Australia’s new payment system will be delayed by a year after five institutions stepped back from funding the $1 billion project.
It was announced on Tuesday that the Reserve Bank of Australia-backed real time payments network will be built by bank messaging network SWIFT and payments company Fiserv
But it also emerged it will be delayed by another year to late 2017.
After several months of negotiations, 12 of the original 17 banks and payments providers in the New Payments Platform steering committee have agreed to fund the deal and will form an industry owned utility, NPP Australia, to oversee the design, building and operation of the network.
All four big banks are backing it, as well as Bendigo and Adelaide Bank, Macquarie Bank , Citigroup, Cuscal and ING Bank (Australia).
SWIFT beat seven other bidders to win the 12-year contract to build and operate the network after an eight month selection process. It is used by all banks globally to carry data on transactions. US-based payment technology company Fiserv will sub-contract to SWIFT.
The five institutions that haven’t signed up yet are Bank of Queensland, Suncorp Bank, PayPal, Bank of America Merrill Lynch and HSBC. But they can choose to sign the contract at any time, which will reduce the amount each of the participants is paying.
It is understood some of these have major internal upgrades they need to complete first before committing time and money to the NPP. Bank of Queensland, for instance, is in the midst of moving a host of paper based systems to digital.
Every institution with a banking licence, however, is expected to either connect to the NPP or connect via another bank.
“We have reached a defining moment for the future of Australian payments,” said NPP steering committee chairman Paul Lahiff.
“The industry’s vision in response to the Reserve Bank’s challenge for faster, richer 24×7 payments is now well on the way to becoming a reality.”
The new network will replace the antiquated batch processing system for retail payments – which means transactions made between banks usually don’t appear until the next business day or several days later if done on a weekend – to almost instant payments to anyone at any time.
It will also carry far more data than the present 40-year-old retail network and likely do away with long bank account numbers, potentially replacing them with mobile numbers or email addresses.
SWIFT is used by thousands of banks globally and carried $4.6 billion payments message between them in the year to October. Swift and Fiserv will now work with NPP Australia to complete the design by the third quarter of 2015.
At the same time, they will come up with an “initial convenience service” which will be a product that makes use of its capabilities to attract users. After that, it will be up to the market to come up with payments products to run on it.
The network will largely use existing SWIFT and telecommunication links, but involve installing new routers which direct transaction data. This will lead to the present “bi-lateral” links between banks being replaced by a centralised “hub” network which is much easier to maintain and upgrade.
Westpac was the last of the big banks to sign up. Mr Lahiff said it had taken about three months longer to agree to the contract because they had to ensure they had enough on board to fund it.
This delay and the need to ensure as many institutions as possible are ready to connect has meant they will be asking the RBA to delay the completion date to the second half of 2017, putting Australia well behind many other countries.
The UK introduced a similar network in 2006, and numerous other countries have followed suit including Mexico, Norway and most recently Singapore.
Mr Lahiff and the Australian Payments Clearing Association CEO Chris Hamilton said the contract cost would remain confidential, but the full cost of the project, including banks’ internal changes to connect to the NPP and the cost of building it will be around $1 billion.