New Payment Platforms have revolutionised the way Australians send and receive payments. Orbium’s Christian Schneeberger explains how the new infrastructure works and what the opportunities are for the banking industry in Australia.
What is the New Payments Platform?
The New Payments Platform (NPP) is new open access infrastructure for fast payments in Australia. It enables customers of different banks to make and receive real-time payments. The Platform’s data capabilities mean it has the potential to do so much more than just enable near real-time payments. The NPP was developed via an industry collaboration to enable clients to make simply addressed payments. Each payment message is capable of carrying much richer remittance information than previous systems and supports the independent development of ‘overlay’ services that offer innovative services to end-users.
The NPP is based on the Conclusions of the Strategic Review of Innovation in the Payments System, published by the Reserve Bank of Australia (RBA) in 2012. The RBA played a significant role in establishing the broad direction of the industry’s efforts. It also built the settlement component of the NPP, known as the Fast Settlement Service (FSS). The FSS allows transactions to be settled individually on a 24/7 basis.
A key focus will be on business applications, as well as the opportunities in industry verticals, such as funds management, in and around the stock exchange, or in the insurance and superannuation industry.
What can it do?
Four key features underpin the New Payments Platform:
Speed – the ability to make payments in real time, with close to immediate funds availability to the recipient
Data Enriched – the ability to send more complete remittance information with payments
Simple Addressing – a system called PayID that enables consumers to easily address payments to any recipient using an identifier such as a phone number, email address, ABN or an organisational identifier.
Additional features will become available over time with the development of new overlay services.
Who is involved?
All ‘big 4’ Australian banks and many more financial institutions.
How does it work?
The NPP is comprised of three main components:
The Basic Infrastructure (BI): a network that connects participating financial institutions, a switch that moves messages between them and an addressing service (PayID)
The Fast Settlement Service (FSS): a component of the BI provided by the RBA that allows cleared NPP payments to be settled in real-time by debiting and crediting the Exchange Settlement Accounts of the two financial institutions of the payer and payee customer
Overlay Services: payments-related products or services that leverage the BI.
The NPP uses ISO 20022, the global standard for electronic data interchange between financial institutions. Connection to the NPP Basic Infrastructure and Addressing Service is via NPPA/SWIFT-supplied Payment Gateways (PAGs). They are configured to support processing and routing of transactions between the PAGs, the Addressing Service and the FSS.
Payments can be directed to accounts via a PayID (e.g. a mobile phone number). Users will be able to provide their PayID to people or organisations they wish to receive payments from. It’s about simplifying the payments process by using information that is easier to remember than traditional BSB and account numbers.
An overlay service is a product or service that leverages the functionality of the New Payments Platform to provide tailored payment experiences between the customers of participants. They could be offered either by connected participants or via arrangements with other organisations to enable access to the New Payments Platform.
The first example of an overlay service is Osko, owned and operated by BPAY. But NPP is set to resolve many challenges by streamlining the payment process. One potential application lies in the Superannuation (a $2.5 trillion industry) where Overlay Services could improve:
SuperStream: simplify addressing, leveraging enhanced data capabilities
Micro Top ups: round up every expense and put the difference into their Super account
Rollovers: use PayID when a member changes provider
Pension Drawdowns: simplify the access to the pension money and flexibility in managing it
Why has it been developed?
The way people and businesses spend and receive money has changed rapidly. Australians are increasingly used to fast, online and mobile experiences, and it is important that the payments system supports this evolution. The ability to make near real-time payments is fantastic and well overdue, but the banks and industry are not investing over $1bn on a platform just to make payments happen faster. The real value lies in business’ ability to combine this speed with extra data capabilities and security to provide other services that will help them get ahead of their competitors or save costs.
How can we help?
Orbium has a detailed knowledge and understanding of the Australian market and has assisted banks and financial institutions with the implementation of their systems.