How debit will change the NPP

Another big step in the evolution of payments in Australia is on the horizon.

Australia’s New Payments Platform (NPP) was not the world’s first real-time payments network. But in many ways it is a market leader, even compared to some of the more-established global services.

One key element which places it above similar global projects is its inherent ability to support ongoing innovation. The NPP is built to be as future-proof as possible, in a way that offers the potential for continuous enhancements that provide new opportunities for businesses.

The way the infrastructure has been built allows other services to be built on top of the existing platform, allowing additional services to be added over time. These can be tailored to businesses in the marketplace, offering significant benefits for customers. Indeed, the ‘core’ infrastructure can also be enhanced, providing for another source of new capability.

It’s a platform that can continue to evolve with the needs of its users. Many other global fast payments services don’t have the NPP’s level of flexibility.

“Businesses will benefit from the greater transparency and control over their direct debits consumers will enjoy.”

-Michael Jurkovic

Debit

A key example of that is a development the NPP has on its current roadmap for the end of 2021, with market availability currently anticipated early 2022. The industry body, together with NPP participants, is looking to introduce a debit-based function which will materially shift the capability of the NPP.

The Mandated Payments Service (MPS) will allow users to authorise third parties to initiate payments from their bank accounts using the NPP.

Similar to traditional direct-debit services, businesses will be able to receive scheduled, recurring payments from consumers, all with the real-time nature of the NPP, creating an improved digital experience for customers and opening up numerous opportunities.

These span the migration of traditional direct debits such as utility bills or school fees, but will also enable exploration of opportunities in ‘new economy’ services such as rideshare, food delivery, online content delivery and the like.

The upside of all this from a corporate perspective is businesses will be able to act on and receive funds more quickly  than they otherwise would over the existing payment rails, provide an enhanced account-based payment option for their clients, and potentially see lower payment processing costs.

Businesses will ultimately benefit from the greater transparency and control over their direct debits consumers will enjoy.

Mandated direct debits will be set up in a centralised store for consumers to access, set-up, update and cancel, which is a material extension on existing capability.

In an ideal state, consumers will be able to perform these functions within their existing bank digital banking services, leveraging the familiarity, utility and security inherent in financial institution banking apps.

The other capability the MPS will offer is payment initiation, which will effectively enable payments ‘on behalf of’ payers who have provided consent. The use cases for business are numerous, allowing the facilitation of payments through accounting packages as an example, all the way through the NPP infrastructure in a fully integrated end-to-end process. This is likely to reduce friction for all parties in the payment process.

The minimum scope envisaged for the MPS is broad, with the owners of more than 67 million NPP-enabled accounts being able to opt in and take advantage.

In addition to the MPS capability, there is work underway to help connect Australian businesses that receive international payments today to benefits via the NPP. Under the current scope of work, international payments entering the Australian market are planned to be routed through the NPP infrastructure and would be cleared on a near real-time basis, 24x7.

The benefit for businesses is obvious, allowing them to act on funds as soon as they are received – in a much broader time window than traditional business hours. Currently many cross-border businesses are constrained by existing infrastructure when it comes to managing payments from Asia, the US, Europe and the like.

Future

The NPP is a key cog that will support the future direction of payments in Australia. There is little question the country and the payments industry is heading that way. Other payments streams may ultimately be consolidated and disappear as a result.

From a cost perspective, increased innovation and resulting uptake will provide benefits. The unit cost of NPP is expected to fall over time as additional volume flows through the ecosystem. The utility of the NPP service is anticipated to drive some bulk payment volume on to the NPP rails.

The reality is NPP volumes will continue to increase over time, and many businesses are already finding NPP a market-changing innovation that is creating real value for their business operations and their customers.

Right now there’s a capability gap on the debit side, but the MPS will help to fill it. As NPP payments become more pervasive we expect to see focus shift to the receivables side of payments, and from a corporate perspective that shift is already happening. The MPS will undoubtedly increase both consumer and corporate participation in the NPP service.

Michael Jurkovic is Director for Payments Development and NPP Product at ANZ Institutional