Mutuals, building societies and credit unions should keep a close tab on what’s happening with the New Payments Platform (NPP) and incorporate it into their planning to ensure they are well placed to take advantage of the opportunities it will offer when it goes live in the second half of 2017.
That’s the advice from NPP chairman Paul Lahiff who confirms that the build and internal test phase of the multi-billion dollar payments platform is running on time and on budget.
“At this stage, the boards and senior executives of these organisations need to understand what we are building, the possibilities that may flow from it from their own organisation’s perspectives and how it can help them satisfy their customers’ demands,” says Lahiff.
“Their customers already expect digital and online delivery and I think these expectations will only continue to grow. When they deal with any organisation, not just the banks, they want things to be fast, easy, convenient and secure. There are a range of players already disrupting the market and potential entrants we haven’t even begun to think about yet. There’s a lot happening in this space and financial institutions which aren’t alert to what’s happening could be left behind.”
In general, market experts say the NPP is the biggest change to happen in the Australian payments space in the past 20 years. Most anticipate that it will spur on further innovations by disrupters in the payments area. Many believe it could also become a crucial weapon in the battle to acquire and retain new customers and that it will open up cross-selling opportunities. Most importantly for customer-owned financial institutions, it is expected to help level the playing field between big and small players. Those that are innovative in their use of technology or move faster than their rivals are likely to score.
Real-time payments become reality
The NPP conforms to the ISO222 international standard which allows a significant amount more data and information to be conveyed with each payment method. It replaces the myriad of ageing proprietary bilateral links between financial institutions which have long limited innovation.
“It will be particularly attractive for Australian businesses, as it will allow them not only to be able to receive the payment in real-time, but also to receive a lot of data with that payment in a message format,” says Lahiff.
The platform will replace the overnight or multi-day processing of payments and settlements and cut down the time and effort required to reconcile payments in the back offices of financial institutions.
The NPP’s first overlay service allows flexible, data-rich payments in Australia to be made almost instantaneously with the option of using a mobile phone number or email address, rather than requiring both the customer’s BSB and account number. Known as the “initial convenience service” and provided by BPAY, it will let consumers transfer funds to and from their accounts via their mobile phone, tablet, or via the internet.
That’s in line with where the market is heading. A recent study by Roy Morgan Research, for example, reveals that a third (33 per cent) of Australians conducted internet banking using a mobile phone or tablet (app) in an average four-week period. And over the past three years, the number of Australians doing “mobile-only banking” has tripled. These customers did not use any other banking channel – such as a website, branches, adviser/banker or the telephone – to deal with their banks.
Similarly, a study by consultancy Bain & Company found that Australian bank customers are among the fastest adopters of mobile banking globally. It reveals that 38 per cent of Australian customers’ interactions with their bank happened using a smartphone or tablet in 2014, up from 22 per cent the year before.
Australians’ eagerness to embrace technology in their banking, combined with the opportunities being opened up by the NPP, is obviously great news for smaller financial institutions lacking the bricks and mortar infrastructure of their bigger rivals.
Many choices to be made
According to Lahiff, the first app will be the forerunner of other overlay services. “It was chosen by us, but after its launch, it will be up to the participants themselves to determine what overlays they want to provide to their own customer bases,” he says.
“It will be market-driven. Our view is that it should be their choice. Knowing what their customer segments and needs are, they can come up with their own overlays. Let the market forces determine which ones win and which ones lose.”
At this stage, Lahiff says the focus of the 12 participants, which include the Reserve Bank of Australia and Indue, is on the build phase. “That’s taking probably 99 per cent of their time and effort, but as we move into next year, this question of overlay services will get a lot more focus than its getting at present. But participants are starting to think about it.”
He explains that the current build phase is split into two parts. The first involves the central piece of infrastructure – built and operated by the Society for Worldwide Interbank Financial Telecommunication (SWIFT) – which will drive the system forwards and function like its “internal rail road tracks”. The second are the internal builds which will enable each to connect to the NPP.
“The build and test phase will take us through to early next year and then a large part of the year will be spent ensuring that the system works effectively before it goes live.”
Lahiff adds that those that don’t become direct participants, can still become part of it by buddying up or developing a partnership with one of the 12 existing participants.
“I suspect a lot of organisations will be attracted to that. In fact, it’s what Indue is doing for its members. It would be too big a task for some to participate directly. In addition, there may some organisations that may come up with interesting overlay ideas and they could approach the platform or one of its participants to play a part,” he says.
“It’s very much an open access system. We wanted it to be that way because we believe it is capable of providing lots of opportunity for lots of different players. We’d also have to ensure that from an Australian Competition and Consumer Commission perspective, the NPP is deemed as being pro-competitive rather than anti-competitive.”
Lahiff continues: “The way we have delineated the central piece of infrastructure from the competitive overlay services hasn’t been attempted anywhere else in the world, but we believe there is an inherent logic in ensuring that the central piece of infrastructure is kept separate. The Canadian Payments Association, the US Federal Reserve and the People’s Bank of China have all looked at what we are doing and are very attracted to it, so it could create a precedent for other systems that are developing along these lines in different parts of the world.”
Don’t be left behind
Those financial institutions not already part of the NPP should note that with the NPP, customers will need to tell their financial institution initially what “alias” to connect to their account, be it their mobile, email or ABN. This NPP alias can only be registered with one financial institution at a time. This means that if financial institutions want their customers to choose them to host their main transaction account, they need to move quickly and get up to speed with the NPP, or risk losing their customers to their rivals.
“The NPP will be run as a not-for-profit, commercial entity, owned by the industry, and we need to start staffing it up. We will begin to do that through the course of this year and work on building it up as an effective and efficient organisation that can run the infrastructure post-day one,” he says.
“We’ve already had good momentum, but we don’t underestimate the amount of work and effort that still has to go into it. That said, we are all very excited about the possibilities.”