Digital wallet and Buy-It-Now, Pay-On-Pay (BNPL) providers are expected to be regulated in Australia, with the federal government aiming to play a larger role in the payments system.

Treasurer Josh Frydenberg will unveil a set of sweeping reforms to the rules that underpin the payments system on Wednesday in an effort to address challenges posed by new technology.

The reforms aim to strengthen regulatory oversight, support competition and better protect consumers and investors in a regulatory environment that has remained largely unchanged since the 1990s.

Meanwhile, BNPL services like Afterpay, digital wallets like Apple Pay and Google Pay, and cryptocurrencies have become ubiquitous.

BNPL now accounts for about 20 percent of online retail transactions by value, according to the Reserve Bank of Australia, with more than a quarter of all adults having active customer accounts.

Digital wallet transactions have also grown rapidly, particularly since the start of the pandemic, with the Commonwealth Bank estimating a 90% increase in transactions by March 2021.

At the same time, the use of cash has waned from 69% in 2007 to just 27% in 2019.

BNPL and digital wallet operators currently do not fall under the Payment System Regulation Act, making it difficult for the government and the Reserve Bank of Australia to take action against the operators.

The changes that will be proposed by the government on Wednesday will see the daily treasurer given new appointing authority to intervene in these parts of the payments system.

Such power was approved during the Payments System Review earlier this year to ensure that “emerging payment issues … can be incorporated into regulation where it is in the national interest”.

This would give the treasurer the power to “order regulators to develop regulatory rules” and “give binding administrators to operators or participants of the payment system”.

The government has highlighted fees and competition – including potential open access to near-field communication (NFC) chips in iPhones – as two areas of interest to the government.

“Given the pace of change and who is leading it, if we don’t reform the current framework, it will be Silicon Valley that will determine the future of our payments system,” Frydenberg will say in a speech later today. .

The government will have to introduce a bill to introduce the additional powers, although it has not indicated when this could happen.

He suggested, however, that the most urgent reforms would be consulted in the first half of next year, the rest by the end of 2022.

The government will also consult on how to modernize the framework of the payments system in early 2022, including treating BNPL and digital wallets in a way that promotes competition and innovation.

Providers of digital wallets may be required to hold an Australian Financial Services License, although this appears likely to be applied on a case-by-case basis.