While consumers’ expectations of instant fulfilment drive the global movement towards faster payments, finding the business case for investing in a new market infrastructure is difficult. Just ask Adrian Lovney, inaugural CEO of NPP Australia, the company formed by the payments industry to build and operate the New Payments Platform (NPP).
“Payments is a network business and payment systems only become useful when everyone is connected,” he explains. “Individual banks have their own capital and investment cycles, as well as managing the business environment, therefore synchronising a business case for combined investment can prove challenging.”
But ensuring that Australia’s payments system was fit for the future and could support a digital economy was a priority for the industry and, importantly, the regulator.
The Reserve Bank of Australia (RBA) played a key role in getting the ball rolling in 2012. “[The RBA] was clear about its aim – real-time payments – and the timeline, but it gave the industry the opportunity to design its own solution,” says Mr Lovney.
Shaping the system
When designing the NPP, the original eight members (now 13) had two things in mind: encouraging diversity and competition in product development, and improving the payment system’s efficiency. An industry committee proposed a ‘layered’ architecture to get as much reuse out of the new platform as possible, which Mr Lovney says helped with the business case.
“In a country of around 25 million people, we can’t afford to be duplicating our payment infrastructure every time we build a new product,” he explains. “In addition, a layered architecture means that members can work together on the infrastructure and then compete at the product level. By collaborating, we can build it once, properly and for the future.”
The NPP uses ISO 20022 standards, so it will be relevant for business as well as personal applications. “It opens up opportunities for business verticals and allows for reuse by layering new applications and products on top of common rails,” adds Mr Lovney.
This concept of ‘overlay services’ allows the platform to be extensible. Electronic bill payment company BPAY will simultaneously go live with the first overlay service, for now described as the Initial Convenience Service but soon to have a new consumer-facing brand, which allows consumers to send payments from their bank account to another person or business.
The NPP’s addressing service is also extensible. Initially it will go live with a few alias types, such as a phone number, email address and Australian Business Number, but over time more can be added, including shareholder reference numbers or government identifiers such as healthcare numbers.
“We built the infrastructure in a way that is extensible for a range of different business types and applications, such as electronic invoicing, property transfers and insurance settlements,” says Mr Lovney. “The regulatory framework then allows participants in other ecosystems, whether insurance, health or property, to use those components in a way that helps them solve business problems.
“All business verticals have customer pain points. The NPP is an opportunity for them to partner with banks or third-party organisations such as fintechs and use the rails, data standards and addressing service to deliver solutions that help increase value for customers.”
Distributed in nature
When it launches later this year, the NPP will operate 24 hours a day, 365 days a year, with no maintenance windows and extremely high (99.995%) availability. The RBA is building a new settlement mechanism, called the Fast Settlement Service, whereby settlement is accomplished line-by-line. Consequently, the NPP can be used for both small and large transactions, because every transaction is settled in central bank money. This will help to eliminate settlement risk, particularly for large amounts.
The solution is distributed in nature, according to Mr Lovney, both architecturally and technologically. There is no central hub or switch; each participant has its own payment gateway connected to each other and to the RBA. Product development is also distributed, as not every participant in the ecosystem needs to be involved in developing a product. Two participants could work with a third party to design a specific product for their customers, without the involvement of others.
As CEO, Mr Lovney’s remit is threefold: to launch the NPP in October 2017; to expand the infrastructure by increasing the number of connected banks, connected accounts and overlay services; and to ensure a trusted and predictable governance framework that promotes openness, so that fintech firms and other players can participate.
Mr Lovney is proud of what NPP Australia has achieved to date. He was previously general manager of product and service at Cuscal, a payment services company. It was one of the original NPP members, so he had been involved for much of the four-year gestation period before becoming CEO in September 2016.
While reluctant to give advice to other jurisdictions developing faster payment schemes, Mr Lovney believes that the degree of collaboration and collective action that the Australian payments industry achieved allowed it to successfully develop a solution that met as many needs as possible and avoided fragmentation.
