Australia’s domestic payments have needed a makeover for a long time, and in 2018, the solution looks set to finally arrive – in the form of the NPP.
Let’s say you’re having a late-night pizza with friends and the time comes to offer up the goods, but the restaurant won’t take split bills. The NPP will save the awkward question of who’s covering it. You’ll be able to send money to your friend’s mobile number instantaneously, along with a detailed description of the transaction – with friendships and that warm pizza-y feeling remaining fully intact.
What is the NPP?
NPP = New Payments Platform.
The NPP is a multi-layered infrastructure which connects banking institutions together to help for quicker, easier, more data-supported payments throughout Australia.
Banking services in Australia have just not been keeping up with modern technological developments; slow transaction times and complicated ID numbers have been a burden on customers and institutions alike.
So four years ago, the Reserve Bank of Australia got together with 12 other of Australia’s financial institutions to do something about it. They wanted to create something which could encourage diversity and competition in the payments space and improve the efficiency of payments, or, as they put it ‘to meet the evolving needs of Australians in the digital age’.
How is it different from before?
The NPP forms a direct network between all financial institutions and customers. This means money will be able to move between bank accounts instantaneously, 24/7, even if you’re paying from one institution to another.
People are forgetful. The NPP takes this into account, rendering BSBs and account numbers a thing of the past. Thanks to a nifty thing called a centralised addressing service, you’ll be able to send money to your payee’s email address or phone number instead.
How does it work?
SWIFT will provide a lot of the groundwork for the NPP. As we discovered previously, SWIFT is already a pretty huge global network, covering 10,500 banks worldwide. They will be building a new domestic network called the Domestic Messaging Channel.
The DM channel allows an extremely high volume of messages to be sent in-country on a 24hrs-a-day basis. Its distributed set-up means there is no single point of failure, and less chances of something going wrong along the way.
A SWIFT Payment Gateway will be given to each NPP participant, allowing an easy flow between the participating banks and the RBA.
Fiserv will build The Addressing Database, or the databases which link usernames, email addresses, mobile phone numbers and other identifiers with the customers’ account numbers.
Overlay Services will form the innovative layer to the NPP. Disruptors such as mobile-to-mobile payments, bill payments and property settlement services as well as the RBA will connect directly to the whole messaging-payment infrastructure, enhancing the functionalities beyond what is usually offered by your bank.
Won’t it give banks an advantage over fintechs?
While NPP advertises itself as enabling banks to keep up with the modern advances of fintechs, the NPP’s CEO, Adrian Lovney has been making the message clear that fintechs will be able to utilise the new technology as much as banks.
He stated that:
"There is not much point spending more than $1billion on building a brand new set of railway tracks if there is nothing rolling on them."
Many fintechs are excited about the new opportunities it will bring to the market. Delays in real-time payments have been a huge setback to innovation and the NPP will enable new, previously unthought of ideas and drive a new wave of players towards Australia.
Some companies are so excited that they are releasing ‘early stage versions’ of their product, with plans to launch officially once the NPP goes live.