Reserve Bank to review real-time payments proposal

The Reserve Bank of Australia is reviewing an industry-led payments infrastructure proposal as part of its bid to facilitate real-time retail payments by 2016.

The proposal was developed by the Australian Payments Clearing Association’s Real-Time Payments Committee and submitted to the Reserve Bank’s Payments System Board on December 24.

Subject to the Reserve Bank’s support, the Committee expected the project to be established in the coming six months, with vendor selection to take place in late 2013.

A Reserve Bank spokesman declined to disclose any procurement plans or details of the proposal, which will likely be reviewed at a Payments System Board meeting next month.

Central settlements

Last June, the Reserve Bank indicated that while it intended to “let the industry determine” how real-time payments may be achieved, it favoured an approach that would see it provide a central settlement hub.

According to CIMB Equity Research analysts, such a hub would bring the Reserve Bank’s role in line with a majority of central banks – including those of Belgium, China, Saudi Arabia, Singapore and the US – operating key national payment systems.

Analyst Ashley Daiziell pointed to the firm’s July 2012 report that pinned “Australia’s sluggishness in payments in recent years” to its lack of a central payment processing system.

CIMB reported that the Reserve Bank’s 2016 deadline was “not particularly onerous”, comparing it to a similar initiative in Britain, where the UK Office of Fair Trading and 13 banks came together to launch the Faster Payment Service (FPS) in 2008.

The analysts found the FPS “successful on most accounts”, with two-thirds of participating banks interviewed in 2009 expecting the system to deliver an additional £2.9 billion in business-to-consumer revenue by 2018.

CommBank ahead in real-time push

During the past year, Australia’s Commonwealth Bank has talked up its real-time payment processing capabilities, enabled by its billion-dollar core banking modernisation project, which concluded last year.

CommBank chief information officer Michael Harte told journalists late last November that the bank had already drawn up plans to join a national real-time payments system.

“By 2016, the Reserve Bank is going to require all the banks to be real-time,” he said. “We can do it because we’ve made the investment.

“We’ve already drawn plans to do that [real-time interbank payments], but why would we deploy that if it would diminish our advantage … why would we transfer that advantage to other banks?”

CIMB noted that a real-time retail payments system would not necessarily require banks to undergo massive core systems overhauls, suggesting that more frequent batching – referring to the usual practice of processing payment instructions in batches rather than as they happen – could suffice.

But “ultimately, those banks that have modernised their core system will be best placed to capitalise on both the revenues and operational benefits the system will bring”, the analysts wrote.

Daiziell and his colleagues expected CommBank to be best placed to meet the Reserve Bank’s 2016 deadline for real-time, interbank payments.

The analysts expected NAB to be on track to run a “true real-time core payments system” in three to five years, with the bank currently rolling out an Oracle Banking Platform that has already been adopted by subsidiary UBank.

Daiziell said Westpac should be able to enable real-time payments by upgrading from its current CSC Hogan platform to CSC Celeriti – which would likely be a 12- to 24-month project.

He suggested that ANZ might introduce a real-time payments processing capability by extending its Infosys Finicle core from Asia to Australia, where it currently uses Hogan.