19 Sep 2017
Australians will soon be able to transfer money from one bank to another in almost real-time, meaning the hassle of waiting a couple of days for funds to clear will be a thing of the past.
Australia’s New Payments Platform (NPP) is a fast, versatile and data-rich payments system for making domestic payments.
Planned for launch in 2018, the NPP will enable customers of participating financial institutions to send and receive money almost instantly, using a simple payments addressing service called PayID all while sending more information with their payment than ever before.
" The hassle of waiting a couple of days for funds to clear will be a thing of the past."
The NPP is a uniquely Australian design which builds upon many ideas from other international systems. While the concept of ‘real-time’ payments is nothing new - Japan was the first country to implement a RTP system in 1973 - the expectation for the NPP is clear: once fully functional it will be among the best in the world.
Similar to the UK’s Faster Payments system and Singapore’s FAST, the Platform NPP will enable payments at any time of the day, on any day of the year, including public holidays.
In contrast, Japan’s Zengin system currently only operates between 08:30 am to 4:40 pm while the availability of Mexico’s real-time system varies by bank it must be available from 06:00 am to 06:00 pm.
Other countries which offer real-time payments in some shape or form include China, Poland, Chile, Switzerland and South Africa, just to name a few.
The NPP will also offer a simple addressing service called PayID which will allow users to link something easy to remember such as mobile number or email address to their bank account details.
This is not dissimilar to the UK’s PayM or India’s mobile money identifier (MMID) schemes which use mobile numbers as alternative identifiers to address payments – India currently has a whopping 58 million plus MMIDs registered!
The NPP is a far cry from the ageing system Australians use today - one still based on old-fashioned technology.
The Direct Entry payments system still commonly used is based around the concept of physical tape exchanges, similar to the big round tapes you see in old movies.
Originally it involved a representative from each of the banks meeting in the middle of the night to swap tapes. They brought five and gave one to each of their counterparties and took five back to the bank with them.
While the days of physically swapping tapes are gone, apparently not much else has changed. The file format itself hasn’t changed and we now do this slightly more often, rather than once a day.
But it’s still a Monday to Friday proposition and it’s batch based, so a whole heap of payments are stored-up, including over the weekend, and released in the next batch.
While Direct Entry has been described as the workhorse of the Australian payments system –it’s not great for data, or to meet evolving consumer expectations or support innovation.
The file format isn’t very friendly in terms of the data contained (up to 18 characters of free text to describe a payment). It’s a closed ecosystem, so it exchanges payments between a relatively small group of counterparties.
Quite simply, it’s not the payments system going to power Australia as we move into a digital economy.
The expectation of the NPP is to not replace Direct Entry but sit alongside it. The platform is much more of an open system and hopefully it will last us well into the future.
The NPP’s journey began in 2012 when the Reserve Bank Australia (RBA) published a paper (Real Time Payments Committee Proposal) around gaps in the payments market and challenged the industry to respond.
By and large, the platform is the banks’ system ─ they’re paying for it and have designed it in response to the RBA’s earlier observations.
A key standout for the New Payments Platform is its enhanced data capability through the application of ISO20022, a global message standard currently adopted by Denmark’s RealTime24/7, Sweden’s BiR and Singapore’s FAST payment systems.
This capability enables more information to be embedded into payment messages for straight-through-processing and can provide links to externally hosted documents.
Another world-leading aspect of the platform’s design is the ‘layered architecture’ which enables innovative payments or data-focused organisations to build products or services ‘on top’, leveraging its capabilities.
The platform has the potential to support multiple and competitive offerings, making it a potential breeding ground for innovation.
We call these offerings ‘overlay services’ and the first to be launched from the Platform is Osko by BPAY. Osko will be offered to consumers via their usual digital banking service, offering payments that will be made mostly in under a minute, 24/7, 365 days a year.
Overtime the Osko product will evolve to also offer payment with a document and ‘request to pay’ functionality for account-to-account payments, positioning it as a real challenger within the peer-to-peer payments market.
Built from the ground up, the NPP’s open and layered infrastructure is scalable for the future and can be accessed by organisations looking to create a faster and more efficient ways of conducting business.
Its messaging capabilities present a huge amount of potential for a myriad of other use-cases which could involve ecommerce, government or taxation payments, or business to person payments like superannuation contributions or single touch payroll.
As businesses continue to digitise their back-offices and enable rich data services for consumers, delivered digitally, the NPP will be another building block that will enable services to be delivered in the way today’s consumers expect. That’s something to keep an eye out for in the future.
Many payments technologies around the world feature a various amount of these elements. The NPP will have all of them alongside real-time settlement.
As Australian financial institutions learn from the experiences from overseas and gear-up for the arrival of real-time payments on our shores, let’s take a look at what other countries have on offer.
Adrian Lovney is CEO at NPP Australia
ANZ will inform customers when faster, simpler, smarter payments are available
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
19 Sep 2017
05 Sep 2017