The payments industry is living through exciting times, with new initiatives being rolled out across the globe by countries to make their payments systems receptive to today’s needs. The New Payments Platform (NPP) is one such project, undertaken by Australian Payments Clearing Association (APCA) to build an infrastructure more robust, reliable and scalable for future use.
Payments technologies have evolved. Gone are the days when payments were settled in overnight batch; today they are cleared and settled quickly in daytime via frequent batches. This has necessitated the evolution of new payments infrastructure. Outlined below are some trends that have prompted the APCA and Australian banks to roll out a new payment infrastructure known as the New Payments Platform (NPP).
- Digital transformation in banking: According to a report by the Reserve Bank of Australia (RBA) more than four out of five Australians have Internet access at home, while an 8% increase has taken the number of Australian smart phone users to 12m. Consumers increasingly rely on digital banking for shopping and other needs. New services such as the mobile app suite, electronic wallet solutions and peer-to-peer (P2P) lending have created the need for a digital push by banks, primarily to support the growing volume of electronic transactions.
- Rise in non-cash transactions: Statistics indicate a strong preference by Australian consumers for using cards and electronic payments, with a steady decline in the use of cheques. According to an APCA report issued last February, debit card and credit card payments grew by 8.8% in volume and 6.2% in value in the year ending December 2014. Direct entry payments (debits and credits) rose by 7.5% in volume and 4.8% in value over the same period. Australians are among the strongest adopters of contactless payments and mobile banking and some of the world’s most frequent users of card and electronic payments. This demand has created the need for payments platforms across the globe and NPP is one such initiative.
- Disruption from non-FIs: Non-financial institutions (FIs), such as PayPal, Amazon, Apple Pay and Square are invading the payments space – traditionally the province of the banks which, along with regulators have been forced to bring speed and innovation to payments. Countries across the globe are attempting to modernise and develop new payments infrastructures.
- Customer-centric initiatives: Banks are undertaking more customer-centric initiatives to attract users and increase profitability. In this journey they are investing in technology to help stay ahead of the competition. Among the initiatives to reflect this trend are schemes such as Faster Payments in UK, G3 Immediate Payments in Singapore and the Immediate Payment Service (IMPS) in India. These have prompted other countries to follow suit and encouraged the Australian authorities to roll out NPP.
What is NPP?
Australia’s low-value payments infrastructure initiative is the NPP and will provide a versatile platform for businesses and consumers to use when making payments. NPP is expected to be operational in the second half of 2017.
The main feature of NPP is its layered design structure. As outlined below in Table 1, it will comprise a basic infrastructure service with a clearing utility function and linked to real-time settlement via the RBA, which all Authorised Deposit-taking institutions (ADIs) will connect to. This basic infrastructure will support an overlay Service, which participants can use for competing offerings.
Table 1: Key design features of the NPP:
The overlay services framework is designed to cater to the evolving nature of payments and help nurture healthy competition between players. The service will use the NPP payment infrastructure for transactions ranging from mobile-to-mobile payments and bill payments to property settlement services. A good example of how overlay services could impact businesses is the case of a car purchase. Under the present system, the seller receives a bank cheque or internet transfer as payment and then waits for the purchaser to lodge the paperwork with the relevant authority – for example the registration department – to complete the transfer. Under the NPP and an overlay service, information about the transaction – such as the registration number and sale date – can be sent with the payment and shared with the authority, enabling them to update their records in real time. This would reduce paperwork and uncertainty.
Table 2: Key benefits of the NPP:
|Round the clock availability||Payments can be transacted 24*7*365|
|Faster Payments||Payments realisation will be faster, almost instantaneous|
|Real time Settlement||Settlement will be near real time, so almost no settlement risk|
|Individual Transaction Settlement||Each transaction will be settled individually, thus minimising the risk|
|Irrevocable Funds||Funds transfer is irrevocable|
|More Remittance Information||More remittance information can be accommodated, resulting in clarity in payments|
|Addressing Service||Payments can be done using mobile number, email ids, name (aliases) etc|
|Overlay Service||Additional services such as car payments and mobile payments, besides normal payments service|
|Reconciliation Data||Better usage of reconciliation data to analyse payments to foster innovation and roll out competing products and services|
Impact of NPP
NPP will provide a faster way of completing payment transactions and various players in the payments ecosystem will be affected by this initiative.
- Channels: New ones will be built and existing channels’ features will be upgraded to be capable to execute payments using NPP.
- Risk management systems: In the NPP era payments realisation is near real time, so robust risk management systems are needed and banks will make the necessary upgrades to deal with any risk.
- Payment processors: The role of payment processors will be critical as they will be the interface between ADIs and the NPP as well as between banks’ core banking systems. They will upgrade their existing capabilities to handle payments and reconciliation real time in NPP.
- Addressing the database for reference data: This is one of the innovative features of NPP and the role of technological companies will be crucial in building a scalable robust addressing database, which ADIs and payments processors will use for identifying both originators and beneficiaries.
Impact on the payments domain
The roll-out of NPP in Australia will have a cascading effect on the business, with an expected increase in business opportunities as payments become a 24/7 service and new payments methods are added. The concept of overlay services will encourage competition among payments innovators. There is scope for new card products to be unveiled, as operators will utilise the overlay services. NPP will facilitate better liquidity management by the government and RBA, as there will be clear visibility of cash in the financial supply chain.
Opportunities for technology players
NPP offers this group huge opportunities, as outlined in Table 3 below. The basic infrastructure of NPP will include the network, switch and database for reference. Technology players can partner with SWIFT to build the network required for laying out NPP.
Table 3: Opportunities and offerings:
|Maintenance of switch and routing||The payments from payer ADI to payee ADI will be routed and orchestrated between participating banks and RBA, so technology companies can help SWIFT and ADIs in these activities.|
|Reconciliation Service||As payments are initiated and realised in real time, the process will involve usage of more sophisticated logic for reconciliation. Technological companies can use advanced computing methods and logic to meet this goal.|
|Maintenance of Addressing Database||Technology players can help build an address database that will facilitate payments using simpler identifiers like mobile numbers, email addresses and short names (aliases).|
|24/7 maintenance and support||Maintaining and supporting the NPP process 24/7 is a major activity and technology companies can leverage their resources to support this.|
|Collaboration with Payments Providers||Overlay services has the potential to encourage many innovative payments product and service offerings and technology players can collaborate with payments companies to roll them out.|
The potential of NPP for Australia’s payments is huge; it’s a futuristic infrastructure that aims to cater to needs of the next generation of payments products and services. This initiative will surely boost business activities in Australia and customers will benefit significantly. Regulatory authorities, banks and technology players should collaborate and make the NPP roll out a success.
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