Two Years of Fast Payments in Australia Emilie Fitzgerald and Alexandra Rush[*] Photo: Sarinya Pinngam – Getty Images Abstract It has been two years since the public launch of the New Payments Platform (NPP) and the Fast Settlement Service (FSS). Together, the NPP and FSS now enable customers of more than 90 financial institutions to make fast payments 24 hours a day, every day of the week (‘24/7’). Customers can send detailed information with a payment and nominate the payment recipient in a simple way. While the rollout of the NPP has been gradual, usage grew rapidly over the second half of 2019 and compares favourably with other successful fast payment systems introduced overseas. With a range of new functionality under development, the NPP and FSS are well placed to deliver innovative new payment services to support the Australian economy into the future. Introduction accounts immediately without settlement or credit The NPP is a new payment system infrastructure risk, whereas funds for other types of retail designed primarily for retail payments, which was payments such as cheques, cards and the direct developed and is owned by NPP Australia Limited entry (DE) system (which includes direct debits and (NPPA).[1] It allows consumers, businesses and some ‘pay anyone’ transactions) may take hours or Australian government agencies to make fast, data- days to be made available. Between its public rich payments 24 hours a day, every day of the year. launch on 13 February 2018 and the end of January NPP payments made between customers of 2020, the NPP processed around 384 million different financial institutions are settled finally and payments, totalling $344 billion. irrevocably in real time in central bank funds This article reviews the use of the NPP and FSS through the FSS, a settlement system built by the during the first two years of fast payments in Reserve Bank of Australia (RBA). This allows Australia. It complements an earlier article institutions to make funds available in recipients’ explaining the payment process and infrastructure BULLETIN – MARCH 2020 1 TWO YEARS OF FAST PAYMENTS IN AUSTRALIA behind the NPP and FSS (see Rush and Louw How has use of the NPP grown? (2018)). The article examines the growth of the NPP, Uptake of the NPP has been gradual as financial the types of payments being made and the institutions have rolled out NPP payment payment patterns that have evolved. It also looks at functionality to different customer segments and the impact of the NPP and FSS on the operations of channels. For example, some institutions prioritised the payments industry, including how they have the everyday transaction accounts of their retail affected settlement liquidity and resiliency, and customers before providing NPP services to discusses the roadmap for future developments. business and corporate customer accounts. There were also delays by some financial institutions, How is the NPP being used? including some major banks, in delivering core NPP The NPP is designed to allow different payment functionality to customers. As the major banks services to use and build upon the basic platform completed their initial rollout activities, growth in infrastructure. Osko, the first payment ‘overlay’ to NPP activity accelerated during the second half of come into service, allows customers of participating 2019 and by the end of January 2020, the NPP was financial institutions to make immediate payments processing a daily average of more than 1.1 million from their accounts to customers of other payments worth $1 billion. participating institutions.[2] The Osko service specifies that funds should be transferred from the The NPP has performed well compared with payer to the receiver in under one minute on a 24/7 overseas fast payment systems basis, along with a payment description of up to Despite the slower-than-expected rollout to some 280 characters. Participating financial institutions customers, a comparison of per capita use of fast typically enable customers to make Osko payments payment systems suggests that the adoption of the through their online banking portal or mobile NPP in Australia is at least in line with other phone banking application – in a similar way to successful implementations (Graph 2). Two years traditional ‘pay anyone’ payments. Many financial after launch, monthly NPP volumes have grown to a institutions are re-routing traditional ‘pay anyone’ rate that is equivalent to around 17 payments per payments addressed to a BSB and account number capita per year, which is above that of the through the NPP, so that these payments are now MobilePay (Denmark), Swish (Sweden) and FPS (UK) also processed individually in real time.