Time is up for Australia’s legacy bulk payments infrastructure under the Treasury’s latest Strategic Plan, as the country moves towards a fully instant payments future.
In line with its wider aims to improve the efficiency of Australia’s payment system, the Treasury has confirmed that the Bulk Electronic Clearing System (BECS) is set to be phased out.
In its place, BECS participants will be asked to make a “full transition” to the New Payments Platform (NPP), Australia’s instant payment system that launched in 2018.
BECS is an electronic funds transfer system that facilitates the processing of Direct Entry payments, such as direct debits and direct credits, between individual accounts held at different Australian financial institutions.
AusPayNet, the industry body that administers BECS, is currently consulting with financial institutions (FIs) on timeframes and preconditions for the transition, and said it expects this work to be completed by the end of 2023.
The consultation findings will then inform the Treasury’s next Strategic Plan that will be published in 18 months.
The Treasury said the “most significant challenge” in transitioning away from BECS is likely to be bulk payments that are made by businesses and government.
Transitioning these payments will require capacity upgrades by NPP participants. According to the Treasury, these participants are required to prepare for the increased volume by ensuring that their infrastructure meets at least 50 percent of BECS capacity by the end of 2023.
In contrast, much of the required capacity for transitioning consumer-facing payments, such as individual account-to-account payments and direct debits, has been or is in the process of being rolled out.
“There is a clear benefit to industry prioritising the transition of consumer-facing payments onto the NPP, both from an efficiency standpoint and from a safety standpoint,” said the Treasury.
Those benefits include 24/7 processing and near-real-time availability of funds, alongside security features such as confirmation of payee through the PayID addressing system. The NPP also allows for data-rich payments using the ISO 200022 standard.
To monitor progress, the Reserve Bank of Australia (RBA) is requiring that FIs report on their work to connect all remaining relevant accounts to the NPP.
Anna Bligh, CEO of the Australian Banking Association (ABA), welcomed the plans, crediting the Treasury for its commitment to “future proofing” Australia’s payment system.
Described as the biggest overhaul of Australian payments in 35 years, Bligh said: “A productive world class economy needs a modern and efficient payments system — today’s announcement is a long overdue overhaul of the payment arteries that drive the Australian economy.
“Payments are the lifeblood of our economy, but Australia is currently using a 60-year-old system for many everyday consumer and business payments.”
By prioritising the NPP, Bligh added that the “strategic direction” laid out by the Treasury will help guide future payments sector investment that will benefit consumers.
In addition to migration of BECS, other major initiatives as part of the announced strategic plan include the phasing out of cheques by 2030; reform of the payments regulatory architecture, with an expanded mandate for the RBA; and a proposed list of the payments functions that can be regulated under a new Payments Licensing regime.
Resilience and contingency risks
However, other industry professionals have questioned whether the NPP is ready to occupy such a central role in Australia’s payment system.
Although use of the NPP has grown rapidly, with the network processing more than a billion transactions in 2021-22, the NPP’s success has not come without setbacks along the way.
Brad Kelly, managing director of Payment Services, an Australian consultancy, said there are risks to the transition that the Treasury has underestimated.
“BECS is dead,” he said. “We all knew that, but my concern here is that if the NPP falls over, what is the fallback without BECS?”
Speaking to VIXIO, Kelly pointed out that, in October last year, when the NPP suffered an outage due to an error during a software change, the system reverted to BECS. But even then, BECS saw failed batches while the NPP was out of action.
During that “fateful night”, as Kelly called it, around 500,000 unique payments sent by the public via the NPP were delayed for at least four hours, with some delayed for more than five days.
In a final incident report published in November, the RBA said that the delayed payments accounted for about 17 percent of the average daily volume for a Wednesday — the day of the outage.
The government said it “encourages” industry to make further progress on “minimising outages” on the NPP by “strengthening its resilience”; however, in its Strategic Plan, the Treasury offered few details as to how this will be achieved.
Aside from resilience and contingency concerns, Kelly also said that there are cost factors to consider if Australia is to increase its reliance on the NPP.
Although the NPP may be free for consumers making account-to-account transfers, this is not the case for merchants when accepting retail payments via the NPP.
“The NPP is undercooked and expensive - that’s a story in itself,” he told VIXIO. “Swapping out BECS for the NPP sounds great, until the merchant gets a bill for three times the amount they were paying for BECS.”
In its most recent Payments System Board update, published last month, the RBA said it will “apply the same principles” to the wholesale pricing of NPP transactions as it has applied to competing payment systems.
Although again, the RBA gave few details as to what this will mean for FIs in practical terms.
“The competitive implications of linking the pricing for one payment system with another payment system, and volume-based discounts, should be carefully considered,” said the RBA.
“In particular, interchange fees should not be set at a level that inhibits the efficiency and competitiveness of the payments system, and they should be published to provide transparency.”
As highlighted in the Strategic Plan, about 25 percent of account-to-account transfers are now transacted via the NPP.
The Treasury was also keen to highlight that there are more than 90m customer accounts now registered with the NPP who are served by more than 100 payment providers.