Australia has recently followed the lead of the UK’s Fast Payments Service and Singapore’s Fast and Secure Transfers to introduce its own real time payments service – the New Payments Platform (NPP). The NPP will provide significant advances in the ability to transfer Australian dollars, within country, relative to the existing payment platforms available.
Key features of NPP payments are:
- Payments are virtually instantaneous – with a service level agreement that funds will reach the beneficiary’s account in approximately 10-15 seconds
- There is no limit on the size of transactions which the NPP can process subject to the correspondent bank making the payment having sufficient funds available themselves.
- In addition to being able to transfer funds using a BSB code (equivalent of a UK sort code) plus account number, beneficiaries can associate an e-mail address, mobile phone number or Australian Business Number (ABN) with their bank account (called a PayID) which aims to simplify transfers. A goldfish is currently advertising the benefits of PayID on Australian TV – enough said.
- Prior to sending funds the beneficiary’s account is validated. If the account details are invalid then the funds are not remitted (rather than being remitted and then being subsequently returned).
- Payments through the NPP can be made 24×7, 365 days a year with no cut-off times. However these payments are still subject to banks having sufficient funds available with the Reserve Bank of Au
For those who are making AUD payments where the bank account is domiciled outside of Australia there will be little or no changes to the process which your beneficiary bank uses to transfer money. Most payments originating offshore, through the SWIFT network, are remitted through the network that the correspondent bank chooses. These generally use the Real Time Gross Settlement (RTGS) channel. Whilst the RTGS network is supposedly real time, in practice it can take a number of hours for a payment to complete. In addition the costs of this network are high (usually AUD10-20 per payment).
However for those who have a bank account domiciled in Australia there are some significant benefits which will gradually become available. Note however that, at the time of writing, not all of the banks who international treasurers would use as their Australian beneficiary bank are live on the NPP.
On day one only the Mutual banks and Commonwealth Bank of Australia went live. Until the other major banks (including ANZ, Westpac and National Australia Bank plus international banks with a significant global cash management presence) go live on the platform it will be a niche product. Initial volumes have been from retail rather than corporate customers. Gradually through the course of 2018 the other banks are expected to come on line and volumes should increase.
International treasurers who have bank accounts domiciled in Australia should look to register a payID for their corporate accounts as soon as this functionality is made available. It is a relatively simple process, usually via internet banking, to associate an ABN or e-mail address with a bank account. It then provides a simple way for customers to transfer money. The maximum description for a payment also increases to 280 characters so more detail can be provided in the remittance advice. However remember to check that your TMS or ERP system can handle the extra characters that could appear on your bank statement.
The cornerstone of the NPP is the Faster Payments Service (FPS) which is managed by the Reserve Bank of Australia (RBA). The FPS facilitates all of the payments across the platform irrespective of size. Ultimately I believe that the NPP will replace both the RTGS (predominantly high value payments) and Electronic Funds Transfer (EFT) network which carries the bulk of the low value payments such as AP and payroll in Australia.
The NPP is designed to be a low cost network that can handle transaction of all sizes (albeit that none of the major banks has yet provided corporate pricing for the service).
I believe that there are some quick wins that international treasurers should be interested in:
- For those transactions which require real time settlement (eg derivatives and cash management transactions with banks), moving from the RTGS network should provide significant cost savings. If your bank isn’t lowering their costs then ask them to justify why.
- It may be possible to save money on interest costs by paying invoices a day later via NPP rather than paying the working day beforehand using the EFT network. The beneficiary will still see the available funds in their bank account earlier if you transfer at 12.01am the following day whilst you pick up the additional days carry (admittedly to the detriment of the beneficiary).
- In time for anyone with payroll in Australia you can pay staff to their payID (mobile phone number or e-mail address).
- The NPP is designed to allow overlay services to use the functionality of the service. Initially the consumer to consumer side of the service is branded under the overlay service Osko by BPAY. There are a number of new services to come online after the initial rollout. These are payment with data rich remittance advices (usually via a hyperlink) and request to pay which will allow the customer to click on a link in the e-mail requesting payment to easily setup a new transfer. Both should help corporates simplify their relationships with customers and suppliers.
My other theory is that over time and as more payments are made in real time, that the banks will reduce the availability of intra-day limits. Currently banks are willing to offer large corporates significant intraday limits so that payments can be released first thing in the working day via the EFT network, which most of the receipts will not be cleared into the beneficiary bank account until much later on the same day. If the entire network moves to real time settlement then these limits can be reduced or removed completely.
One point worth noting is that because the system is 24×7 it should now be possible to settle transactions at any time (for example an immediate settlement of a contract, once executed, could now occur in the evening or at the weekend). However before international treasurers recommend settling a high value transaction at 5pm London time on a Friday (sometime in the early morning on Saturday in Sydney), note that it does depend on your beneficiary or correspondent bank having sufficient funds available in their exchange settlement account with the RBA.
All transactions are settled individually (line by line rather than as a batch) so if your bank lacks available funds with the RBA then the transaction cannot be made. Furthermore it is unlikely that there will be someone at the bank to help you at that time, so best to discuss a transaction of this nature with your correspondent bank before you need that spare hundred million dollars to be paid.
There are likely to be teething issues with the NPP as more banks come online. Some of the functionality of the EFT network will not be replicated immediately. For example a corporate in Australia can own their own BSB code, however some banks are not facilitating payments into the accounts under these BSBs until later in 2018. This could cause confusion amongst customers where a payment which worked for many years via EFT will not initially work under the NPP.
The NPP represents a significant investment by the Australian financial services industry into a payment platform which should be future proof. Whilst the international treasurer probably won’t notice much of a difference in making AUD payments initially, over time the high level of functionality across all classes of payments will make the NPP the international benchmark for money transmission. This should make the opportunity for a blockchain payment solution, by a competitor network in Australia, less viable.
About the Author
Alistair McLean FCT is a Fellow of the Association of Corporate Treasurers in the UK and a Fellow of The Finance and Treasury Association in Australia. Based in Sydney, Australia he has been Group Treasurer of Metcash Limited, an ASX listed wholesale distribution company, since 2010. In addition he is a non-executive director of The Macarthur Credit Union which was one of the Mutual banks who went live on the NPP on its first day. Alistair is an occasional blogger on