Transcript of Question & Answer Session Panel Participation at the Sibos 2018 Conference

Good afternoon everybody, and welcome to this afternoon's panel now live, What's Next For Real-time Payments in Australia. I'm Adrian Lovney from the New Payments Platform, and I'm pleased to be here moderating a panel of distinguished guests, who I'll ask to introduce themselves and a little bit more about their organisation in a second.

But Rachel Slade, Lindsay Boulton, Di Challenor, and Karen Webb from the ASX. What we're going to do today is I'm going to just show a few introductory slides to just level set. I can see from the faces in the room, the familiar faces in the room, that some of you can equally present this material for me and definitely do it better. But there are some that are less familiar with what we've done here, so we'll just do a little bit of a level set, then get my panellists to introduce themselves. We'll run through some questions to start to kind of tease off discussions, to set off discussions. Then they'll be lots of time at the end for questions and discussion.

So what have we built in Australia? The key capabilities of the NPP are the real-time movement of money between accounts at financial institutions with real-time settlement of those transactions in central bank funds, and I'm going to ask Lindsay to expand on why the RBA was particularly keen on that model in a second. The other feature of the environment is a central proxy database that you don't have to use a pay ID to make a fast payment in Australia. You can make a payment to a BSB and an account number, but as most of us know BSBs and account numbers are meaningful to my financial institution, but I still can't remember mine, so you get the opportunity to nominate a unique number that is memorable such an email address or a mobile phone number or a company number. And that provides the added benefit of seeing confirmation of the pay before the payment completes.

Of course, we've chosen the ISO 20022 data standard to underpin what we've built, and that gives us over time lots of opportunities to include structured information using the ISO data standard, which would be carried along with the payment in real-time. And obviously that makes the platform ideal for use in industry verticals, whether that's insurance or the capital markets or pensions for example. Initially though, the initial overlay service, Osko, carries up to 280 characters of unstructured text including emojis.

And then finally, the other key defining feature of the platform is that it's always available 24/7, 365 days a year. As many of you will have heard us say over the last little while, we originally anticipated probably building a hub, but as you can see we don't have a central switch in this infrastructure. What we have is a series of distributed payment gateways, directly connected participants can have one of those gateways and connect directly to their peers. There are eight organisations that are currently connected directly to the infrastructure, and there are about 70-75 other organisations that are connected via one of those other organisations. We expect that number to increase over time as banks continue to build out their offerings and also using things like API framework.

The platform, of course, has a separation of infrastructure and product, so we've all collaborated around the infrastructure. What we'll see sitting on top of the infrastructure is a series of products, the first of which is Osko and we'll also expect to see data standards developed that carry rich data for different use cases.

In terms of where we are today, the New Payments Platform went live to the public in February. And each and every bank, of course, chooses to rollout the platform in a way that sets their own business objectives and in line with their own timing, so there are 50 million accounts that are currently reachable to send and receive payments via the NPP. In the main, organisations have chosen to launch with a retail customer base and are now starting to roll out the service, although some did when they went live. But in the main, banks are now moving from retail customers maybe in one channel, across a range of broader channels that might be aimed at government institution or corporate customers.

In any given week or last week, there were just over 2.4 million transactions going through the NPP. Most of those, given the way the platform's been rolled out, have been person to person payments, but we certainly expect to see movement into the business segment soon. There's no value limit imposed by the centre or indeed by Osko in terms of a transaction, so while the typical transaction is about $175 Australian, the average transaction is about $850. And the reason the difference is obviously that there are large numbers of very large transactions going through the NPP such as our $17 million payment which is obviously skewing that average.

Our objectives as an organisation and as an ecosystem are to do four things: to extend our reach and coverage and to continue to expand on the number of accounts that are reachable, to drive volume through the infrastructure because that helps us to produce a more sustainable transaction price, to develop new capabilities whether that's data standards or central pieces of capability that help to build use cases. Maybe developing a standard for QR codes for example, and to support access in the development of new overlay services.

And finally, where are we spending our effort and our activities as an organisation and as an ecosystem? We're doing work around standards development in high volume, high opportunity segments, particularly those where there's no clear organisation that's going to step up and drive the ecosystem. We see one of our roles as helping to drive the ecosystem in high volume payment segments, promoting standardisation and interoperability through the development of an API framework. We won't provide APIs ourselves. These people will provide APIs, but what we've developed is an API framework to help provide some standardisation and interoperability. And we've recently launched, in conjunction with Swift and API Sandbox so that fintechs and others can play with those APIs in parallel to getting access. And finally continuing to educate the market about what's possible and how the NPP might be used over time to solve businesses and individual's problems. So there are the areas that we're focused on.

With that said, I'm now going to hand over to my panellists and maybe start with Rachel Slade if you might introduce yourself and maybe describe your connection to the NPP.

