systems – Centrelink, Medicare and Tax – up to the same speed and consumer utility as modern customer facing businesses like airlines, banks and retailers.

Few outside the payments industry or government appreciate it, but it’s the Reserve Bank of Australia that provides transactional facilities for the likes of Medicare – a role that many including the RBA itself have come to regard as at best ancillary to the core central banking role of steering monetary policy.

The RBA’s role in the mass distribution of welfare payments has an added complexity too. The institution also oversees regulation of the wider payments industry – a coalescence not all in the commercial banking and payments sector regard as optimal.

As both Medicare and Centrelink’s mainframe based systems have aged, policymakers on both sides have contemplated how to harness commercial payments innovations, especially online technology, to reform and modernise government interactions with citizens.

Despite citizen dissatisfaction growing with every month and year that welfare legacy systems replacement is put off, the political stakes surrounding outsourced procurement are now so high that internal solutions will need to be found within government.

The pertinent questions are how that internal transactional capability will be sourced, built and delivered after more than a decade of moving in the opposite direction.

The only certainty so far is that if doing nothing was not an option before the election, it’s even less of one now.


Medicare refunds are already partly outsourced

If financial services players were keen to take on management of Medicare’s payments infrastructure, they prudently avoided parading their ambitions in public given the public sensitivity and political volatility surrounding the organisation.

Despite pumping out more than $30 billion a year in payments, Medicare’s scale in terms of volume and value is still well below that of other sectors like groceries, fuel, utilities or even phone bills making it a sub-premium proposition.

Further diluting Medicare’s commercial value for banks is the fact that institutions already take a cut of many of Medicare’s transactions through the Easyclaim channel, which automatically refunds a Medicare rebate to a claimant’s account from practitioner payment terminals.

The initial clip banks struck with the Howard government a decade ago for Medicare Easyclaim was a robust 23 cents a transaction.

Given that level of existing fee flow – which is in effect partially outsourcing payments processing of itself – it’s not hard to see why some institutions would question how much margin was left in picking up processing what’s left.

Then there’s the infrastructure and ownership dynamics of the Australian payments industry. As both BPAY and eftpos are effectively owned by the banks as collective low-cost service providers to them, an automatic question arises as to the efficiency of institutions running individual bids.

That’s not necessarily the case for former government monopolies like Telstra which has often toed new ways to diversify its infrastructure and services business, particularly around verticals like health and payments.

Given the recent intervention of politics, those responding the Department of Health’s call for proposals must be wondering why they bothered spending the money to pitch in the first place.


Could Australia Post become Medicare’s ‘Giro Bank’?

One government organisation keen to trade on its government-owned status to pull in new business is the structurally challenged loss maker Australia Post.

Like Medicare and Centrelink, don’t expect to see a prospectus soon.

Post’s various attempts to elicit work from other government agencies, for example its Digital Mailbox, haven’t exactly set the world on fire.

But Post’s positioning could be its saviour as political winds change.

Led by former National Australia Bank’s local chief Ahmed Fahour, Post’s long game has been to try and establish a highly trusted mix of digital services and physical logistics as business lines that can help counterbalance terminally haemorrhaging mail revenues.

Ordinarily, Australia Post would face insurmountable competition from financial services players to pick-up a payments processing contract like Medicare, but the reversal away from outsourcing could conceivably work in its favour.

With the Reserve Bank of Australia unlikely to want to build and operate a new welfare payments hub after cajoling the banking industry into reforming its own infrastructure it’s not beyond possibility that Post could pull off a Steven Bradbury gold medal performance by being the last institution standing.

One model with miles on the clock is that of Britain’s ‘Girobank’ that took on the role of pumping electronic direct deposits of what were welfare cheques in the 1980’s. Although not an immediate success, the clearing house gained sufficient volume and business to eventually be sold-off.

At a wider level, in Europe, the ‘Postal Giro’ model typically enables electronic payments across banks and their customers for the likes of bill payments and person-to-person transfers from accounts.

Now that both sides of Australian politics have publicly sworn off outsourcing Medicare payments processing – and by logical extension probably Centrelink’s too – the creation of an Australian Giro facility could tick the ‘within government’ box for welfare payments modernisation.

Such a move would be unlikely to go down well with banks. But it may be a lesser evil than institutions fronting a warts-and-all Royal Commission.

And it would not be the first marriage-of-convenience prompted by political expediency.

For Turnbull, Medicare, Centrelink and Post alike, doing nothing is simply not an option.

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