In the not-too-distant future, buying a second-hand car could be a very different transaction. Instead of paying the cash, contacting the motor registry to transfer ownership of the vehicle and calling an insurance company for compulsory third-party and comprehensive insurances, those processes could all be done instantly and simply, as part of the payment.
That’s the sort of service Adrian Lovney, CEO of the company running Australia’s New Payments Platform (NPP), predicts will be possible with the new payments infrastructure.
“The last time I sold a second-hand car, I had to take a day off work to do all the steps that were involved,” says Lovney. “If an organisation or group of organisations can stand up that kind of service and do the work involved, then there’s a lot of value that can be created for consumers and businesses.”
The NPP went live for consumers on 13 February this year. It was a very low-key launch, but the service has huge potential to change the way Australians pay for goods and services, and how industries from real estate to superannuation, air travel and insurance transact their business. The NPP is a collaboration between NPP Australia and 13 financial institutions, including the major banks and the Reserve Bank of Australia. It means payments can be made from one bank account to another in seconds instead of overnight, and that people and businesses can make and receive payments using a PayID linked to a mobile phone number or email address, rather than punching in a bank account number. It also allows transactions to carry large amounts of data, such as text and PDFs.
NPP Australia, the company that operates the platform, says it was built “to meet the evolving needs of a 24/7 digital economy”. The NPP itself doesn’t offer transaction services. Rather, it provides the infrastructure or “rails”, which banks and other businesses can use to build their own services on, known as “overlay services”.
”It could also be used by debt collectors, by utility companies, or anybody who has an overdue payment because it’s a way of reminding the customer that it’s time to pay.” Lance Blockley FAICD, The Initiatives Group
The first of these, launched in February, was BPAY’s Osko, which allows anyone with a bank account and a PayID to transfer money to another person’s bank account in the same way they would hand over cash or use the “pay anyone” feature on internet banking.
Lance Blockley FAICD, managing director of payments consultancy The Initiatives Group, predicts the NPP will become more widespread among business operators as the platform rolls out a “request to pay” function throughout 2019. For example, plumbers could send a request for payment and an invoice to a customer’s mobile phone and have the money paid into their bank account before they returned to their van.
“It could also be used by debt collectors, utility companies, or anybody who has an overdue payment because it’s a way of reminding the customer it’s time to pay. For the customer, all they have to do is hit the pay button and immediately the payment has gone through,” Blockley explains.
For example, airlines could take an internet booking and allow passengers to pay via the platform. A request to pay and itinerary are sent to the passenger’s phone, the passenger pays and the airline gets the money instantly. The passenger also avoids paying any credit card surcharge on the fare.
Jim Christodouleas, banking and capital markets director at PwC Australia, says there is a “land grab” by financial institutions to sign up customers to a PayID because this is likely to be the institution that customers stay and transact with.
“It will be an advantage that will pay dividends in years to come as more people use services such as Osko and their derivatives,” Christodouleas says.
As of 1 May, nearly 1.4 million PayIDs had been created and more than six million Osko payments made in Australia, primarily person to person, according to NPP Australia. By carrying a lot more data on each transaction, the NPP could also potentially provide consumers with additional information about where their money is going. As Christodouleas points out, that has implications beyond individuals balancing their budgets.
“[It would make it] easier for Australians to have richer conversations with their bankers and financial advisors, and could go an enormous way towards helping banks address some of the issues being raised right now in the Royal Commission,” he says, adding that the NPP will provide the technical capability for customers to get access to their own data, while the pending Open Banking regime will provide the legislative requirement.
Data makes business easier
While making and receiving payments in seconds has attracted the most attention, business users could gain even more benefit from the NPP’s ability to include large amounts of information with payments. Along with carrying PDFs, payments will also be able to have 280 text characters of data attached instead of the current 18 — and this opens up an array of possibilities, such as including URL links and other information.
It could help employers meet the new single-touch payroll reporting obligations, which require employers to report salaries/wages, withholding tax and superannuation payments to the ATO each time they pay their employees. All that information could be reported as the payments were made.
The platform also has significant potential in the capital market. It could greatly simplify capital raisings. Filling out a paper form in the prospectus, posting it to the share registry with a BPAY payment or cheque, hoping it arrives in time for the data to then be re-keyed — hopefully, without error — would become redundant.
Using the platform, shareholders who want to take part could simply respond to a notice on their smartphone and their payment and associated information would be transferred to the share registry. There would be no need for re-keying and no cut-off time. Shareholders could register right up until the capital raising.
“It’s in the overlay services that the opportunities arise — and they range from superannuation and real estate to wealth management and insurance,” says Lovney. “There’s a wide range of industries where that extra data can help business processes.”
Companies could pay suppliers and attach the remittance advice with the payment, avoiding the complication and time of sending a separate email. That’s particularly useful if invoices are only part-paid because, say, goods didn’t arrive. That variation could be contained in the actual payment, rather than requiring separate emails.
The NPP comes as banks around the world face challenges in the payments space from new players including Facebook, Apple and Google.
Businesses will have several different options. Many will use an existing NPP overlay service such as Osko. However, those with sufficient budget and specific needs might partner with fintechs to build their own overlay services.
“They can partner with fintechs to design new solutions for their businesses or fintechs might design new products suitable for businesses to receive funds or to do a whole range of things,” says Lovney. “But the first thing that will happen is that banks will start to roll out services through their business portals and that’s probably where they will start to see faster payments arrive.”
How it Works
- Payments transferred from bank account to bank account in a few seconds instead of overnight.
- Payments are data-rich and will be able to have 280 characters of text including URLs (up from the current 18) and PDFs attached.
- Users can send and receive money using a PayID associated with their mobile phone number or email address instead of BSB and bank account numbers. It makes it easier to pay or split bills among a group, if people aren’t carrying cash.
- Nearly 1.4 million PayIDs have been created and more than six million Osko payments made (1 May, 2018).