Thanks Adrian. I'm Rachel. I'm the Chief Customer Experience Officer at National Australia Bank. I've been a very proud director at NPP Australia, and I've been involved in the NPP almost since its inception in one shape or form and had the executive accountability for rolling it out at NAB.

Thanks Rachel. Lindsay.

I'm Lindsay Boulton. I'm the Assistant Governor for Business Services at the Reserve Bank. I too have been involved in NPP almost since its beginning. My area in the Bank covers a broad range of payments, including the settlement of interbank obligations through the Reserve Bank Information and Transfer System. But also the provision of banking services to the government. For my sins too, I'm also responsible for note issue which probably doesn't sit all that well with a SIBOS Conference but nonetheless …

They're pretty though, the new notes.

They're very pretty, and that was completely unprompted by the way. My areas at the Bank oversaw two parts, really, of the NPP development. The first one was the build and design of the Fast Settlement Service for settling interbank obligations but also because we provide banking services to the government, we had to build and have had to roll out a system to enable our government customers to use the New Payments Platform.

Thanks Lindsay. Di?

Well I'm Di Challenor, and I run transaction banking at Westpac. I'm probably the newest one to the NPP family. I also am a very proud director on NPPA, and I've been involved really for the last 18 months as Westpac has rolled out and continues to roll out the platform to our customers. Our transaction services business covers payments for the whole entire group at Westpac, so our retail SME business and institutional. And then I have the responsibility of providing cash management services to the institutional client base directly. So a wonderful opportunity, it's really exciting to be involved in NPP. I've been overseas for the last 12 years so came back and was in Hong Kong and heard about NPP and when are the global banks going to get connected. And now I'm part of one of the Australia's banks who's really pleased with this development and look forward to sharing our journey, which is not without its challenges, with you over the next 20 minutes.

Thanks. Karen?

Thank you. Karen Webb from the Equity Post-Trade Business Development team at the Australian Securities Exchange. We're responsible for the clearing and settlement of equity market transactions in the Australia market. So we deal with settlement every single day and work closely with our participants and banks to make that happen. We're also very much engaged in a significant project at the moment which is the replacement of that post-trade system known as CHESS. We've chosen to use distributed ledger technology for that replacement and to also move from proprietary messaging to ISO 20022 messaging as well, so we've been watching NPP as we moved through our own project and seeing if there are any opportunities in the real-time payment space.

Thanks Karen. So as I flagged, I might start with Lindsay. One of the biggest architectural decisions that the industry made and one of the things that sets it apart from many of its peers is the settlement model, which has continuous 24/7, 365 settlement of each transaction, line by line in central bank money by the Fast Settlement Service for which you're accountable among other things. Can you in a little bit more detail how the FSS works in practise and why this settlement approach was particularly important to the RBA?

Well it works in very much the same way as a normal settlement process does. But it was built specifically for NPP, so the Fast Settlement Service was very much an NPP-inspired system of development. It does continuous settlement 24/7, 365 days a year. A settlement of interbank obligations that arise as a result of NPP transactions. And the settlement, of course, occurs in central bank money, so a liability of the central bank and in that sense its central bank exchange. Settlement funds in Australia are very similar to Fed funds the US.

Even thought it was built though specifically for NPP, it was built as a component of the Reserve Bank Information and Transfer System which settles general interbank obligations. So it's a component of that, and it works hand-in-hand with that settlement system but very much focused on being able to provide continuous 24/7, 365 day settlement. It is novel in the sense that it's a line-by-line settlement, which means that it works in concert with the actual transfer of funds from account to account. And in that sense, it enables the management of settlement and credit risk that arises through the system.

It was designed specifically that way, because when we were thinking about the design of the Fast Settlement Service, it was two objectives in mind. One was to ensure that it was working in concert with the New Payments Platform, but we also wanted something that was conceptually very simple but also future-proof. Something that was going to stand the test of time.

As we all know, there are a lot of changes taking place within the payments industry around products and services. It's difficult at any point in time to stand here and think how the payment system generally is going to evolve, what kinds of products and services are going to be available in ten years time. But what we do know is that consumers and businesses want their transactions to happen in real-time. They want speed. They want very quick verification that their transactions have taken place. Whatever services and products that are coming down the track, we needed to build a system that was actually going to be able to accommodate that. Line-by-line settlement seemed to be the way to approach that. The technology existed to provide it, and so it made sense for us to actually pursue line-by-line settlement.

We could have developed NPP along the lines of real-time transfer of funds between accounts but had the interbank settlement process, we could have had that done on a deferred basis by providing a collateral management system of some kind. But that would have just complicated the build. It would have required a collateral management system to be built. You would have had to have managed it and staffed that, of course. And that didn't seem to make a lot of sense doing that when the technology exists to actually do line-by-line settlement, so the approach was keep it conceptually very simple but make sure it's future-proof to handle whatever we think is coming down the track as far as payment services are concerned.

