Understanding the NPP and its benefits
The New Payments Platform (NPP) is a national payments infrastructure being developed for the Australian economy. It will give consumers, businesses and government departments a platform to make payments virtually in real time.
In times past, getting access to cash depended on going into a bank during branch hours and withdrawing money. Today, people can access money via ATMs, EFTPOS, online payments, contactless cards and mobile payments. The NPP will speed up these payments even more, taking them close to real time.
The NPP is being developed collaboratively by 13 financial institutions, including all the big banks and several other banks. Once it goes live later this year, it’s expected that 80 per cent of all Australian bank accounts will be able to receive payments by the NPP. This will increase as more financial institutions connect to the NPP.
Not only will payments be faster, but they will be completed with ‘remittance information’ or details about the payment. Payments will be addressed to a payee’s unique identifier, so there is less chance of money ending up in the wrong account.
How the payments system will work?
The NPP works through three parts:
1. The Basic Infrastructure.
This is a network which will connect all participants. The network includes a switch, which moves messages between participants and an ‘Addressing Service,’ which enables transaction accounts to be identified by a payment address such as an email address, phone number or ABN number.
2. The Fast Settlement Service
The Fast Settlement Service (FSS) is provided by the Reserve Bank of Australia which enables every single payment made on the NPP to be settled in real-time.
3. Overlay Services
An overlay is a computer network which is built on top of the basic infrastructure. The NPP infrastructure will eventually support multiple overlay services, which will deliver additional payment services.
The benefits of the NPP:
Customers of financial institutions connected to the NPP will be able to make or receive payments in a matter of seconds. Real-time settlement means businesses can also make and receive payments more quickly. This will speed up cash flows for everybody.
There will also be less scope for payments to the wrong account. The Addressing Service will enable payments to be directed to any recipient using their phone number, email address, ABN or organisational identifier, even if you don’t know that person’s bank account number.
For bookkeepers, this will reduce the time taken to reconcile accounts. Accounting systems, for example, will be able to match payments against invoices using a person’s payment address.
The platform also enables more information to be conveyed with payments, including the attachment of documents like invoices and receipts.
Questions that you were too afraid to ask:
Q. What’s the point of the NPP?
A. There are three key benefits of the NPP:
- Speed: the ability to make payments in real time, with close to immediate funds availability to payees outside normal banking hours.
- Data enriched: the ability to send more information with payments.
- Simple Addressing: A system to more easily address payments to recipients using their phone number, email address, ABN or organisational identifier.
Q. Who will run the NPP?
A. NPP Australia Limited (NPPA) was formed in December 2014 to build and operate the NPP. The company is owned by the 13 financial institutions participating in the NPP: the ANZ, CBA, NAB, Westpac, Cuscal, ING Direct, HSBC, Macquarie, Bendigo and Adelaide Bank, Citigroup, Indue, Australian Settlements Limited and the Reserve Bank of Australia.
Q. When will the NPP be operational?
A. The NPP is currently being tested by NPP Australia and could become available from November 2017.
Q. Will I pay money to use the NPP?
A. That will depend on your bank. Pricing for use of the NPP will be at the discretion of participating banks and other participants.
Q. Can I move bank accounts more easily?
A. Users of the NPP’s Addressing Service, which allows customers to send payments to a nominated account via a unique identifier, such as a mobile phone number or email address, will be able to switch payments between accounts more easily. So, while the NPP has not been designed to support account switching, it does empower consumers to redirect payments to other accounts through the use of their unique identifier.
Q. What is an overlay?
A. Overlay systems will leverage the NPP’s basic infrastructure and provide tailored payment services. Overlays are like apps which enhance or expand the service delivered by the NPP’s basic infrastructure. NPP Australia, the company formed to operate the platform, predicts the development of several overlay services once the NPP is operational.
Q. What kind of products and services could overlays deliver?
A. As payments made by the NPP will be data rich, the opportunities to speed up payments in funds management, securities trading and in the insurance and superannuation industry are numerous.
The first overlay to be launched on the NPP will be delivered by BPAY via participating institutions. It will be a convenient and accessible service for consumers to send payments from their bank account at any time to payees using addresses such as a mobile phone number or email address, with fast and data-rich availability of cleared funds.
Q. Why is the Reserve Bank of Australia involved with the NPP?
A. Having the RBA connected directly to the NPP will allow real-time settlement between the participating financial institutions.