The half-year mark. It’s a good place to take stock and reflect on a manner of things: Romance. Job performance. New payments platforms.
It’s been six months since New Payments Platform (NPP) Australia went live, where a few intrepid, traditional financial institutions (FIs) and financial services providers embraced a brave new world of — among other things — instant payments.
In an interview with Karen Webster, CEO Adrian Lovney of NPP Australia and Head of Cards, Payments and Fraud Products Nathan Churchward of payment services company Cuscal weighed in on what’s changed and what’s to come.
A bit of background: The platform exists as a new payments infrastructure, one that seeks to bring faster payments and transactions marked by richer data to stakeholders, ranging from businesses to consumers to the government. The backbone for all this was built through the efforts of the Reserve Bank of Australia and the banks and wholesale payment services providers, which cover just about all of the country’s financial landscape by market share across 65 retail and business banking institutions.
A Quick Look Back
As the saying goes, “To know where you’re going, look at where you’ve been.”
As Lovney recounted to Webster, the evolution of the new payments scheme was one born — like so many other initiatives around the world — by a regulator: the Payment Systems Board of the Reserve Bank.
“This is generally the type of stimulus that is needed to induce a system upgrade,” he said.
Seven years ago, the country’s payments regulator called for a response from the industry on how to overhaul a 50-year-old batch processing system — and FIs called for the institution of, among other things, the ISO 20022 data standard and a decentralized addressing service, along with real-time settlement models. Though the NPP had signed on with those 65 aforementioned FIs at launch, there is a continued striving for ubiquity of reach in the country of about 28 million people. Thus far, efforts have been making inroads, touching a vast majority of Australians. Then again, both executives stressed, the last mile still has room to be paved anew, in effort to make sure that domestic transactions are done with haste and security.
The financial firms run the gamut, said Lovney and Churchward, from the largest banks to smaller credit unions, where the membership can be counted in the tens of thousands of individuals. The NPP has also deployed a PayID system that lets recipients use their phone number, Australian Business Number (ABN) or email address to facilitate transfers.
Future capability will enable additional account-focused products geared toward individuals — for example, Lovney noted, direct debit offerings that can be used to make regular, recurring utility payments — and also B2B transactions. This comes as banks have found that they can incorporate the (relatively small) cost of facilitating transactions (from consumers or eventually between companies) into the cost of raising retail deposits tied to the accounts themselves.
Two Classes Of Payments
Looking at how the infrastructure is adaptable to make the leap into corporate payments, Lovney noted that there are two classes of payments. First, there are time-sensitive transactions, he told Webster.
“These might include salary payments for people who work irregular hours, or they may include emergency benefits or insurance payments,” he said.
The other strata of payments? They are those that rely on data, lots of data — where speed is not as important as information. The 24/7/365 nature of the platform becomes critical and can be relied upon for everything, from 401(k) (or superannuation) payments to electronic invoicing to supply chain transactions.
The richness of the data gets expanded, as data limits are expanded well beyond the per-transaction limits of 19 characters of text. The new scheme replaces the limitation with ISO 20022 data standards. There also exists a near-term plan that calls for transmitting a PDF, up to 280 characters of text and a request to pay alongside the payments.
“Increasingly, businesses want to make one connection to one payments framework,” Lovney said — especially as they eye doing business across a number of different jurisdictions. “They are looking for some consistency in how they integrate with a payments system.”
That does not mean immediately moving to a payments structure that can do it all. Lovney stated that movement to a domestic scheme that offers a single set of rails (for domestic and cross-border transactions) and can accommodate high-value, high-frequency payments may take a few years, pointing to the fact that, in Australia, “we are still using a lot of checks. There can be a gap between aspiration and reality.”
Churchward said, “There will continue to be two capabilities, and [FIs] will continue to invest in both card and non-card payments.” He added that flexibility lies in the distributed architecture, rather than with a central clearing house structure.
“It is not just an infrastructure play,” said Churchward of NPP, but “it is a product play and has been from day one.”
The Fraud Discussion
Fraud may be top of mind for consumers, businesses and FIs, said Lovney. In designing and implementing the NPP, the overarching goal was to make sure that the rules and regulations set in place created “a liability model that ensured the parties that are best placed to prevent fraud, and put in place controls, were encouraged to do so” — especially at the point of enrollment, where aliases may be presented. He noted specifically the creation of aliases at the point of enrollment.
The initial launch had roughly a dozen connected participants and 50 indirectly connected financial institutions, said Lovney and Churchward, and now has coverage of around 80 percent to 85 percent of Australian accounts connected. That’s a lot of coverage — but, of course, it is not absolute. There’s still work to be done, and some firms are waking up to embracing NPP.
“Now, we are seeing a bit of a scramble from late starters who thought they would sit back and see what happened,” Lovney told Webster, with anticipation that NPP will see “an exponential growth rate.”