Thank you. So six months post go live. Rachel, maybe starting with you, and then I'll ask the other panellists. What are your reflections on the journey your organisations have taken to get here and what have you learnt and what perhaps might you have done differently?

Excellent set of questions. I think the thing I wouldn't do differently was getting really clear on scope and channel upfront and sticking with that. Because our heartland of our bank is a business bank, we were very committed to having a service available to our business customers from day one, so we launched to our business and retail customers day one and that was, I think, the right decision. Customer feedback's been great.

In terms of what we would do differently, I think one thing we might … and it's a small thing, but we didn't fully appreciate how customers were going to use the data. So I think we would have done some more testing with our customers, because what we found early was because there was also a little bit of inconsistency in how all of the participants present that usability to their customers, some of the customers were a little bit confused and also used it in ways we hadn't anticipated. So we've responded to that, but I think it's just one of those lessons in potentially doing some more customer usability, where we were all very focused on a very big, complex technical implementation. So probably just a slight up-weighting in the customer testing piece.

Thanks. Di, perhaps?

I think from my perspective, at Westpac we try to do everything sort of perfect day one. We've got this goal that we're going to launch NPP across all of our segments, and we're going to address the compliance issues, we're going to look at sanctions, we're going to have fraud, we're going to have all the bells and whistles. And I think sometimes it's probably more important as I reflect and coming into the program a little bit later, was what's really the minimal viable product that we need to go to market with. And I think as I reflect on all large technology projects, you often get so focused on this big project you're delivering.

If you think about NPP and if you reflect on the Australia banking system, this is probably the most significant change in the banking system since direct entry, even when we had terminals rolled out years ago like eftpos and bring that to market. So the significance of that change probably put us all in the mind frame as "let's do this massive, big technology project" rather than coming back into it and saying "Well what do clients really need day one? And how do we build on that?" As I reflect, and I'm working on a number of significant projects at Westpac at the moment, I'm taking the learning and saying "Let's just deliver modular components to customers. Let's not try and boil the ocean and deliver too much." And I think we need to think more like our fintech providers who go "What product can I get out to suit clients and not over boil the ocean" and know you'll get there over time and focus on probably those smaller things rather than those big, hairy problems that I faced on a daily basis.

Thanks. Lindsay, maybe from your perspective, what have you learnt? What might have you done differently?

Well I tend to divide the lessons, there's always lessons. I tend to divide the lessons up into the implementation lessons and the run lessons. And I think it's fair to say on the run lessons, we probably hadn't had a lot of experience there to know what they are. But we do know that the system is meant to be open and accessible, and so I think anything we have to be careful of there is making sure that we live up to the mantra there. That it is open and accessible.

But on the implementation, there's a number of different things, and you can look at it at a couple of different levels. One of the most important lessons is that critical mass is important to launch this, but it's also very difficult to figure out what that is. Obviously, you don't want to start with just one participant ready to go, that doesn't make any sense at all. At the same time, you can't move at the pace of the slowest mover because I think the public and the regulators will get impatient with that. Which means there's a huge middle ground. Somewhere in that middle ground is a sweet spot that it's not at all obvious what that sweet spot actually is.

Did we get it right? I think generally speaking, probably yes. I think when we started, we had something in the order of 60 participants ready to go, which was great. There was a diverse range of participants, so it was not only banks, it was also aggregators involved in that, which I think is fantastic because it gave the broad brush of services available to consumers. And only the test of time will tell this, I think is would it have been better if we had starter with a bit more focus on business customers for example. Quite possibly, it would have driven volume a bit more. But you don't know that upfront. So you really have to take a little bit of guess as to what is the right critical mass, what is the right amount of business and participants you need in the system in actual fact to go live.

I think another very important thing which is a little bit more fundamental to the actual implementation is that it's very important in putting a system like this in place and bringing everybody together, to put something in place which by and large is a utility for the payment system, is that you need a strong and independent project management office to help push everybody through. Because everybody has different agendas. We all have the same objective, but we all have different agendas in how we're actually going to achieve that. And a good project management office will bring all that together, make sure the documentation is right, push towards particular time frames to make sure that they're there, that people arrive at them at the right time and I think that's very, very important. There's a couple of other things, it's very important to make sure that you have, in our case that I think we had an addressing service ready to go, right from the start. That makes the utility of the system very convenient for people to use, it attracts them into it.

And I also think that making sure you had the right message format for the system, and I think the ISO 20022 is exactly the right one. It's the right one to meet the requirement for the future proofing of the system, I think. I think that they are some very important lessons for us.

Absolutely. Karen you've already publicised I think it was one of the first decisions you made in your program, was to move to the ISO standard in common with many other large sophisticated stock exchanges around the world. And as well of course, you're moving to your own technology stack and a replacement for CHESS, what kind of benefits and features and opportunities do you see the New Payments Platform most, in terms of data-rich payments, offering the ASX?

