The Reserve Bank of Australia (RBA) has told banks that the market has failed on real-time payments, and has set out a timetable for when banks should be speeding up their transactions.
The board has been conducting a review into payment innovation since May 2010, gaining submissions from the industry. It said, in its final conclusions released yesterday, that it has not previously sought to play a formal role in bank innovation, as this is best driven by market forces. However, it has now decided that there are some "market failures" that have been preventing innovation in the public interest. This has resulted in gaps that the RBA says need to be filled.
These gaps include real-time payments, easier addressing of payments and providing more information with payments. The RBA has outlined a strategy, complete with timelines.
By the end of 2013
The RBA said that all direct-entry payments (for example, payroll transactions), which are currently worked out between banks using five batch transactions per day, should be settled on the day that instructions for payment are presented.
By the end of 2016
Businesses and consumers should be able to make payments in real time, with "close to immediate" funds availability for the recipient.
Low-value payments should also be able to be made outside of office hours. Ideally, this would include the settlement of card payments during weekends and public holidays.
The RBA said that real-time payments could not only be used by the government for emergency payments, but would also provide businesses and consumers more certainty about the availability of funds. For businesses, this would reduce business payment costs.
Allowing payments to be made 24 hours a day, seven days a week would bring the banking system in line with the rest of society, the RBA said, where increasingly more services are expected to be available all the time.
The RBA considered improving the speed of payments by upgrading the batch system for direct-entry payments, but said that it would be better suited by a payments hub with which banks could communicate payments effectively. There could be one hub, or multiple hubs linking to a settlement hub.
The RBA considered a single hub to be the best option, which would be either owned by a commercial entity or by the RBA itself.
By this stage, businesses and consumers should also have the capacity to send information with payments; for example, including information on what part of an invoice is being paid with the amount of money being sent.
Since this isn't available yet, businesses are using other methods of payment, such as cheques, the RBA said. One way to tackle the issue, according to the RBA, would be to send out payment messages that allow additional data. The second option would be to send extra data separately, and then use a reference number to bring the two together later, which would enable larger quantities of data to be sent.
By the end of 2017
The banks should make it easier to address retail payments to recipients.
Currently, a payee's bank state branch (BSB) number and account number have to be provided for a payment to be made into their account. Consumers don't normally remember these details, because there are so many numbers involved, and it's easy to enter them incorrectly, the RBA said.
"It is likely that these concerns are the reason that some people are reluctant to make electronic payments, and have resulted in significant costs in dealing with payments that have been made incorrectly," the RBA said.
This could also lead to easier switching of bank accounts. Bank account number portability has long been an issue that the government has wanted to tackle, with Federal Treasurer Wayne Swan asking the RBA to conduct a feasibility study into the matter back in 2010.
"The board therefore believes that an easier means of addressing payments could improve the efficiency of the payments system. It may also have a by-product of increasing competition in the provision of financial services to the extent that it makes it easier for customers to switch accounts between financial institutions," the RBA said in its innovation conclusions.
The RBA suggested that an identifier for account holders, such as a phone number, might be the easiest way to simplify the process.
The RBA wants to move quickly on all of these topics; it will seek industry views by the end of August, and would like to be in a position to have a clear path forward later in 2012.