One of the great frustrations of cash-strapped Australian business owners – waiting indeterminate hours or even days for banks to process a payment – looks set to end.
A new real-time, data-rich payments system set for launch in the second half of 2017 will allow the transfer of funds within seconds, even if the payer does not know the recipient’s bank details. Entering a mobile number, email address or ABN into a mobile banking app will trigger the transaction.
Known as the New Payments Platform, it will mirror similar initiatives in markets such as Singapore and the United Kingdom and is the banking sector’s response to pressure from the Reserve Bank of Australia to improve the efficiency of existing payments processes.
Already, 19 members, including the major banks, have signed up to the NPP, which is being built by financial services technology companies Fiserv and Swift. BPAY has been chosen to offer the first service on the platform, letting consumers immediately make or receive electronic payments.
“It’s definitely exciting, interesting and good news, but it’s a long time overdue,” says Martin North, principal of Digital Finance Analytics, adding that non-bank providers such as PayPal have led the way with internet payments.
He says slow payment-clearing systems have “hobbled” the Australian market in the past and the NPP offers a chance for change.
Anyone who has had to describe a web-based banking transaction in an 18-character text field knows something of how the current payments system restricts the payment details that can currently be attached to transactions.
The NPP will dramatically loosen these restrictions, potentially enabling invoices and other financial statements to be attached, and making it easier to reconcile accounts.
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“Our focus is as much on improving the richness of data as it is on increasing speed,” says Adrian Lovney, chief executive officer of NPP Australia, which will oversee the platform.
“In fact, the capacity to shift much more data and information with every payment is what many people in small businesses find most exciting about the NPP.”
The NPP, he says, provides a flexible platform for businesses and industries that could help streamline processes such as SuperStream employee superannuation contributions and property settlements through the online transaction system, PEXA.
ANZ is one of the NPP members and it believes the ability for consumers to make payments around the clock will be a godsend for many retailers – and SMEs in particular – while assisting with cash-flow.
“The tradie can take the materials deposit on the Saturday and go straight to the hardware store and spend it,” says Katherine Bray, ANZ general manager, deposits and payments.
“The car dealer doesn’t need to take a token deposit to hold the car until Monday when the bank opens.”
Confronting the security challenge
Questions remain about security measures. Bray says ANZ and the other participants are upgrading their fraud-detection systems and there will be strong customer-authentication processes.
“We’ll have to be vigilant, obviously, but we do have a plan,” she says.
Will the NPP be another nail in the coffin for cash? The widespread ability to use mobiles phones, email or tablets as a payment device will surely lead to fewer cash transactions, while credit cards may feel the impact, too.
Lovney says Australians are clearly embracing digital payments for the purchase of online goods, and the NPP will give them more options to do so.
“That said, there will always be a place for cash.”
He believes the most exciting aspect of the NPP is that it will act as a foundation platform on which banks can offer other innovative “overlay services” for users. While successful value-added services such as BPay have been set up on the old clearing networks, they have taken years to emerge.
The NPP, by contrast, is designed to quickly support such new innovations. Lovney likens the infrastructure to train tracks that connect financial institutions, businesses and consumers.
“Eventually, there will be a lot of different payments services using the tracks, including ones we don’t know of yet.”
North offers a word of caution for businesses hoping the NPP will solve its cash-flow problems. While real-time payments will help, the tendency of many major companies to stretch out payment cycles well beyond 90 days is at the heart of the cash-flow crunch.
“So the fundamental cash-flow problem [is not with] the payments system itself – it’s the culture of the large organisations in Australia.”
One of the keys to the NPP being truly innovative, according to North, will be allowing universal access to members other than the banks to offer services using the platform. He hopes the banks do not end up “controlling the whole box and dice”.
Nevertheless, he is confident the new system will encourage commercial innovation. He foresees a scenario, for instance, whereby businesses offer instant loyalty rewards to customers in the form of discounts off a purchase price, rather than forcing them to collect points on a credit card and convert them to gifts later. The availability of greater data around transactions should also lead to more targeted and tailored offerings for customers.
“So I wouldn’t be surprised to see much more innovative marketing campaigns and programs off the back of the intelligence information that will be part of the payment message.”
What they say about the impact of the NPP …
: “[The NPP will] allow data-handling capabilities that are tens of times greater than those available under existing electronic payment systems.”
Katherine Bray: “It’s less cash, not cash-less. Cash still has some inherent benefits – it’s faster to transact, it’s anonymous and we’ve found that its very tangibility has customer appeal in that it’s easier to monitor.”
Martin North: “It creates a whole foundational element for later innovation.”
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