We've been exploring a number of opportunities with our customers, so through the projects we've had quite an extensive stakeholder engagement process over the last couple of years, and CHESS is very efficient today, it does a great job, so the conversation was more around, are there any problems out there or things we want to do better to create further efficiencies in the market. So if I just take a couple of examples from settlement in particular, so we have a single netted DVP batch per day and that works very efficiently, through we use payments through RITS to satisfy that and each bank that's a participant in that process has a net pay or a net receive obligation. We're not proposing to change that batch process, but we can see some other opportunities around DVP settlement or other transactions that we support that could use the real-time payment process so one example is, we currently support DVP settlement outside the batch but the cash component of that transaction is actually managed separately to CHESS, we don't have any linkage so that means for our participants it creates possibly a clearing and counterparty risk in making sure that settlement is effective.

So the opportunity is for us to seek a solution where we do actually provide that payment solution as well and it can be real-time and then the examples of where that could be used is if a participant's missed the single batch, haven't received the instructions in time, that sort of thing, and can catch up later in the day and transact that on a bilateral basis. It could be used for securities lending or other larger transactions that have a more immediate issue that they need to settle them quickly, so there's a few opportunities there so we're looking at those.

And we also operate a service where we provide in the batch process the redemption and application process for non-listed funds, known as M-fund. And same thing that's going through the batch at the moment, but whether we can explore opportunities to provide a real-time payment support for that and take it out of the batch and make it more effective for the holders that are involved in that, and their participants.

We're also looking into a few other things for M-fund, where it may be able to help distribute funds as well, or payments distributions from the fund holding.

Rachael, Di, Lindsay, the three of you provide institutional corporate services to governments and businesses and institutions, what level of interest are you seeing from your respective client bases and can you tell us perhaps what is the most frequently mentioned use case or benefit, and if you're prepared to, maybe what's the most novel or unique that you've heard so far? If I could start with you Rachael?

It's interesting. When we first started out on this journey I kept saying, the fast part's not really that interesting. But the fast part is becoming a bit more interesting for some clients, and I think it's the speed but also the availability. So the, and in general terms I just call it extended hours, the fact that you can make a payment over the weekend, after 4.30. And probably the most interesting thing we're working on right now, so we've just been doing a pilot with SWIFT actually, putting GPI together with real-time payments. And so we've proved that we can get a payment from Singapore or China, from that Chinese bank into a beneficiary account here in 18 seconds in a test environment, so hopefully faster in production. But the speed's interesting but actually the pain point itself for most customers is the cut off time issue. So, we've all had clients complain about currency cut off times and particularly in Asia and the Pacific it's a real problem.

So that's probably an interesting one. It's not that novel, but, sort of where the future I think is going and there's lots of conversations about how we connect cross border payments to some of the domestic systems, so that one's quite interesting.

One we're talking to a client about at the moment is a client that works in the kind of gig shared economy, who at the moment pays their participants once a day and they're looking at potentially paying at the end of a shift instead of at the end of the day or even more frequently throughout the day because all of that's possible. And I think what we'll see there is a real increase in volume of payments, I think because of that sort of convenience of being able to make multiple payments without having to wait for any reconciliation processes to happen in the background.

And then there are the ones we've been talking about, I know all of our customers have been talking about for a while like disaster payments are a great use case for NPP. So instead of someone having to schlep out to somewhere with a bag full of prepaid cards, real-time credit can be put into needy customers' accounts in a moment, so that's one we all feel good about as well.

Great. Lindsay, in terms of your work with government?

The government has been very interested in using NPP right from the start, and as the service provider, as the banking service provider to the government, and interestingly, as a central bank we actually are unusual in the sense that we actually have to compete for the government's business with …

Or you say you do …

… commercial banks. So we have an interest in our customers being interested in NPP. But they are particularly interested for a number of reasons. Di mentioned one, emergency payments, and in fact that probably will be the first cab off the rank as far as the government is concerned. And emergency payments are not just for natural disasters, but each day the government makes about a thousand, sorry two thousand emergency payments across the country. And it's payments to people who are in distressed circumstances so they might be for example victims of domestic violence who are out of their homes, and have no access to funds, and so the government can actually get payments to them almost instantly when these people are actually stand at the counter or on the phone, talking to them. So a significant benefit from that point of view.

And in fact, the Bank is, the Reserve Bank is already underway with a program to migrate those payments from the existing RTGS system across to NPP. The government also has a particular interest, though in some of the services which aren't yet available through NPP but which are coming. So that's a request to pay, and the ATO is particularly interested in request to pay.

So even though you might say that just means I have to pay my tax more quickly than I have in the past, but the fact of the matter is, that that's their business so they're interested in that, but combining that with payment with a document, so obviously whenever there's a tax payment, there's documentation that goes with it, there's tax assessments, there's information that has to flow back to the taxation office. That's true also of welfare payments, so the Department of Human Services, which administers many of those welfare payments often has to send documentation with the payment, so that might be a change of payment assessment, change of address, some kind of change of circumstance information also has to flow back to the government.

