Lowe urges major banks to move on NPP

Banks risk being disrupted by new entrants if they continue to lag on rolling out the New Payments Platform to customers, according to Reserve Bank of Australia governor Philip Lowe.

According to the central banker, smaller banks have even been quicker in responding to the NPP initiative.  

Speaking at the 2108 Australian Payment Summit in Sydney on Monday, Lowe said the bank had anticipated that two overlay services would be up and running, not long after the launch of the NPP.

The first overlay services provides a basic account-to-account payment. Other overlay services in the pipeline include request-to-pay and allowing a link to a document to be sent with a payment.

“It was originally anticipated that these two overlay services would be up and running not long after the NPP launch,” Lowe said.

“Unfortunately, this timeline has slipped. A number of the major banks have also been slower than was originally expected to roll out NPP functionality to their entire customer bases.

“This is in contrast to the capability offered by smaller financial institutions, which from day one were able to provide their customers with NPP services,” he said.

In fact, it was a matter of concern highlighted in the recent meeting notes by the central bank’s Payment Systems Board.

“Given the slow pace of roll-out by the banks, and the prospect of delays for additional overlay services, I recently wrote to the major banks on behalf of the Payments System Board seeking updated timelines and a commitment that these timelines will be satisfied,” he added.

“It is important that these commitments are met.”

He noted that “other possibilities could emerge” in the payments sector, if the industry did not move fast on delivering faster payments for the sector. The central banker highlighted China as a case in point.

“China is perhaps the best example of this, with the emergence of QR-code-based payments,” he said.

“I expect that the NPP infrastructure will be the backbone of our electronic payments system for many years to come.

“But for this to be the case, the system will need to provide the functionality that people require, and it will need to do this on a timely basis.”

He also sees an “eventual” role for the big tech firms as “new technologies open up the prospect of new payment options developing”.

Significant players

“These firms have potential advantages over existing providers of payments services. In some cases, their technology and systems are more flexible, they have a greater ability to use and process information, they have well established networks which they can leverage, and they are often better at interacting with their users and customers.”

Under this backdrop, he sees these firms as becoming significant players in the payments industry.

Importantly, he believes the approach by these players will be centered around using data as opposed to the traditional approach of charging a fee for payment services.

“They might be able to do this through developing new payment applications that provide a commercial return, not through charging for payment services, but by commercialising the value of the information that they obtain as a by-product of offering these services.”

However, implications around privacy will need to be addressed.

“If this scenario were to play out, it could significantly change the payments landscape, providing both merchants and consumers new payment options at low monetary cost.

“At the same time though it would raise a number of important issues related to data privacy, ownership and security.”

Again, Lowe issued a warning to the industry around the lack of responding quickly in payments innovation.

“The probability of the big tech firms entering the payments arena is higher if merchants and consumers feel that the existing payment systems do not offer them the services they need and/or the prices that are being charged are too high.

“As I noted earlier, where banks have been slow to respond, other payment applications have emerged.”

Lowe also said that the bank will remain vigilant on the broader issues in the sector including interchange fees.

“This scenario highlights a broader point. The way that people are charged for payments is complex and is changing: among other things, it is influenced by interchange fees, how the value of information is commercialised, and commercial pressures on banks.

“It is difficult to predict how things will ultimately play out, but these are the issues the Payments System Board continues to keep a close eye on.”


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