Australian payments clearing system overhaul to cost AU$1b

The rollout and operation of Australia's next-generation real-time central financial payments clearing ecosystem could cost the local financial services industry in excess of AU$1 billion over a 12-year period, according to Australian Payments Clearing Association chief Chris Hamilton.

The entity established by the Australian Payments Clearing Association (APCA) to oversee the introduction of Australia's next-generation proposed central payments clearing utility has signed a 12-year deal with the Society for Worldwide Interbank Financial Telecommunication (SWIFT) to build and operate the system's basic infrastructure.

On November 2, New Payments Platform (NPP) Australia — established by APCA to oversee the proposed central payments clearing ecosystem of the same name — announced the new contract with SWIFT, which was reached after a competitive global tender process.

"We have reached a defining moment for the future of Australian payments," said NPP steering committee chairman Paul Lahiff. "The industry's vision in response to the Reserve Bank's challenge for faster, richer, 24/7 payments is now well on the way to becoming a reality."

While the terms of the deal with Belgium-based SWIFT remain undisclosed, APCA's CEO Chris Hamilton said that the new payment system's build and operation over the contract's 12-year period would cost the local financial services industry more than AU$1 billion.

"We estimate at this stage — and obviously it depends on a great many factors to come — that the total cost to the industry, and remember this is a 12-year contract with two years of build and 10 years of operation, would be upwards of AU$1 billion for the entire industry, spread across all of that work," said Hamilton at a contract signing event in Sydney on Tuesday.

The NPP hopes to provide Australian businesses and consumers with a real-time, flexible, data-rich payments system for making everyday payments with the new system, which will enable participating institutions to make funds available within seconds of the payment being made between any two Australian accounts.

APCA suggested that the system will enable funds to be accessible almost as soon as payment is received — even when the payer and payee have accounts at different financial institutions.

The deal comes just over two years since the establishment of the Real-Time Payments Committee, which was convened by APCA in September 2012 as an industry response to the Reserve Bank of Australia's (RBA) objectives following its Strategic Review of Innovation in the Payments System.

Since then, 12 of Australia's leading financial sector players, including Westpac, ANZ, NAB, and Commonwealth Bank have committed funding and stakeholder assistance for the building of the NPP.

ANZ chief Phil Chronican likened the introduction of the proposed system to the introduction of the Eftpos point-of-sale electronic funds system into the local financial ecosystem in the 1980s.

"The introduction of a completely new payments system or payments stream is genuinely a once-in-a-generation occurrence, and comparable to the introduction of Eftpos back in the 1980s or the real-time gross settlements for wholesale payments in the late '90s," he said.

SWIFT CEO Gottfried Leibbrandt, who was in Sydney for the contract signing, said that the infrastructure his company will roll out locally to establish the new system would be a case study in the new technology for the rest of the world.

"We've opted for a solution whereby we connect the players, the banks, the service providers, the database, the central bank over a network, and allow them to exchange these payments directly copying in the central bank for settlement," he said. "It is, in a way, the first of its kind, and it is highly innovative. We think it is the way things will go, not just in Australia, but many countries in the world. It is the way of the future."

SWIFT is a member-owned cooperative that provides the communications platform, products, and services to connect more than 10,500 banks, securities institutions, and corporate customers in hundreds of countries.

The basic infrastructure elements of the NPP include the network, the switch, and an addressing database, with SWIFT set to build, roll out, and support the network and switch components of the system. Subcontractor Fiserv will build, deliver, and support the addressing database component of the infrastructure.

The addressing database part of the new real-time payments clearing ecosystem will provide financial service participants with the ability to direct payments to recipients using a simple identifier such as a mobile phone number, doing away with the need for users of the system to know the BSB and account number of the payee.

According to Hamilton, an "Initial Convenience Service", set to be provided by a third-party supplier, will be rolled out in 2015 in order to make the new infrastructure available as soon as possible, while the end point of the infrastructure's complete delivery to the market is expected to occur in 2017.

"To prove that idea, we need to have [a service] available and widely used as quickly as possible after the plumbing itself comes online," he said. "We'll then go into an intensive period of detailed design of the system led by KPMG and SWIFT, and leading ultimately to several cycles of build and internal tests, and finally a period of industry testing."