So they're very interested from the point of view of those two services, and I think those two services are also the ones which businesses generally, not just the government, but businesses generally would get significant advantage from. So I think it's important as an industry that we make sure that we provide those services through to our customers and keep that as an important part of the program going forward over the next 12 months or so.

But certainly, the government is very interested in those particular services, very interested in NPP. The only qualification I would have is that the government typically doesn't have a lot of resources available to it, so it tends not to want to move, to take part of schemes like a New Payments Platform until it can see the whites of its eyes. Until it knows that it's there, almost ready to go and being used. And then they're keen to actually make sure they do the integration work in their own system to be able to use it. So they're very conscious of not wasting time or people's money, mainly because of their resource constrain. But I think we're at that point now where the system is live, it's got enough credibility, the government is already moving to take advantage of those services. But the services that it would really like to see are the things like as I mentioned, request to pay and payment with a document.

Thanks. Di?

Wow, I mean we've got two product pillars that we're working on at Westpac, one is around helping our corporate treasurers unlock the liquidity within their enterprise. And it's called the Digital Institutional Bank, so we're working on our multiyear development around really bringing best practises of liquidity management into Australia and New Zealand. And if you think about liquidity and faster payments and bringing those together for a treasurer is really, really critical and if we could look at how we bring just-in-time funding into that, and we've been thinking through and NPP is the best way to deliver that. For us, we see this as a real way to help corporates unlock liquidity throughout their enterprise, and use NPP as the way to be able to deliver that and also to receive money more quickly, send money more quickly and really harness their working capital solution. So, working through that is a key priority for us.

The other pillar that we're working on is around digitising procurement. And if you see from a Westpac perspective, we have been the leader in quick super and the roll out of the government's initiatives around superannuation payments. We have over 55% of the market in that area so right now that's delivered through direct entry. So whilst it's very efficient, the speed that we can deliver to our clients in that industry can really then enable them to make better decisions for their customers really quickly in terms of moving their money, getting it into the funds quickly, and benefiting from that real-time experience.

And if you then think through other initiatives that Adrian put up in his initial slides, like single touch payroll. So again, payroll today is a batch process. We see that evolving into the NPP space, we learned from the UK faster payments challenges that they had when they rolled that out but the single touch payroll, again being able to deliver information through the NPP rails and the payment, and I think that's the real beauty that we see in the NPP platform. It's yes, just about the payment but it's around the information that we can carry with that. So that is a really big focus for us.

Both the state and federal governments recently have come out around e-invoicing and their desire to move to that. We've already tested e-invoicing with the New South Wales state government. And we see e-invoicing and NPP coming together, so those set of standards moving those into the NP standards, the ISO standards, and then delivering the payment at the same time. We can really see commerce moving quickly and much faster across the country. So for us, liquidity and helping our corporate treasurers unlock that and using NPP to provide that just in time funding, through to digitising procurement and working with the government around a number of initiatives that are going on, not only to improve the visibility and transparency of information, but help people do more business. So I think NPP, just the movement of money instantaneously helps people do more business. And that's what we need, we need growth in our economy, we need payments to be simple, we need the Uber experience in our day to day lives. So that's where we're really focused on, apart from rolling out. That's our big focus, is getting it live across all of our segments.

Thanks Di. And maybe to finish with you Karen, in terms of the broader securities industry and ecosystem. What opportunities and use cases do you think the NPP will help to enable and what capabilities, like APIs for example, do you think it's important for the system to develop to help those opportunities to flourish?

We've been thinking about the ecosystem in which we operate, as a securities market infrastructure, and as a capital market really at the end of the day we're bringing together issuers and investors and we have a whole lot of intermediaries in between, including ourselves. So there's a particular use case that we've been working on and that's around corporate actions. That's one of the key things that issuers, investors get involved in, whether it's a dividend distribution, or the issuer trying to raise capital, and seeking that from the investors or new investors.

We've done a lot of work as a listing exchange on trying to improve the announcement process around corporate action events, and we've adopted ISO 20022 for a notification service. So now that we're using 20022 in the post trade platform replacement, that helps us to develop a more streamlined process for the management of the corporate actions which we haven't really gotten involved in before. So we're looking to introduce in the day one implementation of CHESS a facility to help streamline the process for investors, working through their participants. To accept entitlement offers, for instance and also to make the associated payment. And a real-time payment platform could benefit that in making it more instantaneous, also for us to one day maybe shorten the timelines associated with corporate actions. Once an issuer now, announces a dividend it actually takes quite some time for that dividend to be paid. And likewise, to take up an entitlement takes quite some time to work through the process. There's a myriad of ways that an issuer can take that up now, through cheques or electronic fund transfer or whatever it is, so we'd like to offer an optional process to streamline that and really make some efficiencies there.

