In a speech by the Reserve Bank of Australia’s Head of Payments Policy Department he has set out what has been achieved in delivering real-time payments in Australia through the New Payments Platform (NPP) as well as the work that still needs to be done to leveraging this national infrastructure to enhance the safety, efficiency and competitiveness of our payments system. Background.
He identified the following services and issues that need to be addressed to realise the full potential of the NPP:
- PayTo. This service will provide a convenient and secure way for households and businesses to authorise third parties to initiate NPP payments from their accounts. It will modernise the existing ‘direct debit’ system. Although it was initially scheduled for July 2022 this target has slipped and the Reserve Bank Governor has written to the CEOs of the banks to seek assurance that they will be ready to launch PayTo by no later than April 2023. To realise the full potential of PayTo, the RBA also expects the banks to make the service available for their entire customer base.
- The international payments business service. This will enable the Australian dollar leg of inbound cross-border payments to be processed by the NPP. In particular, additional data about the sender will be provided with the payment, making it easier for payment service providers to meet their compliance obligations related to financial crime. The Reserve Bank expects the industry to remain committed to delivering the international payments business service in 2023. The NPP’s international payments business service should significantly increase the end-to-end speed of payments coming into Australia. Efficiency gains could also be achieved by making sure that the NPP is interoperable with major payment systems in other countries.
- PayIDs. The RBA thinks there is also an opportunity for industry to more actively encourage their customers to sign up for and use PayIDs. One of the key benefits of using a PayID is that the payer receives confirmation of the name of the person or business being paid before the payment is initiated. This reduces the chance that the payment will be mistakenly sent to the wrong account. It can also help guard against some types of scams, such as where someone is deceived into sending a payment to a scammer’s account rather than that of the intended recipient.
- Reducing NP outages. In the second half of 2021, three-quarters of payment service providers reported unplanned outages affecting their NPP services, with many experiencing multiple outages. The Payments System Board is closely monitoring NPP provider reliability, which will become increasingly important as usage of the NPP continues to grow.
- Access to the NPP for a broader range of payment service providers. NPPA has lowered the capital contribution required for authorised deposit-taking institutions (ADIs) to become direct participants. The governance process for approving applications for new participants has also been made more transparent and independent. However, non-ADIs are still not able to join the NPP directly to clear payments. Instead, they can choose to participate in the NPP indirectly, or as connected institutions to initiate payments. The Reserve Bank has started work on a set of common access requirements to help support access to payment systems, including the NPP. The intention is that these requirements would be incorporated into the new licensing framework for non-ADI payment service providers that the Government agreed to develop.
- The wind-down and eventual closure of the Direct Entry System. The RBA expects that account-to-account credit transfers will continue to migrate from DE to the NPP. For payments that are currently processed in bulk across the DE system, such as payroll, institutions are working on how to send these via the NPP. The introduction of PayTo will also pave the way for direct debit payments to move to the NPP. With the recent merger of NPPA, BPAY and eftpos to form Australian Payments Plus (AP+), the RBA expects AP+ to be considering how best to support the winding down of the DE system.
- Competition for established retail payments. Once PayTo is operational, the RBA says NPP could support innovations to compete with card payments. For example, NPPA has developed a standard for real-time payments using QR codes in person and online. PayTo should then provide opportunities for such payments to be made to merchants using QR codes. Customers could also authorise merchants to debit their accounts for one-off payments or provide standing authorisations for recurring purchases. This functionality could enable the NPP to compete more directly with card payments in future, providing consumers with more payment options and placing competitive pressure on payment costs.
- High-value payments. So far, the NPP has almost entirely been used for low-value payments. The introduction of the NPP’s international payments business service should lead to some cross-border transactions for large businesses migrating to the NPP. The NPP could also be used for after-hours payments in financial markets.
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Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.