Australia holds back from open payments — for now
Under the Australian government’s direction, the country is implementing an open banking plan to allow consumers to share their banking data with other providers. However, Australia isn’t implementing open payments services such as payments initiation by nonbanks from consumers’ bank accounts, in contrast to the U.K. and the EU’s implementation of open payments through PSD2.
Australia’s cautious approach means that the banking industry will provide only account information sharing — referred to as “read access” — as a way to increase choice and competition in banking services. Data recipients will only be able to read a consumer’s data, provided the consumer consents, but they won’t have “write access,” which would give data recipients the ability to initiate payments from a customer’s bank account on the customer’s behalf.
“The intent in Australia is to implement ‘read access’ and then review its success before proceeding with ‘write access,’ ” said Richard Miller, payments lead partner at Deloitte Australia.
This contrasts with the U.K., where the Financial Conduct Authority has introduced two categories of license for nonbanks: account information services providing consolidated information on accounts held by users with banks and payment service providers (PSPs); and payments initiation services, enabling PSPs to set up consent-based payments from customers’ bank accounts as an alternative to paying online via credit or debit card.
Although Australia launched the New Payments Platform real-time payments infrastructure in February, the NPP’s rules don’t permit direct access by nonbanks. By comparison, the Bank of England has so far allowed two nonbanks to become members of the country’s faster payments system, TransferWise and Transactive Systems.
Australia's decision is also in contrast to Canada, where the Department of Finance is holding consultations on legislation to allow nonbank PSPs to become associate members of Payments Canada, which administers the country’s core payments systems. This would enable nonbank PSPs to have direct access to Canada’s new faster payments system, the Real-Time Rail, which will be launched in 2020.
Like other countries, Australia is seeing huge growth in digital payments. A March survey by the market research firm Roy Morgan found that 14.5 million Australians ages 14-plus used digital payment solutions in the previous 12 months.
AusPayNet, the Australian payments industry association, estimates that consumers made 8.3 billion credit and debit card payments in 2017, equating to almost 23 million transactions per day. Almost seven in 10 of these card payments were made with debit cards, and debit card payments grew 15.3 percent year-on-year to 5.6 billion in 2017.
A recent survey by Unisys found that 31 percent of Australians are willing to support data sharing in an open banking environment, but only if privacy and security concerns are addressed, The survey found that 34 percent are opposed to open banking, and 35 percent are undecided.
Open banking and real-time payments
In May, the Australian government announced the first phase of its open banking reforms, under which customers of the big four banks — ANZ, Westpac, Commonwealth Bank of Australia and National Australia Bank — will share their financial data with other accredited financial service providers such as fintechs.
In the first phase, consumers will be able to pass their banking and debit/credit card data to other financial services providers from July 2019. This will allow them to use their financial data to open bank and credit card accounts offering better deals than they get from their current providers. Consumers will be able to share mortgage data with other providers from February 2020, with lending data to be available later.
“The four main Australian banks have around 80 percent of the market, and there’s been concern from smaller players, new entrants and consumers as well as the government about the degree of banking competition in Australia,” said Australian banking consultant Brad Pagnell. “There has been a lot of interest in Europe’s PSD2 regulations in Australia, especially as the government has had a strong push to open up customer data across a range of industries. Around four years ago, we started to see a real growth in fintech companies in Australia, and the government decided to encourage their development. But getting all the regulations in place for open banking by July 2020 will require very tight deadlines.”
Australia’s faster payments system, the NPP, allows users to send real-time payments with simple identifiers such as email addresses or cellphone numbers, plus more complete payment information based on ISO 20022.
Overlay services such as P2P transfers can be provided on the NPP. The first overlay service, Osko by BPAY, a real-time P2P/B2B/C2B transfer service, was launched by the bank-owned bill payment service BPAY in February.
The NPP hit controversy in February when Lukas May, head of banking at remittance service TransferWise, wrote an article in The Australian claiming the NPP is a “members-only club” that set the entrance barriers too high for new entrants to protect incumbent banks.
May contrasted the NPP’s access regime with the U.K., where TransferWise is a direct member of Britain’s Faster Payments system, clearing directly through the Bank of England’s Real-Time Gross Settlement System.
“The NPP’s design requires a direct connector to the system to be an authorized deposit-taking institution, with an exchange settlement account with the Reserve Bank of Australia,” said Deloitte’s Miller.
Direct participants in the NPP must make a substantial investment in building an NPP payments access gateway for processing transactions.
All of Australia’s 150 prudentially regulated authorized deposit-taking institutions, or ADIs, can become NPP direct members with an ADI license. In addition, three bank payments processors are directly connected to the NPP, Cuscal, Indue and Australia Settlement Ltd., which act as aggregators, connecting smaller financial institutions that don’t want the cost of connecting directly to the New Payments Platform.
“In the short term, it won’t be possible for nonbanks to become direct connectors to the NPP,” said Miller. “However, fintechs could access the NPP via agency arrangements with a bank or aggregator.”
PSPs generating large volumes of payment transactions such as payroll or B2B payment service providers can connect directly to the NPP as “connected institutions,” by installing an NPP payment gateway in their own environment. Unlike NPP direct participants, connected institutions don’t need to be an ADI. A connected institution can send payment initiation and other non-value messages, but cannot clear and settle payments.
As of June, 65 banks, building societies and credit unions had rolled out NPP-enabled payments to their customers, using Osko by BPAY. Around 50 of these financial institutions are connected to the NPP via an agent or aggregator, and more FIs as well as some fintechs are expected to come on board in the coming months, said NPP Australia spokeswoman Lisa Lintern.
What about write access?
The Farrell Review of Open Banking commissioned by the Australian government prior to the publication of its open banking reforms recommended that “customer experience and take up of real-time P2P payments using the NPP infrastructure be taken into account in considering implementing ‘write access.’”
“If we assume that ‘read access’ won’t be fully implemented until 2021 and a 12-month period is allowed to elapse for review, and a further 12-month period is allowed for implementation, then ‘write access’ would only be mandated by 2023,” said Miller.
However, it seems likely that market developments toward open payments will precede regulatory change.
“Already several FIs are progressing plans to selectively open up transaction capabilities via APIs, with both NAB and Macquarie Bank having made announcements to this effect, and having related APIs in place or under development to enable third-party payments initiation,” Miller said. “Given this, market forces may drive a quicker adoption of more open access to nonbank players, albeit as distinct strategies across FIs, rather than a consistently mandated standard or regulatory requirement.”
While data sharing is the initial focus of the mandated open banking government reforms, given the scope of PSD2 and open banking developments in other jurisdictions, and statements by Australia's federal treasurer, Scott Morrison MP, supporting "write access," more open payments initiation would seem to be on the horizon, Miller said.
“Fintechs seeking to enter the Australian payments market would need to develop the capability to manage KYC and AML/CTF sanctions, data privacy and other compliance requirements,” he said. “For all players across the payments landscape in Australia, it seems appropriate to begin preparing for an environment that provides for both ‘read and ‘write’ access in the medium term.”