The other benefits could be, you know when you accept an entitlement offer there may be scale back to the money might need to flow back the other way from the issuer back to the holder, so we could facilitate that as well. So a lot of opportunity we think in the corporate action space in particular.

The other point is I think we've got a similar approach to NPP where we're trying to develop a platform. The distributed ledger technology supported platform where we're not planning to do everything out there in the market to improve services, make new services and so on but we think through the different connectivity options that we're proposing through that platform, whether it's a DLT node or messaging, APIs and so on, that others could help to enhance those processes as well and provide that interconnectivity with NPP or other platforms.

Great, thanks Karen. So I want you to get your questions ready, we're going to open up to the floor in a couple of minutes with an opportunity for you to ask questions, but before we do that maybe one last question to the bankers, towards this end of the panel. We're seeing in other countries moves to rationalise and streamline multiple domestic clearing streams. Either by moving to an interoperable, or common credit message, in the case of the UK, or by taking more active steps towards rationalisation and simplification. Do you think this is a desirable step in Australia, and if so, how should we approach it? Rachel?

I think it's not only desirable, I think it's almost inevitable. One of the challenges when you roll out something new and expensive, I think we've published that we've spent a billion dollars on the NPP so let's assume it was that, is you then deal with this issue of, how do you deal with kind of legacy and redundancy? And so you don't want a future where you're just sort of layering on cost and cost to maintain, and cost to renovate, right, as customer needs change and technologies change. So I think to Lindsay's point, the fact that NPP has been built in, I think a reasonably future proof way, both the architecture, the messaging choice and the settlement service, and the addressing service frankly, which I think is a really important component that we haven't talked much about today. Presents lot of opportunities, certainly RTGS you'd imagine, is probably the most obvious sort of next candidate, we're already seeing very large payments and it's solving a similar customer need. Direct entries are sort of the next logical sort of candidate …

Have we talked about cheques, right?

I'm sure Lindsay wants to talk about cheques, I'm very passionate about the future of cheques …

Which way?

I think one way only.

Okay.

I was horrified at a SIBOS event the other night when someone handed over a giant cheque as a charity payment. I was like, come on, we're at a payments conference in the 21st century and we've got giant novelty cheques. We should be setting fire to them. So I think, and how we should do that, and I think Auspaynet is starting to do some really work, they're our payments self governance organisation that looks after our clearing streams, and the Australian Payments Council is also doing some work about the future of, what do we call it? Managing the payments mix, which was kind of a great euphemism for what are we ever going to do about cheques, but I think the next logical kind of things on that agenda are the other clearing streams. So I'm excited about that future, I think there's good action underway and I'm sure Lindsay's going talk about cheques.

Thank you, Rachael, I think the short answer to your question, Adrian is yes. There has to be some rationalisation, it doesn't make commercial sense or even sense from a consumer's point of view to be operating half a dozen different clearing streams, when in actual fact there's one of them that will do most of what the others will do and probably in a better way. So when you think about it like that there's two kinds of things will happen. One is that we'll probably see some of the existing clearing streams absorbed into one of the others and my guess is that NPP will absorb in time those others. So we'll end up seeing possibly different ways in which you can clear and settle a payment, but it might only go through one piece of technology, and what will be the difference as to whether or not you do an NPP real-time payment or something similar to a DE will be the content of the message, right? And that makes it very easy if in going down the track if you want, for future proofing your system because if some other system comes along then you could accommodate it within a system like NPP. You could accommodate those kind of payments within a system like NPP simply by changing the message, rather than having to build a significant piece of infrastructure.

This is the UK model, right?

This is the UK model so I think that's ultimately in that sense where we're going to go. Having said that, there are some obvious candidates for payments streams and clearing disappearing and cheques is probably the most obvious one. At the moment there's less than quarter of a percent of payments that get made in the country are done using cheques and that number is shrinking year by year, day by day almost.

And the Australian Payments Council as Rachel mentioned has been doing some work in this. They've been looking at why people still use cheques, who still uses them and why they use them and what are the impediments to changing to something a little bit more convenient, a little bit more contemporary.

They've done a lot of work in this and there are still some pockets of the community that still use cheques. And so the intention is that the members of the Payments Council will come together to put a plan in place that will assist those communities, those sectors of the community that still use cheques to make them aware of the alternatives that are available now. And to assist them in migrating over to those new systems.

We will eventually get to the point if that's successful where we could actually set a date for closing down the cheque system. We are not at that point yet, but I think if the plan that the Australian Payments Council has works, and works well we're probably not too far away.

Thanks. Di, last word?

I think my colleagues have really addressed that very well, I've been thinking about this a lot. I moved back to Australia almost 10 years ago now and I remember getting all my utility bills and looking them all and seeing all of the different ways I could make payment. And coming from Hong Kong there was really only two choices, either a bank transfer or you got the 7-Eleven and pay your bill.

