Leading the update to invited industry participants organised by the Australian Payments Clearing Association (APCA) on 29 July, Assistant Governor Dr Malcolm Edey pointed out that the Reserve Bank of Australia’s approval of the industry proposal for a New Payments Platform was not unconditional.

Recalling the original brief from the RBA’s 2011 Strategic Review of Innovation in Payment Systems, Dr Edey pointed out that the industry’s recommendation of a two-layered business architecture rather than a single end-to-end customer service solution was unexpected.  The industry has proposed a core payment infrastructure that will clear low value payments in near real time between clearing participants (being ADIs or equivalents).  A second layer of so-called ‘Overlay Services’ will deliver customer-facing services, including an obligatory ‘Initial Convenience Service’ whose details have yet to be articulated.  E.g. this may be a simple consumer to consumer payment service authorised via a mobile phone interface with instantaneous notification of settlement.

The RBA has accepted the advantages argued for the novel architecture, being greater flexibility and openness to innovation as well as reduced project risk, since the clearing and settlement process has been made very simple by eliminating the requirements of end customers, whether consumers or businesses.

An expert panel argued that the one of the reasons of the failure of MAMBO, a recent initiative of the major banks, was in fact this complexity inherent in an end-to-end, customer facing service.

Dr Edey noted that until the Initial Convenience Service was delivered, there remained a risk to the public good goals set out by the RBA under the Strategic Review.

The multiple roles played by the RBA in this generational reinvention of the ‘payments rails’ in Australia are of interest to industry observers.  With two seats (but one vote, curiously) on the Steering Committee of the New Payments Platform program, the RBA is both a regulator representing the public interest as well as a bank providing the key settlement function and a user of the new utility.

The three-year program of design and delivery of the New Payments Platform will be primarily via private sector providers and funding by industry clearing participants (expect the current eight core participants to expand by another 8-12 by end 2013).  While the RBA does not plan to ‘micro-manage’ the program, they will be keen to see their goals for efficiency via a competitive unit price and access arrangements that will encourage a multiplicity of providers to offer innovative ‘Overlay Services’.  Failing such outcomes may result in ‘regulatory surprises’, including deeming the clearing and payment utility a regulated service.

Departing from tradition, the NPP Steering Committee has also not tied the NPP to a specific payment scheme or created a new one – the utility service could be used by any scheme participant (even the card schemes) since the business rules and customer value are delivered via an ‘Overlay Service’.  This offers the prospect for the NPP to become the underpinning for any and all payment types or funding instruments.  In fact it was noted that the UK’s Faster Payments service is already seeing the unplanned migration of bulk electronic clearing categories to it.

The flip side of this business architecture is that the core utility service itself does not deliver any customer value.  Each Participant will contract to accept a ‘credit’ payment from another, but not to ‘post’ it to a customer account.  So any new payment provider wanting to offer a new ‘Overlay Service’ that moves money between customer bank accounts will need to either add further value to the ‘Initial Convenience Service’ (whatever that might look like) or negotiate with one or more Participants to enable further processing to their captive client accounts.

For more details about the NPP, read the industry proposal on the APCA website.