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Australia's NPP set to trigger a faster-payments revolution

New Payments Platform offers new opportunities for data-savvy asset managers

Australia's most significant and ambitious overhaul of its payments infrastructure in 20 years, the New Payments Platform (NPP), is set to usher in a long-awaited regime of real-time transactions that its developers believe will spark a new wave of data-driven innovation. Asset managers stand to benefit from streamlined client transactions but must also be mindful of potential cybersecurity risks the technology may bring, according to industry experts at a recent RBC Investor & Treasury Services (RBC I&TS) forum in Sydney.1

Key insights

  • The New Payments Platform is triggering data-driven innovation in the Australian payments landscape
  • Information-rich payments will help remove administrative pain-points in transactions between asset managers, service providers, and clients

Built by SWIFT, the global bank messaging network, and funded by 13 banks and financial institutions, NPP will undergo pilot trials in Q1 2018 before a wide roll-out to the industry, Carolyn Young, Head of Domestic Payments & Receivables Product at ANZ, said at the forum.

The platform's ‘basic infrastructure’ will provide the payment rails that allow transactions to be cleared and settled within seconds. The rails will also allow industry-driven overlay services to ride on them, offering a springboard for faster-payments innovation.

“It's the first clearing system to be put in place in Australia for more than 20 years. Not since 1997 when we rolled out BPAY on phone banking have we put out a new clearance system,” said Young.

“It's a significant change for the industry and substantial investment has been put in place to make that happen.”

More data to sweep away back-office pain points

'Osko', developed by BPAY Group, is the first overlay service that will run on the NPP rails and aims to cut clearance and settlement times dramatically, from up to five days in the current regime down to a matter of seconds. The service will also make payments easier by inviting users to register PayIDs based on phone numbers, email addresses or ABN/ACN, rather than BSB and account numbers demanded by most legacy payment systems. Remittance information for payments is currently limited to 18 characters in the legacy infrastructure but will be boosted to 280.

Apart from more detailed identifiers, the technology will enable payers and payees to attach multiple electronic documents to payments, potentially streamlining corporate actions in asset management, including distributions and placements. Enhanced messaging capabilities will also enable instant requests for payment, which may enable asset managers to better manage cash-flow and liquidity. Such common-sense changes will remove major administrative pain points between asset managers, their service providers, and clients, said Scott Davies, who is responsible for RBC I&TS' Transfer Agency product in Australia.

Enhanced messaging capabilities will also enable instant requests for payment

“For asset managers dealing with large inflows or outflows of funds, there is currently a lot of co-ordination between clients and service providers in terms of sending and receiving payments and the associated reconciliation activities,” said Davies.

“Nowadays you may have real-time post-settlement payments but the name is misleading because there could be a four-hour gap between sending and receiving payment. NPP promises to cut the gap to a matter of seconds on eligible accounts, with statements issued alongside the payment.

“The reconciliation process will become a lot more around exception handling as opposed to ‘tick and flick’,” he notes.

More broadly, information-rich payments facilitated by NPP are expected to drive innovation in payment services from both incumbent banks and more nimble fintech providers equipped to leverage the new data to better understand customers. Such innovation will not be derived from a focus on payments, but rather from an analysis and an understanding of the customer experience during transactions.

Information-rich payments facilitated by NPP are expected to drive innovation in payment services from both incumbent banks and more nimble fintech providers

“There is a growing ecosystem around payments that can be leveraged and a significant number of opportunities,” said Anne Collard, ANZ's Head of Payment Industry and Capabilities.

“It's about the interaction, not the transaction. It will actually, more than anything, create a situation where we think about what we're trying to do, rather than the payment transaction.”

Putting a price on faster payments

Developing the NPP has required significant investment by industry participants but it remains unclear as to how they intend to recoup their costs, how real-time payments might be commercialized or whether customers will have an appetite to pay for faster settlements. Collard suggested the value may lie in the information flow attached to payments rather than in the payments themselves. “As we've seen payments are going real-time around the world and as that commodity grows, it only takes one institution to go to zero in terms of price,” she said.

“I think there is also value in other things around the payment and things that we can provide that can add real value that customers would pay for.”

NPP's value will be inherent in a better understanding of investors and clients, paving the way for more targeted product and service offerings

For asset managers with the ability to effectively leverage the data, NPP's value will be inherent in a better understanding of investors and clients, paving the way for more targeted product and service offerings.

“If you can get good quality information about your investors, it means you can map out their behaviours, what they actually want, where they’re at in their life, what their investment landscape might be as well as understanding their risk appetite,” said Davies. “Instead of mass-marketing, you can be more targeted.”

Guarding against real-time cyber-attacks

In the payments landscape, Australian corporates are operationally ‘a little way off’ their European Union or United States counterparts, said ANZ’s Young, and becoming NPP-ready will require them to upgrade their systems architecture. The implementation of real-time payments has also raised concerns about the risk of fraud and coordinated cyber-attacks. While legacy clearing systems may be slow, they offer more time to detect potentially fraudulent transactions. With the new technology reducing the auditing time to seconds, banks are working to bolster their cybersecurity defences to manage such threats. Asset managers keen to reap the benefits of the NPP must be vigilant about these risks.

“It will be very easy for a payment to move between multiple accounts within seconds and all of a sudden you've lost track of it completely,” said Davies.

“The industry needs to continue to be vigilant to ensure risk issues are mitigated, while continuing to benefit from the opportunities innovative payment solutions present.”

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  1. RBC Investor & Treasury Services Forum (November 2, 2017) Payments & NPP, Sydney