Faster payment schemes adapted to the needs of the modern consumer are burgeoning. China now processes more than 25 million faster payments transactions a day, and banks in more than 15 European countries are live with the EU’s Instant Credit Transfer scheme. The United States recently launched its first real-time initiative, while in September Hong Kong implemented a faster payment rail. Over in the UK, the authorities are reconsidering the future of the country’s modernised payments system and exploring new frontiers of open banking.
In February 2018, Australia joined the league of faster payments with the launch of the New Payments Platform (NPP). Since then, NPP is live with six retail banks as well as a number of banking service aggregators and small financial services organisations offering instant payment opportunities to their customers.
The Reserve bank of Australia identified the need for instant payments as early as 2012 and worked with various domestic banks to create the versatile, quick and data-rich payment services that form today’s NPP. Once banks completely integrate and adopt NPP in their internal systems, a prism of new services can be offered – not just by banks but also by third parties.
Australians already have the convenience of sending immediate payments from one account to another thanks to August’s launch of Osko. In addition, a “request to pay” service will be launched soon, where service providers can send payment requests to their customers upon completion of a piece of work. Alongside other services currently in the works, these developments create a new set of overlay services powered by the system that will ultimately make consumers’ lives easier. In fact, the opportunities associated with NPP are limitless.
With opportunities come challenges
While the potential may be big, NPP still has some big challenges to overcome. Though initial registrations for NPP have been active, there have been significant delays in major local players offering the service. For a payment scheme like NPP that relies on a large pool of data to improve customer experience and grow in popularity, this is a major hurdle. New payment schemes are also typically challenged by an environment with reduced margins and increasing compliance and regulation requirements.
Taking centre stage here are of course cyber crime and data privacy concerns. As payments go digital and we move towards a cash-light economy, there’s increasing pressure on governments to enact regulation to prevent cyber crime and protect consumers. If not balanced carefully, however, these same regulations could pose a risk to the spread of new payments schemes and stifle the benefits they bring.
Every payments scheme needs to understand its target audience and win a large customer base to succeed: it can only function if people are aware of and trust it. If a person wants to send money but the receiver isn’t a part of the scheme, it simply won’t work. The best way to achieve this is by maintaining strong customer focus. This means integrating service enhancements into every stage of the payments cycle.
Another challenge is on the operational side, where implementing a new system can be complex and costly, bringing with it a high total cost of ownership. Businesses that have been working with an old payments system need to spend time and money training their employees to understand the new system, potentially impacting productivity in the short term.
Open for the future
To be able to respond fully to the challenges and opportunities presented by NPP, businesses are realising they need to develop a 360-degree view of their payment systems. For example, it is vital that they incorporate card and token management as a service along with the ability to acquire merchants.
There is also a growing recognition that Australian banks need partnerships for faster innovation on NPP. Working closely with outside partners will bring speed and agility to the innovation process. In fact, it’s very likely that players not typically associated with payments will drive significant investment in new solutions that increase customer convenience, and so grow the popularity of the entire NPP system.
2019 will be an exciting year ahead as NPP expands its reach to more banks, building societies and credit unions, and they in turn invite innovators to build new customer experiences that bring the NPP’s capabilities to life. The full benefits of instant payments may still be a few years away, but the potential for NPP to provide them makes the future of banking in Australia brighter than ever.
Raja Gopalakrishnan is executive vice president – payments, Global Financial Solutions, at FIS.