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What are the Legal Requirements if My Franchise Uses a Non-Cash Payment Facility?

In Short

  • Non-cash payment facilities in franchises must comply with financial services laws.
  • Franchisees and franchisors may need an Australian Financial Services Licence (AFSL) for these payment methods.
  • Review your franchise agreements to ensure compliance with regulations for non-cash payments.

Tips for Businesses

If your franchise uses non-cash payment methods, ensure you’re aware of financial services laws. Consult a legal expert to check if you need an AFSL and review your franchise agreements to avoid compliance issues. Understanding these regulations can help you avoid penalties and maintain smooth business operations.


Table of Contents

As a franchisor, you may have some experience using Non-Cash Payment (NCP) facilities to entice new customers or clients and make payment and record-keeping more automated. However, there are laws that control the use of non-cash payment facilities. As a business that uses NCP facilities, it is crucial to understand your legal obligations. This article will outline the legal requirements surrounding NCPs and how they may impact your business.

What is a Non-Cash Payment Facility?

NCPs are where a person makes payments without physically delivering Australian or foreign currency as notes or coins. Given the increasingly rare use of cash across Australia, most businesses and customers now use non-cash payments to purchase goods and services, with some exceptions. 

The essential legislative requirements around NCP facilities are the processes which facilitate them. For example, some commonly used NCP facilities include:

Indeed, Australian businesses and customers all regularly use these methods of NCPs. In particular, franchisors and franchisees should note any obligations relating to direct debit services as this is a common method of facilitating payment of royalty fees and other fees from the franchisee to the franchisor.

What are the Regulations For NCP Facilities?

Generally, financial products include facilities through which a person makes non-cash payments. As such, NCP facilities fall under ‘financial products’, so legislation regulates their use.

Therefore, if your business uses NCP facilities, you will be deemed to be carrying on a financial services business. In this case, you must obtain an AFS licence to continue providing the NCP facilities. To obtain an AFS licence, you must meet specific requirements concerning your:

  • organisational capacity; 
  • education and training levels; and 
  • your risk management and financial position. 

You should know these requirements and any obligations they may place on your business. 

As an AFS licensee, there are further regulatory obligations you need to be conscious of. Some of these relevant obligations include:

  • giving retail clients a Product Disclosure Statement containing a sufficient level of information for them to make an informed decision about whether or not to purchase a financial product;
  • giving retail clients statements confirming that their transaction has been completed; and
  • providing retail clients with specific ongoing disclosures concerning a financial product. 
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What NCP Facilities are Exempt From Regulation?

Not all NCP facilities fall under the financial services regulatory regime. An NCP facility will not be covered where it:

  • only allows payments to one person;
  • is an incidental component of another facility where that other facility’s primary purpose is not a financial products purpose; and
  • provides for specific one-off electronic funds transfers.

Furthermore, some specific types of NCP facilities which are exempt include:

  • loyalty schemes;
  • low-value NCP facilities (where the max held by any one person is $1000 and the max held in total is less than $100 million); and
  • gift facilities (non-reloadable products).

Franchise businesses should be particularly aware of the exemptions for gift vouchers and loyalty schemes, given that franchise businesses commonly offer them.

What are My Requirements if I Provide Gift Vouchers?

Generally, gift vouchers are likely to fall within the definition of a gift facility. For an NCP facility to be a gift voucher, the facility:

  • must be issued as a part of a scheme, where the amount available on the facility is set when the facility is issued, cannot be increased and cannot be withdrawn as cash;
  • is capable of use on multiple occasions;
  • is promoted as a gift product, not a component of another financial product; and
  • clearly states its expiry date.

If the gift card meets these conditions, it will be relieved from some content and disclosure obligations.

As a franchisor, when drafting terms and conditions for a gift voucher program, it is important to consider whether you can create the program to fall within the scope of the definition of a gift facility. If the gift card or gift voucher does not fall within the definition of gift facility, relief might not apply where:

  • you can reload the gift product;
  • the expiry date is not clear;
  • the facility is promoted as an award; or
  • the facility only allows a single use.

What are My Requirements if I Provide Loyalty Schemes?

Often, some franchises will use loyalty schemes. However, like gift facilities, a facility must meet specific requirements to be a loyalty scheme. These requirements include the:

  • facility must be issued as a part of a scheme;
  • purpose of that scheme must be to promote the purchase of goods or services from the promoter; 
  • customer who uses the facility is granted credits for their purchases;
  • credits can be used to make a payment for goods or services; and
  • facility is not a component of another financial product.

Moreover, as long as the above requirements are met, your loyalty scheme is not considered a financial product, and the legislative requirements do not apply.

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Key Takeaways

If you are a franchisor considering using an NCP facility, you need to be aware of their legal obligations and requirements. Further, consider whether or not your NCP facility is exempt. Examples of commonly used NCP facilities include:

  • gift cards;
  • electronic cash;
  • loyalty schemes; and
  • direct debit services.

If you need help providing NCP facilities for your franchise, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is a non-cash payment facility?

It is a payment not made through the physical delivery of Australian or foreign currency, such as gift vouchers.

Who and what governs the non-cash payment facilities?

The Australian Competition and Consumer Commission and the Corporations Act 2001 (Cth) govern the use of non-cash payment facilities.

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Joseph Harman

Joseph Harman

Lawyer | View profile

Joseph is a Lawyer in LegalVision’s Franchising and Leasing team. Before joining LegalVision, he worked as a research assistant. Most recently, Joseph worked as a research intern with the Sydney Centre for International Law, helping to co-author two articles.

Qualifications: Juris Doctor, Bachelor of Commerce, University of Sydney.

Read all articles by Joseph

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