The question really is to the room, there's a fear in terms of limiting the number of payment options that you have that you can collect money from people. Is Australia ready to say there's only one way to pay and that's BPAY NPP solution. Sorry, I did that for you John! But you know is there one way to pay and then at an industry consolidation level, of course we going to need to consolidate payment systems. It's not the right thing for us to be running multiple and almost competing payment systems. But I think the question is to my corporate and institutional clients and to us as consumers, will we all converge one payment method?

I think it's on to, not just the banks to drive this, but for consumers and businesses and corporates to come on the journey with us in terms of driving how they want to make payments.

Great. I think you've issued a challenge to the audience.

Yeah. That's how I like it

So we've got a little bit of time left for questions. Have we got a taker? In the front, Michael. Just a microphone coming behind you.

I've got two if I can.

We'll see.

One for the central bank, I think I heard some words open and accessible, which I certainly endorse. But in terms of consolidation of payment systems. Direct entry in particular which has a huge volume going through it and then others, cheques and so on. At what point in time does the Reserve Bank deem NPP as systemically important and therefore consider a designation process?

You're not getting a second question now Michael!

Yes.

I mean to some extent that's a question of how long is a piece of string, and to a large extent I think Rachel has answered the question. Sorry, Di has answered the question.

We do know each other pretty well.

My colleagues have answered the question. To some extent they've answered the question, is that it really depends on the consumer demand for a particular service. I think we would see the payment system as a whole as being systemically important. So you're not just singling out one particular component that the whole lot of it is systemically important.

I think it would be fair to say that as changes happen, there might be one part of it that's not necessarily seen as being critical going forward and the cheque system is probably close to that at the moment. But I think overall if you're looking at the choices that are available to consumers in order to make payments, you'd have to look at almost everything else as being in total, as being systemically important and therefore it's important that all of those systems operate as efficiently as possible.

Whether one ultimately dominates or not is really up to the industry to decide. It's not up to the central bank to do it. And I think consumers and businesses together will make that decision.

Go on then.

Second one was in terms of accessible I'll come back to the initial comment. A bank owned initiative held as I guess NPP and the participants demystify that this is bank owned and there is no incentive to introduce new entrants.

Well I could answer that or why don't I hand over it to you Rachel? I'm moderating.

I think actually there's plenty of incentive. Because the commercial model for NPP is very simple. And it needs to be a commercially sustainable entity. And for it to be commercially sustainable it needs volume. The owners don't want to perpetually subsidise. It's not how it's designed. So in fact the more volume that runs through the NPP, the better off for all of the participants for the sustainability of the entity and frankly for funding future development and innovation which is what it was borne out of was this challenge around providing a way for there to be more innovation in the system in general.

And Adrian I'm sure can talk to some of the conversations that NPP has with potential other participants and how they think about using it and what they want to use it for. Or you can say whatever you like because you don't work for me.

Sure. The NPP was designed as open access and I've just come from another session with a bunch of central bankers who are looking at what we've built, kind of amazed at how this industry-led initiative was designed this way. But open access doesn't mean open slather. You need to have a range of different access points that are appropriate for different organisations of different regulated status. My sense is, and the organisation's sense is and it was also, sorry the other thing I'd say is it involved a diverse range of organisations in putting this together. From organisations like ASL and Indue and Cuscal and the big four banks and others.

It really was designed by a bunch of organisations literally fuelled by coffee over a number of years to kind of design a system that would solve some of the common pain points like portability of account numbers with pay ID. We've designed those things in from the get go. But I think it's up to us to make it work. It's up to us to see what we've built translated into practise. And to explain how it works and to build familiarity and as we know some banks are still rolling out the services to their customers.

For us doing things like an API framework and a sandbox was really important to help provoke the ecosystem and to ensure that when banks start developing their APIs which they're doing now, to make sure that they're broadly developed in a way so that they're consistent and interoperable and people can move between them.

I think the acid's on us as an ecosystem to demonstrate that what we've built is open and I absolutely know that if it's not, then we all know what will happen.

Can I just add something there too I think that's one of the lessons we're going to learn because we've only really just started out down this road as to how we handle that open access. But I think if look at it so far, you'd have to say it's living up to its purpose.

We started out, as I mentioned earlier with 60 organisations involved. There was a broad range so it wasn't just the major banks. In fact, we started without a couple of the major banks being perfectly ready at that stage. I think if you look at it from that point of view, it has already ticked the first box, leapt the first hurdle. But we've only really just started on this journey. So far the signs are good.

Thanks. How about, we got one at the back.

Thank you. What have the economic impacts of NPP been to the banks represented on the panel?

Is that asking how much does it cost?

Are you asking how much it costs whether there is revenue churn as a result of it? All of those things?

Exactly. We know the expense side of the equation, there is technology costs and 24/7 and so we know that that goes up. How about the income side of it and some of the halo effects around the income side of it? Attracting more customers, etc.

