We seem to be getting a lot of media queries at the moment about electronic payments, how they work, and how quickly they happen. Maybe this is a consequence of the increasing use of mobile banking – people can see things happening on their accounts wherever and whenever. This means that the mechanics of payments are more “in your face”. In line with changing customer expectations, payments processing is speeding up, but doing this in a reliable and secure way itself takes time, given the size and importance of the system. Australia’s “direct entry” electronic payments system handles around 8 million payments a day, between about 35 payments organisations (banks and others). There are around 300,000 registered users – these are businesses that routinely use the system – and millions of account-holders. The system is the backbone of Australian business, supporting every kind of payment from big outlays, like commercial rents, through salary and wages (these days, nearly all of us get paid by direct entry) down to the little payments we make to each other on internet and mobile banking.
I would like to borrow a theme from Jim Collins, the management researcher and writer. His two best-known works, Built to Last and Good to Great, are evidence-based studies of what makes commercial organisations outperform over the long term. APCA’s own core principles – our values, purpose, unique positioning, member benefit proposition and vision – were developed using the Collins framework. You can find them on our website.
Collins has the luxury of something to measure: he looks at relative increase in total shareholder value of listed companies against competitive peers over long periods of time. Then he tries to work out how the top performers got there in the first place, and how they stay on top. These days there is plenty of debate over the validity of this method but its influence on corporate strategic thinking is undeniable.
Unfortunately, neat quantitative measures of achievement are not generally available for payment systems. But the long-term, structural orientation of Collins’ work aligns well with broader payments system evolution: how does the industry build a payments system that will stand the test of time, and respond to the unknowable challenges of the future? It’s not about any one strategy or programme, but the overall structure, culture and orientation.
APCA’s Low Value Payments Roadmap takes a 10-year horizon for exploring future evolution of the payment system, and we are now a year in. It’s time for a stocktake.
Let’s start with the good news: universal payments connectivity, which was proposed in the 2008 Roadmap as one of three core components of basic payments infrastructure, is close to reality. Last month we celebrated the official commencement of the payments COIN (Community of Interest Network). Using communications technology supplied by Telstra, the COIN will allow single-point secure access to the entire payments community.
In a parallel development, the Reserve Bank of Australia (RBA) is establishing a clearing interconnector service which will enable transmission of payments files and messages between participants on different networks. The initial use of the interconnector will be to manage interchanges between COIN participants and SWIFT users, so that payments system participants can, if they choose, use SWIFT for connectivity as an alternative to the COIN. If other network service providers want to offer competing services, there is no reason in principle why they could not be connected too.
The industry has also been working on the other two elements of basic network infrastructure, although these are longer term exercises. These are flexible settlement through the RBA, and a globally aligned standard message library for payment and related transactions.
On settlement, the RBA has announced its intention to provide more flexible settlement arrangements through a settlement interconnector. Exchanged payment messages will be able to be settled more or less on demand, or in defined batch cycles. Here at APCA, members are working on the implications of more flexible settlement for the existing direct entry system.
The standard message library is even more challenging. The global evolution is towards ISO20022 messaging, and we are currently engaged in mapping Australia’s existing and anticipated future needs onto a message set that works for a range of Australian payment needs, but aligns with the global standard. As might be expected, this is not a trivial exercise.
These arrangements are designed to enhance access, reduce costs and increase efficiency in the payment system. But they are also ‘built to last’ – that is, the infrastructure layer should provide a platform for future evolution and competitive development, whatever the future holds in terms of technological advancement and new customer needs. Utility-style payment systems designed for a particular context and customer set will give way to a diversity of competing payments instruments, operating on common basic infrastructure for reliability and accessibility. As new payment needs evolve, existing payment methods can more easily be adapted, and new ones can more easily emerge.
As we review overall progress under the Roadmap, it is pleasing to see some runs on the board.