Australia’s New Payments Platform will provide the infrastructure for a raft of payments innovation, but it is up to financial institutions to decide how to best make use of it, says NPP Australia chairman Paul Lahiff.
The New Payments Platform (NPP) is a major industry initiative to develop new national infrastructure for fast, flexible, data rich payments in Australia, and is on track to be operational in the second half of 2017, Lahiff says.
The NPP has attracted a lot of attention as a real-time payments provider – it is aiming to have about 98 per cent of all transactions go through clearing and settlement in 6 to 8 seconds. But Lahiff says it is also about user convenience and new products and services which will be offered via overlay services using the NPP’s capabilities.
“At this stage, we don’t know what all of those things are going to be. But our determination is to provide what we think of as a set of railroad tracks that various trains can run on. The trains are going to be the products and mobilized services that each of the participants come up with to meet the demands of their customers,” he says.
“Competitive forces will then determine which ones make sense to customers – whether that’s retail customers or small business or corporates or government – and the winners will be the ones with the best ideas that can drive off the infrastructure.”
The only overlay service the NPP has commissioned is the Initial Convenience Service, which will be provided by Banter publisher BPAY after it won a competitive tender late last year. The service will let consumers make payments in real-time to and from their bank accounts via their mobile phone, tablet, or via the internet. “We wanted something that was going to be able to get traction when we go live next year,” says Lahiff, a 30-year financial services veteran.
The NPP will also deliver economic benefits. The Reserve Bank of Australia, which is one of the 12 Financial Institutions taking part in the NPP, believes that faster money is more efficient money and this will ultimately drive GDP growth. It promotes activity because people aren’t waiting around for payments to arrive.
Enhanced payments data
Even something as mundane as buying a car could be made more efficient. “We believe that there could be an overlay service which makes payment for the car, arranges clearance through the various motor registry services – so they know they’re getting proper titles of the car – and arranges insurance, all within a quick timeframe.”
Lahiff says the financial institutions best-placed to take advantage of the new payments infrastructure are those which focus on what their customers are looking for.
“Financial institutions will be starting to think very, very hard about identifying needs in this space and whether they’re interested in the SME market segment, the mid-corporate or large corporate or whether they’re focused much more on consumers,” he says. Lahiff suggests innovation will come from two sources, the banks themselves and the fintech sector, which he expects is already considering the possibilities of the new payments infrastructure and developing pitches to take to financial institutions.
Another important feature of the NPP that will drive efficiency is the amount of data that will accompany transactions. The NPP has adopted the modern global ISO 20022 standard for messaging which provides significantly more data handling capacity for transactions than is currently available.
Business-to-business payments will have the potential to be accompanied by data that can identify sub-payments, saving the payee a lot of time and resources that would have been spent on reconciling the transactions. Likewise, businesses’ superannuation payments could be accompanied by data with a breakdown on how much of the total payment to attribute to each employee. The NPP is currently in the build and internal test phase ahead of becoming operational in the second half of 2017.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is building the central Basic Infrastructure and the 13 participating financial institutions are doing their own internal builds and links to their back office payment systems. Internal testing and validation is scheduled to start at the end of this year, followed by an industry test next year. Banks are working on fraud and risk management systems as well as liquidity management, which becomes a big issue when payments are made around the clock instead of netting them off at the end of the day with the Reserve Bank of Australia.
Lahiff says he has been very pleased with the cooperation between the participating financial institutions. “This type of project requires an incredible level of collaboration in a financial services sector that is highly competitive,” he says.
“I think it’s testament to the forward-thinking of the industry in Australia and I’m very much aware that countries like the US and Canada and China are looking at what we’re doing out here and thinking, ‘That’s probably the recipe for the way we need to develop real-time payments in our country’.”
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This article first appeared on BPAY Banter