Why Finance wants to tap into the NPP

The Department of Finance expects tapping into the new payments platform will transform the decades-old financial management practices used across government to manage billions of dollars of public funds.

The department received $11 million in the recent federal budget to drive productivity improvements across the public service, including through the use of the billion-dollar NPP underpinning Australia’s financial system that went live in February.

The NPP, which the financial services industry and federal government have been working on since early 2012, allows for real-time payments between financial institutions and their customers.

It has initially been made available to 13 participating banks, as well as around 50 other smaller financial services organisations, but will eventually become the standard across all Australian financial institutions.

For government it presents the opportunity for real-time emergency welfare money or support payments for disasters.

At a senate estimates hearing yesterday, deputy secretary of governance and APS transformation Stein Helgeby said using the platform would allow Finance - as financial manager of the Commonwealth's cash management system - to improve government's “constrained” cash management processes.

“In the Commonwealth we’ve been constrained in our approach to cash flow management by two things – and we manage a lot of cash, so $500 billion a year in, $500 billion a year out,” he said.

“We’ve had to use a lot of manual processes and really a lot of just ring people up and say 'how much cash do you need', tidying it up and dealing with the Reserve Bank to get the cash flowing.

“The other [challenge] is the actual payments system that’s operated in the financial sector in Australia, which – as you know – has lags in it in terms of transactions being settled."

He said that this has caused problems for government when trying to trying to move money over a weekend, during a shutdown period or even during a national emergency.

But the NPP will remove manual processes and unnecessary interaction with entities and enable the department to “tap into real-time settlement with rich information available to it’.

It will do this hand-in-hand with the federal government’s new central budget management system (CBMS) – the platform used by Finance and other agencies to put together the Commonwealth budget and track spending against it throughout the year.

Helgeby said this would “open up a range of opportunities for government that haven’t existed to date” and could lead to a scenario where the government dispenses with decades-old financial management practices, such as replacing its approach to the short term money market.

 “At the moment we try and tidy up all the cash management needs, ring the Reserve Bank, get the cash, put it in people's bank accounts and then take it back at the end of the day to invest in the short term money market in order to really get the value out of the government’s cash flows,” he said.

“Potentially we could replace that whole approach so that we could have much more real time information about what cash needs are, and move the money around much more swiftly and do it with more information about what those transactions are.

“So this is something that is important to Finance as manager of the cash management system in the Commonwealth, but potentially of great significance also to agencies as they seek to manage their own resources.”

The project will involve mapping aspects of the NPP and "driving them into the [CBMS]” following years of “active conversation with Reserve Bank” to understand the intricacies of the platform.

“[The department] has been in active conversation with the Reserve Bank for a couple of years now to really understand what NPP is, how it works, how it connects [parts of the finance system] and what features it has that we don’t have at the moment,” he said.

While funding hasn’t been confirmed for the project, secretary Rosemary Huxtable said that  “probably around half” the $11 million allocated for the budget measures would go towards getting systems NPP-ready.