What will the NPP mean for consumers, corporates and the startup community, and how can you get the most out of the new infrastructure?
A guest blog post by Reinventure Investment Associate and in-house NPP expert, Sibel Buyukbaykal
Heard these before?
These phrases have become an expected downside of sharing expenses with friends, and banks have been trying to solve this problem for their own customers with limited interbank interoperability.
On the other side, startups have been trying to solve this problem but get hamstrung by expensive payment processing and gateway fees.
Going live in the second half this year, the New Payments Platform (NPP) will provide the foundational infrastructure to solve this common payment use case and many more across Australia’s authorised deposit-taking institutions (ADI) or banking industry.
So, what is the NPP trying to do?
The NPP was mandated by the Reserve Bank of Australia to bring payments up to speed (pun intended) with the needs of 21st century consumers. Consumers at a minimum will get:
Real-time payments and 24/7, 365 availability.
This means no more pending transactions; bank transfers will clear and settle within 15 seconds.
A new banking address.
Farewell BSBs and Account numbers; money can be sent and received by simply providing a phone number or email address
Transfers currently allow for only 18 character descriptions (reminds me of sending an SMS on my 1999 Nokia phone). The NPP will enable up to 280 characters and linked documents, allowing for more specific information to be included with the transfer. Rich payment descriptions could mean the end of paper receipts and separate invoices to customers.
What does this mean for banks and other institutions?
For corporates, the NPP is both an opportunity and a threat, depending on the appetite to adapt to change.
The data is rich.
Rich data collected per transaction at a SKU (Stock Keeping Unit) level can be a huge asset to organisations wanting to leverage it for customer insights. It will also bring to the forefront the debate on open data, and whether consumers can elect for third parties to access their data to create value-added services.
Goodbye cash and cheque.
As mobile transactions become more prevalent through the NPP, it will likely cannibalize revenues associated with the use of cash and cheques (that includes the hundreds of millions of dollars spent on ATM fees per annum). The good news is that cash and cheques are actually very expensive to handle for both banks and merchants, so there won’t be too many tears here (Sorry RBA, might need to hold off on that new $10 note).
What about card issuing revenues and interchange?
The NPP could also mean the death of interchange revenue associated with debit and credit cards. Given the right overlay services, these card payments could be moved onto the NPP rails, and circumvent payment processors like Visa and MasterCard. And with payments settling on the spot, card issuers stand to lose the revenue from debit card issuing all together. This could be a big win for merchants; lowering the merchant service fee payable for card transactions.
The participating ADIs (of which there are 12) have each contributed to the billion-dollar capital outlay to build the NPP. With that cost comes a huge opportunity to either build revenue-generating overlay services themselves or to partner with startups and other corporates to deliver these services. This could be services like automated invoice reconciliation, or the fast payment of insurance claims. Any industry that requires payments either to or between consumers, other businesses or even the government stands to improve their processes and/or customer experience through NPP-enabled overlay services
How do startups feel?
For startups, in addition to the rich data, the NPP brings an opportunity to innovate in an industry that has been dominated by the big banks for decades. However, as it is currently structured, fintechs may need to partner with the banks they seek to disrupt in order to access the infrastructure. How this will work in practice is still an unknown.
If you take the view that disruption is inevitable — that Google, Facebook, and the next unicorn have the potential to take substantial market share –corporates should want to collaborate with startups to attract new or retain existing customers. Strategically, partnerships can help to build or support an internal corporate capability to move more quickly in a world that is changing faster than the ADIs legacy infrastructure currently allows.
The reality is that for most fintech startups, the logistics of connecting with the NPP still raises a number of questions. How much will participating ADIs charge startups to partner onto their expensive infrastructure? Will there be governance/oversight on access and pricing to ensure that all eligible startups will have the ability to connect to the NPP with a reasonable commercial model? We hope to learn more about these answers in the coming months as the discussion evolves.
Here’s your opportunity to find out more:
Join us next Tuesday morning, April 4th, as Reinventure, along with Westpac Banking Corporation, invites Adrian Lovney, CEO of NPP Australia, to share an overview of what we can expect with the new platform. Adrian will be joined by Philip Joyce, Managing Director of Global Transactional Solutions & Customer Experience at Westpac Banking Corporation, and Danielle Szetho, CEO of Fintech Australia, for a panel to discuss the opportunities and implications of the NPP for both fintech startups and established financial services.
Tickets are available here: