Real-time payments

In an age of instant noodles, instant scratchies and instant coffee, why do payments sometimes take days to reach their destination?

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By Rebecca Douglas

Instantaneous transactions

The internet may have brought us online trolling and inboxes full of spam, but it has also brought us the convenience of online payments – a development Australians have welcomed with open arms. We now pay bills, do the grocery shopping and automatically transfer funds between accounts at the click of a few buttons, any time of the day or night.

The only trouble is, while we can make magical online payments around the clock through a variety of devices, the timing of when the money hits the recipient's bank account is another matter.

In this article we look at:

As CEO of the Australian Payments Network (APN) Dr Leila Fourie explains, the move towards online payments is a trend that's not likely to reverse in our march towards a cashless society.

"Cheque and ATM prevalence is reducing remarkably and card and online payments are increasing dramatically," she says. "We're going to see this trend continue."

When we look at the numbers, cheque payments are down 56% since 2011 and cash withdrawals from ATMs reduced 22% over the same period. Australians have embraced the ease of 'tap and go' payments with our cards such as payWave and PayPass, which now amount to more than seven out of 10 of our transactions.

New digital technologies have aided in the growth of these types of payments, with a high usage of smartphones and broadband in Australia and wearable technology such as Apple watches becoming increasingly popular.

In this online age we expect transactions to happen instantly and with minimal effort for efficiency's sake. In the case of small businesses, real-time payments processed instantly would help them with cash flow, as they can receive payment immediately after performing their work or supplying their product and avoid racking up bad debts where customers refuse to pay.

Right now, how long it takes an online transaction to go through depends on the type of transaction being made and whether the money is travelling between different banks. Certain banks currently have effectively immediate solutions for transactions within the bank, however it can take much longer when the payer and payee are with different institutions. 

"The moment you're starting to transfer money from one bank to a recipient in a different bank, that could take anywhere between one and three days to clear," says Fourie. This happens because payments between different banks are usually "batched" and will be sent near the end of the business day.

How will real-time payments work in Australia?

Real-time payments are currently offered, to varying degrees, by 19 countries around the world, with the United Kingdom, Switzerland, Denmark, Singapore and India leading the way.

The ability to process faster online transactions like those overseas has been on Australia's wish list since 2012, when the Payment System Board of the Reserve Bank released a paper calling for a real-time payments system to be established by the end of 2016. A number of financial institutions and related organisations came together to make that dream a reality.

In December 2014, 13 financial organisations, including the four major banks and the Reserve Bank, formed NPP Australia to oversee the New Payments Platform being built. Aside from processing payments virtually instantly, the New Payments Platform will have several other benefits. Senders will be able to include more information along with their payment, such as a longer 280-character text description of what the payment is for, or a link to a document containing further information.

An addressing service called "PayID" will let us make payments using easily remembered identifying information such as an email address, phone number or ABN rather than needing to know the recipient's BSB and account number.

Other systems called 'overlay services' can gradually be built on top of the New Payments Platform to offer customers additional features. The first of these will be Osko by BPAY, which will operate essentially as a beefed up version of internet banking when customers log into their bank's website.

"Osko by BPAY will grow in service capability within a customer's internet banking platforms over time," says Adrian Lovney, CEO of NPP Australia. "It will launch with a payment service late 2017, followed by additional services including payment with document, and the ability to make and receive requests." 

The ability to make a request for payment will be particularly useful for small businesses such as a plumber or yoga teacher so they can be paid straight away, and they can send customers an attached invoice detailing the services provided.

When will real-time payments be available?

The new payments system is almost ready to be unveiled.

"The program is currently in its testing phase," says Lovney. "It's this phase that provides the assurance required for the industry to move confidently towards making the platform available for public use by the end of the year."

The launch is scheduled for October 2017, a year later than originally planned. After launch, it will be up to individual banks as to when they make the system available to their customers.

"Once the platform becomes available for public use, some financial institutions will commence supporting payments between consumer accounts immediately, and others will roll out services gradually," says Lovney. "As we move into 2018, the number of reachable accounts will increase as more financial institutions join the platform."

Initially, 70 financial institutions will be on board offering the service, and will grow rapidly to 148 within two years. By contrast, BPAY is celebrating its 20th anniversary this year and has 150 institutions signed up. John Banfield, CEO of BPAY Group, advises that around 99.5% of Australians will be able to access the service.

Is my money safe?

With so many Australians using the new system, some might worry whether their money will be secure. Reassuringly, transactions will be settled through the "Fast Settlement Service" provided by the Reserve Bank and the system will come with several safeguards. While it is designed to enable almost instantaneous money transfers, it can be slowed for the sake of safety.

"Financial institutions that connect directly to the platform must have the ability to clear funds in real time, with allowances made to 'slow down' payments if there is a need to respond to potentially fraudulent activity identified via built-in fraud screening and prevention steps," explains Lovney.

Osko has its own safety measures to guard against fraud.

"We believe it is a very safe consumer experience for the same reasons that BPAY is a very safe experience today. You are supported by A-grade banking security and you're still having to log in to your internet banking environment to push a payment or request a payment through Osko," says Banfield.

In addition, once your mobile number or email address is linked to your bank account through PayID, you won't have to hand over your BSB and account details for someone to pay you.

Apart from deliberate attempts by cyber-thieves to intercept your money, what happens when you accidentally type a '2' instead of a '5' and send money to the wrong account?

In this situation, banks have obligations set out under the ePayments Code. These include warning a customer about the consequences of entering incorrect information, making it easy for customers to report any mistakes they've made, investigating these reports and making a concerted effort to recover the funds.

Customers have corresponding obligations to keep their PIN and passwords safe from prying eyes and not disclose them to anyone. 

Banfield says that today with BPAY, very few mistakes are made and they are usually rectified by the customer's bank quick smart. It's a similar case with Osko – customers will obviously need to check what they've typed in, including the amount they're sending or requesting, and in the unlikely event of making a mistake, they should contact their financial institution immediately.

What does the future hold?

So where do we go once real-time payments have well and truly been made a reality? Banfield is confident Osko will change the face of banking for the better.

"It will significantly reduce small cash payments, it will eliminate cheques, and it will supersede, at some point, 'Pay Anyone'," he says.

He argues customers often don't know when sending a 'Pay Anyone' payment whether the money has been received and it can take days to go through. By contrast, customers will know whether Osko payments have gone through in under a minute.

With online payments only likely to increase once they become near instantaneous, Fourie says the next big project for Australia will be to improve cyber-security by providing Australians with a way to prove their digital identity through some sort of online passport.

The APN is not yet sure what form this will take, but the need to keep our virtual dollars safe, as well as speedy, is very much on their minds.