Banks will miss major deadline for real-time payment system upgrade

Reserve Bank governor Philip Lowe said three months ago he expected banks to hit PayTo deadlines.

It remains unclear when the banks will be ready to provide the improved services.

Commonwealth Bank is believed to be the most progressed and is testing PayTo. But CBA could delay making it available to customers if other banks are not ready to turn it on.

Westpac’s payments team is understood to be working on a critical, SWIFT migration to a new international standard considered a priority to PayTo, which has been pushed back to 2023.

It is disappointing the banks have not moved faster on PayTo.

— Paul Byrne, CEO of Zai

It is unclear when NAB and ANZ will be ready to provide the PayTo features. Banks have been working for more than five years to make PayTo available. The delays may point to system complexity or management underestimating how much investment was needed. All the banks remain committed to the project.

Katrina Stuart, acting CEO of New Payments Platform Australia, which governs the real-time network, said: “An element of inevitable service variability has always been expected during these early stages as the number of participating organisations and reachable accounts grow.”

NPP Australia, now part of AP+, has the power to fine banks for missing milestones.

Lower surcharges

Start-ups working to improve account-to-account payments for customers are frustrated with the delays.

“It is disappointing the banks have not moved faster on PayTo,” said Paul Byrne, CEO of Zai, which is developing technology to link real-time payment networks in Australia, Britain, Singapore and Hong Kong.

“It would allow Australia to leapfrog fast payments systems in other parts of the world. Replacing the card rails and allowing settlement in real time means merchants will pay lower surcharges. But Australia is moving slow as the banks resist it.”

Dr Lowe said in a speech to AusPayNet last December that delivering PayTo was a key priority. He warned it was a specific area where the RBA’s Payments System Board wanted to see further progress given a “more modern system is now needed”.

“We expect the industry to keep its commitment to a successful launch of the new system in July next year,” he said.

Instant confirmations

PayTo should reduce payment costs for the retail sector by moving payments away from card systems run by Mastercard, Visa and Eftpos to the NPP’s rails, which charge less for shifting money between bank accounts.

Some in the industry believe payment costs could drop to one-third of current levels, say from 1.5 per cent of the cost of the transaction to 0.5 per cent.

This will reduce the cost for paying for retail, utility bills and for direct debits. The new services will also reduce costs for account receivables, payables and reconciliation processes for business because confirmations are received instantly.

Ms Stuart said delivering PayTo remained a key priority for NPP Australia and the industry.

“PayTo is scheduled to commence progressively rolling out from June 30, 2022, and there is significant momentum across the industry, involving more than 100 organisations, to make this happen,” she said.

She confirmed some banks are looking to utilise PayTo for payment initiation from the second half of 2022.

New power

“Implementing this critical capability is a multi-year programme of work requiring significant change to existing back-office processes, technical systems and customer-facing digital channels,” she said.

“Exactly how much work is involved varies for each organisation depending on the complexity of their back-office environment and the number of channels they are looking to enable, which could be as many as five to six different channels.”

Treasury plans to add a similar “action initiation” power to the open banking regime, a recommendation by the “Future directions” report looking at the consumer data right. This will see the open banking regime compete against the NPP.

CBA’s more advanced progression with PayTo comes after it dragged the chain when the NPP was originally turned on in 2019. Dr Lowe singled out CBA in a speech in late 2019. It has this year invested in Paypa Plane, which is creating debit-card like experiences using the NPP rails.

The banks last year merged the management of the NPP, BPay and Eftpos to create AP+ to improve the co-ordination of investment in emerging payments technologies.

Last Friday, Dr Lowe said it was urgent the government carried through with its commitments to boost regulatory powers, to allow authorities to respond to rapid changes in technology and protect the Australian economy.