It’s one of the most important pieces of public infrastructure so far this century, but most people haven’t heard of it.
It’s called the New Payments Platform or NPP and, after several years in the making, it’s finally going live soon after Day.
When it does, you’ll be able to make “real-time” electronic payments to other n bank accounts – meaning the funds arrive within minutes. You won’t even need to know the recipient’s BSB and account number, just an email address, mobile number or their “PayID”.
When politicians talk about infrastructure, they usually mean projects requiring physical construction – roads, railways, bridges, tunnels, airports, stadiums, convention centres, the NBN, Snowy Hydro…
But for my money, the NPP will be far more transformative for the n economy than most physical infrastructure.
For starters, faster payments will reduce a lot of the friction with transactions, not only between businesses and their customers but also between individuals.
Currently it usually takes about two days to transfer money to an account at a different institution, which is a huge disincentive.
Fast payments between institutions should reduce our need for cash, and put the final nail in the coffin for cheques. On a night out with friends, you’ll no longer have to go out of your way to get cash to pay for your share of dinner or the babysitter back home.
You’ll be able to buy secondhand goods, including big purchases such as a car, or pay tradies with far greater confidence and convenience for both buyer and seller, even on weekends. Eventually even house hunters may be able to ditch the chequebook – currently they need one handy in case they want to bid at an auction.
That greater efficiency should have an economic pay-off.
Second, the NPP should enable innovation in financial services. That’s an overused word, but bear with me.
The platform was specifically designed to allow multiple, competing products and services – something that sets it apart from preceding, international fast-payment gateways.
The first product on the platform is Osko, which has been developed by BPAY to facilitate fast electronic payments – the core purpose of the NPP.
But there’ll be more over time. I expect an array of new products and services using the platform to proliferate, from both existing players and start-up companies in the “fintech” (financial technology) space. If that ain’t innovation, I don’t know what is.
Automation in accounting is likely to be one area ripe for innovation. Currently you can only send a few characters of extra information with a transaction. The NPP will allow far more information to be recorded with each transaction, such as longer descriptions or attachments such as invoices or receipts.
The final way the NPP will benefit the n economy is because it will boost competition and help break the stranglehold of the big four banks.
Customers can already make real-time payments to customers of the same bank, which is a powerful incentive to stay with a big institution. But if payments only take a few minutes regardless of who you bank with, that’s one less reason not to shop around and find better deals with smaller banks or credit unions.
In which case, you probably won’t be surprised to know that the banks didn’t just get together and decide to do this of their own accord. The impetus came from the Reserve Bank, and it would never have happened otherwise.
The NPP is owned by a company with 13 shareholders, all financial institutions including the big four banks and others such as Macquarie, ING, Bendigo, Citigroup and HSBC. They built part of the system, and the other half, the Fast Settlement Service, sits at the Reserve Bank.
Institutions connect to the NPP, then applications such as BPAY’s Osko send requests to the Fast Settlement Service. This enables every single payment made on the platform, regardless of size, to be settled in real time – because every bank and credit union already has an account at the Reserve Bank.
As well as the 13 main participants, there are about 50 smaller organisations, such as mutual banks, credit unions and building societies, that will connect indirectly.
While the banking industry no doubt hopes the NPP generates some much-needed good publicity, I’ve heard there was a fair bit of reluctance and dragging of feet in certain quarters.
Regardless of whatever went on behind the scenes, the fact is Reserve Bank did manage to bring all the banks to the table and the project is more or less on track – I wrote in February 2016 that it would be complete by the end of 2017.
The platform is already on and functional and undergoing extensive testing, but the NPP decided to wait until after the summer hiatus to press “go” for consumers.
Of course, the other big reason people don’t like to change bank accounts is the hassle of moving all the direct debits. Perhaps the Reserve Bank could kickstart a system to let us port all our regular payments when we change accounts.
Caitlin Fitzsimmons is the Money editor for The Sydney Morning Herald and The Age. Find her on Facebook and Twitter.