The New Payments Platform (NPP), a joint initiative between 13 financial institutions including the big-four banks and the RBA, has been called a “new set of rails” for the Australian payments system. The greater velocity of payments will allow for simpler and more reliable cashflow management and reporting for SMEs. It will also be great for the economy as the funds that are currently tied up in overnight payments will be released into the real economy.
NPP Australia, the organisation established to oversee the development and operation of the platform, has said that within a year of the launch of the NPP, businesses will also be able to send payment requests to customers with payment information included.
The NPP will help small businesses to be paid faster and therefore better manage cashflow. It can currently take several days for funds to leave the customer’s account and become available to the payee.
Customers of different banks will be able to perform real-time transfers 24-hours a day, 365 days a year. The NPP will replace Australia’s current RTGS (real-time gross settlement) system which is more than 40 years old and only operates during bank hours.
Richer data will accompany payments allowing for simpler and faster reconciliation of accounts. The NPP will allow for a 280-character transaction description, a significant increase on the 18-character limit under the current system.
There is also the potential to add information to transactions to enable compatibility with accounting systems such as MYOB. Payments could be automatically matched to invoices, for example.
The first overlay service to launch on the NPP will be a BPAY product called Osko. Users of Osko will be required to set up a “Pay ID” for transfers. The ID, which could be a mobile phone number, carries a party’s essential transaction information such as account name and number, BSB number and other relevant information such as email addresses. The consolidation of this information onto one ID is sure to reduce accounting errors, further increasing the efficiency of the system.
The Pay ID will also allow businesses to change banks without having to notify suppliers or customers of new account numbers. The account number can simply be changed on the Pay ID without the counter-parties even needing to know that the change has occurred.
Other overlay services that communicate with the NPP are likely to proliferate in the coming months. For example, payment of a rental deposit could trigger background checks on the applicant.
It is important to remember that Pay IDs are not provided automatically by financial institutions; both payee and payer must opt in.
There are some questions to be answered around the bank fees associated with NPP transactions, but the biggest concern is the potential for increased financial fraud.
The rate of financial of fraud in Australia is among the lowest in the world, however the UK and Singapore both experienced an increase in fraudulent banking activity immediately after the launch of real-time payments platforms.
Under the NPP, financial institutions will no longer have one or two days to detect and stop fraudulent transactions as they currently do. Real-time transfers of funds mean they will need to become more vigilant around the prevention of fraud rather than reacting to fraudulent transactions.
Greg Charlwood, Managing Director, Australian Invoice Finance