However, the pipes and methodologies behind payments, the critical technological infrastructure required to transfer value between two parties is as obsolete as the Pony Express at the dawn of the railroad and it needs to change now or Australia will be left behind.
There are many reasons financial systems have traditionally moved slowly.
The primary one is that over the long haul, prudence and conservatism have shown their worth in safeguarding assets and ensuring the stability of our financial ecosystem.
Privacy and data security are of vital importance, but old infrastructure, especially if it’s still stuck between analogue and digital, is less secure, not more.
The issue is that resistance to change and the natural instinct of big incumbents to keep things stacked in their favour can masquerade as prudence when inertia is actually the biggest risk to the consumer and the marketplace.
Other countries have already recognised this and are moving ahead of us.
Banks in the United Kingdom are subject to sweeping changes that will be implemented in 2018 and usher the next technology-driven revolution.
But in Australia, credit card scheme rails, BPay, overnight transfers have not moved at the pace of the applications sitting on top, which is hampering the ability to deliver the next round of disruptive customer-centric services that will make us truly competitive on the world stage.
On the horizon, there are two fundamental shifts that will transform financial transactions as we understand them.
I’m talking about the New Payments Platform (NPP) and Open Bank APIs.
The NPP will be the future-proof infrastructure for Australia’s low-value payments. It will provide Australian businesses and consumers with a fast, versatile, data-rich payments system for transferring funds.
The NPP lays down new tracks, and instead of coal-powered locomotives, bullet trains can ride on these.
The infrastructure through which institutions, businesses, and consumers, connect allow for payments to be made are in near real time.
Overnight counter-party risk disappears (in low value payments at least). Not only is it fast, but it’s flexible too, allowing payments to be directed to mobile numbers, emails, and other customer identifiers – BSB and account numbers could become as archaic as the cheque book.
The system is being built to also allow for various ‘overlay’ services, specially tailored options built to leverage the underlying infrastructure.
This is happening now and the system will be operational in second half of 2017, but its implementation needs to be strongly promoted.
The benefit of NPP is not just limited to timeliness of sending and receiving money.
It provides a basis for cutting the time of core services, services built around solving fundamental challenges like ensuring trust in each transaction that have existed since the earliest days of the marketplace.
Neither can we let the push for Open API stall. In the recent budget announcement, the government recognised the potential value of an open banking regime.
This follows the House Economics Committee and Productivity Commissions reports, in which both recommend that Australian banks should open access to consumer data via an open and standard API framework.
The potential customer benefits in terms of increasing competition, price discovery and account portability are massive, and these in turn will drive financial institutions to further prove their value to retain customers.
But value creation by new services that leverage access to the data within payments, credit, PFM, social and a range of other applications could generate even larger value.
Both PSD2 (Revised Payment Service Directive) in the EU and the Open Banking initiative in the UK are in full swing, and it seems inevitable that these developments will occur at some point. Unfortunately, the budget has not set firm deadlines.
If we want to retain a pre-eminent position as a fintech hub on a global scale, we should move fast to be an earlier adopter and, ultimately, look to export IP and services created off the back on these API services into other markets undergoing similar change.
Financial services already contribute $140 billion to Australia’s GDP every year, but the right policies will make this a lot bigger. How much bigger? Goldman Sachs estimates a global pie worth $4.7 trillion.
Just as Gutenberg’s press ushered in a mass sharing of information that transformed the foundation of society, opening up this data will enable innovations and wealth creation that we can barely imagine now.
That’s the world we are moving to – let’s do it together and as a quickly as we can.
Tommy Mermelshtayn is chief strategy officer of zipMoney.