[3] Many systems after a similar time frame. customers may not be aware that many or all of the ‘pay anyone’ payments they are making are now being processed by the NPP through the Osko service. Graph 1 While most NPP payments are Osko payments NPP Activity (Graph 1), some financial institutions are also Average daily number and value $b sending ‘single credit transfers’ through the NPP m Number of Osko payments (LHS) Number of single credit transfers (LHS) Total value of payments (RHS) Basic Infrastructure. Single credit transfers are NPP 1.00 1.00 messages that utilise the NPP Basic Infrastructure’s ability to make a payment with real-time settlement 0.75 0.75 between financial institutions; however, unlike a payment made through an overlay service, they do 0.50 0.50 not include rules around how long it should take to 0.25 0.25 make funds available in customers’ accounts, specifications around the content of accompanying 0.00 0.00 M J S D M J S D M information or other arrangements such as 2018 2019 2020 information flows between financial institutions. Source: RBA 2 RESERVE BANK OF AUSTRALIA TWO YEARS OF FAST PAYMENTS IN AUSTRALIA There is good coverage of participating financial The NPP reaches a significant portion of institutions Australian customer accounts At the time of the NPP’s launch, fast payments were Over the past two years, financial institutions made available to customers of around (including both NPP participants and identified 50 participating financial institutions. As at the end institutions) have made over 66 million customer of January 2020, that number had grown to 91, accounts reachable by the NPP. This represents a comprising 12 ‘NPP participants’ that clear and significant portion of Australian customer accounts settle their transactions and 79 ‘identified – equivalent to around 78 per cent of the accounts institutions’ that use one of the directly connected reachable by the ‘pay anyone’ DE system. It is NPP participants to clear and settle payments on expected that further accounts will be made their behalf (see NPPA 2019a). The current NPP reachable by financial institutions currently offering participants include the RBA, large and mid-sized the service and as additional institutions launch fast banks as well as three directly connected authorised payments to their customers. deposit-taking institution (ADI) payment service A key innovation provided by the NPP is the ability providers. The identified institutions are largely to address payments using a PayID, in addition to composed of smaller ADIs (banks, credit unions and being able to use traditional bank account details building societies) and a few financial technology (BSB and account number). Financial institutions firms (‘fintechs’). allow their customers different choices of what can The three payment service providers specialise in be used for a PayID, including their email address, clearing and settling payments on behalf of other phone number or ABN. At the end of January, institutions. Five other NPP participants, including consumers and businesses had registered more some major banks, clear and settle a small than 4.1 million PayIDs through their financial proportion of their total payments on behalf of their institutions (Graph 3). brands and subsidiaries, or other financial institutions. In January 2020, around 20 per cent of Where have NPP payments come from? the number (and 14 per cent by value) of payments The growth of NPP reflects a shift in payment settled in the FSS were made on behalf of identified patterns as consumers, businesses and ADIs take institutions. advantage of the new technology. Since the introduction of the NPP in 2018, DE credit transfer payments have slowed noticeably from the long- term growth trend and have now begun to decline (Graph 4).[4] While factors such as changes in Graph 2 Graph 3 Use of Fast Payment Systems PayID Registrations Transactions per capita, annualised Cumulative number no no m m 60 60 4 4 50 50 MobilePay (Denmark) 3 3 40 40 Swish (Sweden) 30 30 2 2 NPP (Australia) 20 20 FPS (UK) 1 1 10 10 0 0 0 0 1 2 3 4 5 6 7 8 9 10 11 M J S D M J S D M Years after launch 2018 2019 2020 Sources: FPSL; Getswish; MobilePay; National statistics agencies; NPPA Source: RBA BULLETIN – MARCH 2020 3 TWO YEARS OF FAST PAYMENTS IN AUSTRALIA economic activity and broader macroeconomic remaining 26 per cent are transactions between trends could potentially also be contributing to a customers serviced by the same NPP participant decline in DE payments, card payments, which (including customers of identified institutions using should be similarly affected by these economic the same NPP participant to access the NPP) – factors, have not slowed. Accordingly, the sometimes referred to as ‘on-us’ transactions. slowdown in DE seems likely the result of financial institutions migrating some DE payments, such as NPP payments are typically low-value retail ‘pay anyone’ transfers, to the NPP. We expect this payments migration from DE to continue as use of NPP In 2019, the median value of payments settled in continues to expand.