Countries around the world are looking to break free of creaking, decades-old payments systems to make money move with less friction. Participation in the U.K.’s Faster Payments scheme has actively grown since its 2008 launch, transferring payments within seconds between different banks’ customer accounts. Hong Kong is currently working to roll out an effort of its own, and Australia became the most recent country to debut an industry-wide payments platform to meet the increasingly high-speed needs of its consumers.
For this month’s feature story, PYMNTS made a call Down Under to Adrian Lovney, CEO of NPP Australia, to discuss the country’s newly-minted, real-time payments scheme. Having made its public launch on Feb. 13, the New Payments Platform (NPP) speeds past the country’s 50-year-old batch processing system. It had already signed on more than 60 FIs at its launch, a group ranging from the country’s largest bank to small credit unions with fewer than 20,000 members.
Lovney's involvement with the scheme has extended beyond his position at NPP Australia, the organization overseeing transactions made on the platform. He also held a prior role at one of the founding companies of the Real Time Payments Committee, which was responsible for the system’s design and development.
Many factors went into the design, Lovney explained, including a layered and decentralized architecture, real-time settlement enabled by a central bank and other elements to speed up service and keep the system relevant long into the future.
Building for the Future
The NPP debuted in an ecosystem in which four separate payment systems already were at play: direct entry, BPAY for bill payments, EFTPOS for domestic debit at the point of sale (POS), and the Reserve Bank Information and Transfer System (RITS) for real-time, high-value gross settlement. These systems were disparate in terms of their technology and how they’re governed, Lovney said, despite being run by largely the same institutions.
The NPP Australia team hoped that when it rolled out yet another new payment infrastructure, that offering would be adaptable enough that it wouldn’t need additional infrastructure in an already crowded field.
“There is a view that, in Australia, every time we want to create a new, different payment system, we start again from scratch,” Lovney said. “In a country of [only] 28 million people, that wasn’t seen as particularly efficient … we needed a more efficient way of creating our next piece of infrastructure.”
NPP Australia wanted to create a flexible infrastructure that could continue to be used in new and unexpected ways for years to come. As such, the design and rules governing NPP help to make it easy for banks, FinTechs, disruptors and other financial players to leverage the system for any future products.
Many industries find speed is not the most compelling feature of real-time payments, Lovney said. Rather, the most exciting capabilities include integrating NPP deep into the back office, obtaining more data and operating without the cutoff times imposed by batch processing. The batch system kept businesses beholden to its daytime operating hours from Monday to Friday. NPP’s 24/7 availability removes that restriction, giving businesses greater operational freedom.
This 24-hour access is supported by a decision to use a distributed architecture instead of a central hub. Each participating bank, including Australia’s central bank, have several payment gateways that are all connected — similar to how institutions use SWIFT. The result is a system that incurs no downtime for maintenance.
“We came to the view that a distributed architecture was more performant and more resilient than a central hub, and enables us to deliver five nines uptime with no maintenance windows at all,” Lovney said.
NPP also updates the batch system’s data limits, which restricted information per payment to 19 characters of text. The new scheme replaces that with ISO 20022 data standards and a near-term plan that calls for transmitting a PDF, up to 280 characters of text and a request to pay alongside the payments.
Real-Time Central Bank Settlement
Each bank in Australia has an exchange settlement account with the central bank, and NPP takes advantage of this to enable real-time settlement. This reduces liquidity and settlement risks for the system, according to Lovney.
The central bank can move money from one party’s exchange settlement account to another, ensuring that even high-value transactions are instantly settled. This might be leveraged for handling property settlements of more than $1 million in value, for example.
As Australia works to make its settlements and payments speedier, some financial officials have expressed concerns that moving money faster could mean faster fraud, too. The fear is that there will be less time for banks to catch bad actors before the funds transfer, but thus far NPP's fraud levels have been comparable to other payment schemes, Lovney explained.
Much of that fraud protection happens outside the actual money transfer, he added. Lovney believes that financial players can get ahead of fast fraud by continuing to use their authentication measures, device tracking, pattern analysis and other items in their toolkits. When in doubt, banks can hold suspicious transactions for further analysis.
One of the big promises NPP makes to consumers is that they no longer have to furnish a recipient’s account number to send money. That process created friction, given that 50 percent of Australians reported not remembering their own numbers, and two-thirds worried they might accidentally send money to the wrong account.
To resolve this, individuals can register a self-chosen number — such as a phone number — to be used as their identifier. The payee’s name will appear when the payer enters the number, thereby enabling confirmation. NPP’s promise seems to be resonating with consumers so far, as nearly 1.5 million people in a country of 28 million have already registered with the system.
“That sure well exceeds our expectations,” Lovney said.
While NPP is currently focused on the domestic realm, its team is well aware of bank and marketplace demands for faster international payments.
Lovney expects that several models may arise to meet this demand in the coming years. He anticipates one model will include new players or incumbents acting as intermediaries between one country’s domestic real-time payment scheme and another’s.
“You use the domestic real-time payment system to send money to an organization like Ripple or TransferWise, and then the money would be sent inter-country using an alternate set of rails,” Lovney predicted.
Organizations like SWIFT, remittance companies like Western Union or new disruptors all may be well-positioned to play this middle role. In the meantime, NPP’s focus is on continued rollout of its domestic efforts, with banks currently phasing in the service.
All in, the system has handled nearly five million transactions and counting.