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Flagfall finally for Australia’s real time payments revolution

After a few delays and strong arming from the Reserve Bank of Australia, sufficient financial institutions, including the big banks, have now signed up to build Australia’s real time payments system, the prosaically named 'New Payments Platform', the NPP.

This is the outcome the RBA effectively demanded two years ago when it laid down a road map for modern payments evolution in Australia, scarred – as was the industry – by the collapse of an earlier bank-driven idea, MAMBO (Me and My Bank Online).

"The stand out attraction for corporates is the richness of data, rather than the speed."
Paul Lahiff, NPP chairman

Twelve institutions have signed up, which means committing funding and receiving shares, and the international payments utility SWIFT has won the contract to build the project. Critically SWIFT was able to offer the industry a two-level system, a basic utility on which all the functions run and an 'overlay' platform on which companies – not just banks – can design and sell other services in addition to payments.

The 12 financial institutions that have become the founding members of NPP Australia Limited are ANZAustralian Settlements LtdBendigo and Adelaide BankCitigroupCommonwealth Bank of AustraliaCuscalIndueING Bank (Australia)Macquarie BankNational Australia BankRBA and Westpac Banking Corporation.

The sign-up came after an eleventh hour hold up when some of the 12 had second thoughts but were encouraged by the RBA to have some third ones. The final roll-out of an actual system in 2017 is a little behind the RBA's original plan but critically the RBA, its Payments System Board and the Australian Payments Clearing Association are all on board with the announced project.

To go ahead the project needed four ‘High’ participants – the major banks – the RBA and at least four of what were called 'Medium Equivalents' – either medium institutions or a mix of medium and more smaller institutions.

The NPP will be the biggest payments reshuffle in Australia really since the international schemes Visa and MasterCard entered the market in the 70s. It is the first new payment clearing system for 15 years.

The key to the NPP is it is not just about faster payments, central as that is, and the near real time exchange of funds. Australia’s existing payments system is hamstrung by its old technology which only allows 18 characters of information to be sent with a payment.

Given how hard people find it to say anything meaningful on Twitter in 140 characters, it’s easily appreciated how the 18 character limit constrained the nature of transactions.

With considerably more space for information – and the exact amount is still to be worked out – some of the services likely to be offered on the NPP might not be just a payment at all.

APCA chief executive Chris Hamilton told BlueNotes the key to SWIFT’s winning bid was its global reputation but also the innovation it showed in designing a platform offering both the basic infrastructure – “the rails” – and the potential for a vast array of services to run on those rails.

For industry pointy-heads, another critical element is the project will be ISO20022 compliant, essential for highly sophisticated technology companies.

“ISO20022 is critical for security and to allow the roll-out of intranet and connection nodes around the country so the broadest opportunity for innovation is possible,” Hamilton said.

Others in the industry agree.

“The new payment plan needs to use ISO20022, the new international standard not just the existing ISO8583,” one international industry adviser told BlueNotes. “The new ISO standard is essential for a basic digital payment platform because it requires the total transaction to be shipped at once - not like ISO8583 which only requires part of the transaction to be shipped, that is just enough to enable an authorisation to be made.”

This industry veteran argues ISO20022 is necessary to facilitate competition from non-bank, purely digital players and so he was pleasantly surprised this requirement was signed in.

“This is essential if true digital payments are to be developed in Australia - it allows new entrants or start-ups to use pure digital means rather than having to piggy back on the existing banks.”

Hamilton says the key issues the two final bidders for the project had to deal with were the layered infrastructure of rails and overlays together with the ability to support competition between payment networks, not just between payment providers.

NPP chairman Paul Lahiff told BlueNotes the stand out attraction for corporates is the richness of data, rather than the speed.

“I’ve been doing a lot of presentations on the project and what comes through all the time, time and again, when I am talking to chief financial officers and treasurers is the messages need to be detailed, that’s what will allow companies to use the NPP for so many activities,” he said.

The next stage after today’s announcement of the appointment of SWIFT will be to design and elaborate on the project. That is expected to be completed by July or August. Construction can then begin with the first services expected in the second half of 2017.

SWIFT has been signed up for 12 years.

In the announcement, Lahiff said “we have reached a defining moment for the future of Australian payments. The industry’s vision in response to the Reserve Bank’s challenge for faster, richer, 24x7 payments is now well on the way to becoming a reality.”

During the “design and elaborate” phase NPP Australia members will work with SWIFT to detail the central solution as well as the system developments needed for each member. The phase is due for completion in third quarter 2015.

A new NPP board will also be set up.

For customers, NPP’s core attractions are faster clearing and settlement which means the ability to make payments in near real time direct from one account to another, the availability of enriched data and new services to utilise that data,  simple addressing so customers will be able to associate more familiar details with banks accounts in transactions and convenience – more seamless transactions.

The shift in Australia to real time payments has been fraught and expensive – for banks with previously failed projects and for customers with the opportunity costs of not having world’s best services.

Finally this quantum shift in payments seems to be underway.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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