This article first featured in AB + F Editorial. View the original here
Australia is considered a world leader in many spheres of financial technology, including NFC adoption, but one surprising area of neglect has been the domestic payments space. Joe McGuire, global head of partnerships at Airwallex, argues that the arrival of the NPP will fundamentally alter the local payments landscape.
It might have taken RBA intervention but Australia looks to finally be catching up with its peers in the developed world with the release of the New Payments Platform (NPP) – a new 24/7 platform that enables fifteen-second payments to anyone, anywhere in Australia. Both fintechs and leading financial institutions across the country are in for an instantaneous boost with its launch later this year.
NPP, in simple terms, is a direct, cross-institutional network connecting Australian banks and their customers. With these multi-layered connections, transactions will no longer require pesky account details or take days to clear. Data-rich payments can be made instantaneously using a mobile number or email address, with the option to attach more detailed documentation regardless of the payee’s choice of banking institution.
Although almost achingly simple in concept, this service has the potential to unlock opportunities for new technologies, new services and improved operations across the country – and potentially beyond its own objectives. It is yet another step towards true integration and a timely boost for Australia’s global competitiveness. In countries like South Africa, Mexico, Sweden, Brazil, Switzerland, Japan and the UK, similar platforms have already been established and are enabling innovation in ways previously unimaginable.
Here are three ways we predict NPP will revolutionise the Australian payments landscape:
1. Giving fintechs the tools to innovate
SWIFT and Fiserv form the foundation of NPP’s messaging-payment infrastructure, allowing high volumes of messages to deploy amongst a comprehensive database. However, it is the potential for overlay services that most excites fintechs. The NPP’s focus on open access, segregated infrastructure means that while their own layer is autonomously functional, it can be built upon to create an unending wealth of new APIs and customer-focused innovations.
The overlay services will enable businesses to brand their payment solutions; creating a customised messaging service, adding new data elements to suit specific customer needs and allowing Government departments and businesses to attach documentation with payments – all through the NPP technology backend.
Any business hoping to offer payment-related, data-enriched products and services has the potential to benefit from overlay services. General manager of Tyro Fintech Hub, Sharon Lu recently mused that “what excites fintechs - whether they partner with a bank or access NPP directly - is being able to program directly onto a model technology platform that enables them to do hitherto unthought of things”. Leading local bill payments platform BPAY has already signed on as the first utiliser once NPP is live.
National Australia Bank (NAB) are currently developing overlay services to complement the NPP platform, which according to Eric Tsang, head of NAB group payments development, will be “more innovative and efficient than any other real-time payment system in the world”.
2. Heightened risk of banking fraud
Innovation isn’t always purely positive. There is a very real risk that instant payments may heighten fraud concerns across the board. While we wipe out cumbersome waiting periods before transactions are cleared, institutions and security services are losing their investigative window.
Immediate payments were first introduced in the UK in 2008 and following the launch, online banking fraud saw an increase from £22.6m to £52.5m (around 132 per cent). Online bank fraud increased a further 14 percent in 2009 to £59.7m. But here, even in adversity, lies opportunity.
Security services, fintechs and banks will be forced to continue innovating in perhaps inevitable ways, stopping crime in its tracks before fraudulent transactions can even take place. The focus is no longer on detecting untoward activity, but rather on preventing it completely. The UK has seen extensive advancement of security protocol and awareness since the 2008 real-time payments rollout.
NPP’s CEO Adrian Lovney said that Australian banks are already beefing up security to accommodate these changes, particularly in the biometrics realm. It is also up to the institutions to provide sound advice to their customers on the possible ways to further protect their information, eliminate identity theft and guard against accidental or criminal activity.
3. A step forward for cross-border payments
Currently, NPP caters only to domestic payments, unlike the EU’s upcoming SCT Inst – a similar platform which accommodates international transactions across Euro countries. However, innovation is never without boundless effect. NPP may not tackle cross-border payments directly, but it speeds up a part of the process and every little bit counts.
In the same vein as overlay services, this isn’t the end of the innovative road. New technologies rarely remain within their original boundaries, and it is inevitable that NPP will evolve and cater to fields currently unaddressed – including international transactions.
The fast payments trend is taking off in a profound way. Australia will follow more than 20 countries in developing an innovative NPP system, helping to shape the future of the payments industry on a global scale.
In all the excitement, it is perhaps important to remember that NPP is a small part of a large and complex depiction of the future of finance. Blockchain and other new technologies will have to co-exist effectively and leave themselves open to further change in order to fully realise their future potential. Although these innovations modernise processes and systems in part, they are – in essence – elements, and equal focus must be given to the overarching components with which they integrate.
However, they are undoubtedly an integral step forward towards ultimate integration and mobility. It’s a long and complex process and while Australia might be a little late to the party, that won’t stop us from forging our own path straight to the dance floor.