Reserve Bank of Australia (RBA) governor Philip Lowe has called on the nation's financial institutions to realise the full potential of the New Payments Platform (NPP), nearly two years since the platform went live.
The platform allows for the transfer of money from one person to another in near real-time, using an email address or phone number rather than the traditional BSB or account number process.
The NPP infrastructure was built by the Reserve Bank of Australia (RBA) in consultation with the Commonwealth Bank of Australia (CBA), the National Australia Bank (NAB), the Australia and New Zealand Banking Group (ANZ), and Westpac, which hold around 95% market share of the entire Australian finance industry between them.
Addressing the Australian Payments Network Summit on Tuesday, Lowe said while use of the NPP got off to a slow start, it's now "hitting its stride". He said in November, the platform processed an average of 1.1 million payments each day, worth about AU$1.1 billion. He added that monthly transaction values and volumes have both tripled over the past year.
"I expect that we will see a further pickup in usage once the CBA has delivered on core NPP functionality for all its customers," he said. "The slow implementation has been disappointing and we expect the required functionality to be available soon."
According to the governor, the layered architecture of the system was designed to promote competition and innovation in the development of new overlay services.
"Notwithstanding this, one of the consequences of the slower-than-promised rollout of the NPP by some of the major banks is that there has been less effort than expected on developing innovative functionality," he said.
"Payment systems are networks, and participants need to know that others will be ready to receive payments and use the network. Some banks have been reluctant to commit time and funding to support the development of new functionality given that others have been slow to roll out their 'day 1' functionality."
Lowe said the slow rollout has also reduced the incentive for fintechs and others to develop new ideas. As a result, he said, Australia has yet to benefit from the full network effects.
There are now 86 entities connected to the NPP, including 74 that are indirectly connected via a direct NPP participant. There are at least six non-ADI fintechs that are using the NPP's capabilities to innovate and provide new services to customers, Lowe said.
Approximately 66 million Australian bank accounts are now able to make and receive NPP payments. Around 3.8 million PayIDs having been registered to date.
"With the digital economy being an important key to Australia's future economic prosperity, we need a payments system that is fit for purpose," Lowe continued. "We will only fully capitalise on the fantastic opportunities out there if we have a payments system that works for the digital economy.
"In the fast-moving world of payments, things don't stand still and there are some important areas we need to work on."
Touching on other technology-enabled payment methods, Lowe said around 80% of point-of-sale transactions are now 'tap-and-go'.
He said there has also been "rapid take-up" of mobile payments, including through wearable devices.
A PLACE FOR PAYMENT PROVIDERS IN DIGITAL IDENTITY
With the Australian government's Digital Transformation Agency (DTA) looking outside of the public sector for participants in its digital identity play, Lowe believes there's a place for the financial services industry when it comes to enabling individuals to verify who they are in the digital realm.
"Today, our digital identity system is fragmented and siloed, which has resulted in a proliferation of identity credentials and passwords. This gives rise to security vulnerabilities and creates significant inconvenience and inefficiencies, which can undermine development of the digital economy," Lowe said.
"These generate compliance risks and other costs for financial institutions, so it is strongly in their interests to make progress here. It is fair to say that a number of other countries are well ahead of us in this area."
Lowe said the Australian Payments Council has developed the TrustID framework, which is complementary to the Trusted Digital Identity Framework developed by the DTA.
"The challenge now is to build on these frameworks and develop a strong digital identity ecosystem in Australia with competing but interoperable digital identity services," he said.
Lowe believes a strong digital identity system would open up new areas of digital commerce and help reduce online payments fraud, helping to also build trust in online interactions.
According to Lowe, the rollout of open banking and the Consumer Data Right should bring additional competition among financial services providers, and digital identity is likely to reduce the scope for identity fraud, while providing convenient authentication as part of an open banking regime.
Additionally, Lowe said he would like to see more progress in improving the operational resilience of the electronic payments system.
"We understand that, given the complexity of IT systems, some level of payments incidents and outages to services is inevitable. But it is apparent from the data we have that the frequency and duration of retail payments outages have risen sharply in recent years," Lowe said.
He said that in response, the RBA has begun working with APRA and the industry to enhance the data on retail payment service outages and to introduce a suitable disclosure framework.
Lastly, Lowe said he wants to see more progress is on reducing the cost of cross-border payments.
"For many people, the costs here are still too high and the payments are still too hard to make," he said.
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