I think, where you went with the question is the way that you need to think about it. Particularly on the consumer side. There's no market, I don't think we've seen any market in the world that can charge customers to make a real-time payment. Because customer's expectations just in their lives that's an experience that they would expect and we should provide that for them.

I think frankly it's too early to have real numbers to talk to. The customer experience has definitely improved and we've had great feedback on that. For customers who are interested in the things that we provide some customers don't even think about it. But as they start to use it they start to imagine, particularly small businesses, different ways that it can add value to their businesses.

I think the other area where there are real collateral benefits from what we've done from a more enterprise perspective, the necessary things you need to do when you're effectively transitioning your payments business from batch world into a real-time world. So particularly things around real-time fraud management. They deliver benefits in other parts of the business and through other channels in a future with so many more payments. Payments volumes are going to go up, but also just the proportion of payments that are being done digitally is going up.

So having uplifted that capability in and of itself delivers a lot of benefits. Too early to say you know is it a positive NPP business case? couldn't say.

Other perspectives?

I think Rachel said it really well, I think the economics of this will be proven over time as we start to collaborate with fintechs and come up with overlay services I think that's where we hope that that economic value for ourselves and for the industry starts to unfold. I think the data will be the very interesting component of that. What data does that give us and along the lines of what Rachel was saying is how do we look at fraud differently, how do we get more insights in terms of what's happening across the ecosystem and are there ecosystem solutions that could come off the back of this so you know the profitability of this will unfold over time.

I think Di and Rachel have sort of said it very succinctly that the horizon here is that you have to take here is long. When we started looking at this if you sat down and did a business case, you would not come up with a business case and said, "Yep, go ahead and with it." If you took a purely analytical approach over a horizon which you would normally take, you would probably not be able to mount a good business case here.

But there's an element here which I think is very important. That is, this is nation building to some extent. We are actually putting in place the rails that's going to provide a service to consumers to both our households and businesses going forward for a couple of decades at least. And when you look at it from that point of view, it makes sense to actually do it.

The really, the thing which I find actually really fantastic about the way in which NPP is being developed is that there is essentially a utility component and then the overlay services provide the commercial opportunity here. And I think when you put those two things together, it's been very successful in bringing the industry, in industry collaborating to provide the service because they have been responsible for building the utility but there's also a commercial overlay which over period of time will provide them with commercial opportunity. May not necessarily exist now, but if you look at it from the point of view of nation building then it does make sense.

Okay. Bernard.

Someone as we know has tried really hard to help you out with your liquidity. That $17 million single transaction. I'm hoping that, I'm intrigued by it. Are you able to, or could we get without giving away obviously your client details. Is there any indication as to what it was? It wasn't people having a lunch and settling a bill.

Would have been a great lunch.

Is it a house purchase? Something like that? Is it a sign of things to come?

Do you maybe want to answer that question Lindsay?

I don't know the details of the transaction. But I think yes, it is a sign of things to come. We did speak earlier about what does the future look like here and would we necessarily see something like the UK has planned where you see payment systems collapsed down into one and there be a difference in the way in which you settle things simply reflected in the message. NPP was built value and volume agnostic to a large extent. You can put a $17 million payment through, you can put a $100 million payment through if you so desire.

But what it suggests to me is what you've indicated that, that's the future, right? That may be a one off but I suspect as we go forward in five to 10 years time you will be seeing more and more of those kind of transactions put through the system.

I'll just add to that Bernard by saying I think to Lindsay's point, there's no limit in the system itself. The challenge is in being able to enable more large payments like that. Which really solves customer pain points particularly in the cheque space. Where you often, the old bank cheque is often the solution to a high value payment, is that for most the participants certainly for us we're setting limits in our channels rather than for the system which is about how comfortable we are that we know the customer, we know who they are, who they say they are.

Because in a real-time world once you make a real-time irrevocable payment, it's very hard to get it back. There's work I know in individual institutions going on about things like, temporary limits with extra authentication to be able to enable some of these use cases. House deposits is a good example, house settlement. Given that we're in an e-conveyancing world now as well how do you bring that settlement piece and the documentation piece together. They're great examples of where I think this can take the customer experience.

The question that I was asking, sorry for the slight follow-up, so you're unable to give the category of what it is?

I don't think we would.

I had heard that it might have been a payment involving a government department.

If you want people to use the system if you tell them that someone's paid their tax bill with this and how much they've paid it would encourage people that's all.

I mean I think it's a real testament in closing to what we've built. I mean not that we want to engage in unhealthy comparisons to what used to be the mother country. But I think the UK faster payment system is 10 years old. My understanding I might be proven wrong is that they've just clicked over to a million pounds. I think they started with 100,000 pounds so to have a system with, particularly with a settlement model that capable of processing 17 million payments within the first couple of months is I think an impressive reflection of what we've built and its robustness. So on that point, I might ask you to join with me in thanking our panellists and we finish right on the dot. So thank you. Thanks for your time.