Our payments system is changing and it’s kind of a big deal


As part of our event The Future of Digital Payments, I did a bit of research into exactly what’s going on with Payments here in Aus.

When I talk about the ‘payments system’, this refers to pretty much anything where a transaction is concerned. For me, that’s a simple as using Paypal when I’ve just bought something on eBay or transferring money across to my sister because she’s spent too much money on wine.. At the moment, these transactions take hours, even days – but we’re starting to change  to the likes of minutes.

For the retailers and payments players it’s huge. There are some big opportunities for both existing players (such as the big 4) and the new ones (the likes of Square and BitCoin) to enable us to make instant payment as we shift to a more real time system.

Developments in mobile have dramatically impacted the way customers have paid or received payments. Immediacy and the concept of anyone, anytime, anyhow is bigger than ever.

As a result we’re on the verge of a new category of infrastructure to make these opportunities happen..

I caught up with Michael Moon, he’s the Director of the Retail Payments Market at SWIFT. Michael’s been heavily involved in the evolution of payments systems over the years having worked for American Express for the last seven years with a background in retail, emerging and mobile payments.

SWIFT provide the messaging services between 10,000 financial institutions, and have been doing so as a non-commercial co-operative for the last 40 years. They have a unique position where they can work with the central banks and larger financial institutions globally. SWIFT are currently working in developing the underlying infrastructure from a payment and settlement perspective.  What Michael describes as “the electricity grid that sits behind the end services”.

He explained the overlying transformation of the Australian Payments system, in what’s become the biggest shift in decades: “From a high value payments perspective, real time gross settlements systems have been run by the central banks. The banks in the market are all connected to that system allowing them to safely and securely move large transactions. On a retail side, Automated Clearing Houses are the bulk file and payment system.

“Interestingly you have a new category of infrastructure coming up which is a real time retail payment system. In Australia the industry is very heavily involved in the retail payments infrastructure, the first new payments infrastructure for the last 20 years.”

Ultimately, we’re seeing a transformation from high value real time gross settlement systems and bulk files to sending low value payments on a real time basis between banks.

The shift to real time started in the UK with the faster payments system and there’s been new developments starting in Singapore and five or six markets globally that have either implemented these systems or in the process of going live with these systems.

So what does it mean for the ecosystem of payers involved in the payments system? Michael described a fundamental change in the nature of services businesses can offer their customers as the need for co-operation and collaboration will become more paramount:

“The infrastructures are going to mean that the end service will have the ability to be completely transformed to be a real time interbank payment service. It’s more paramount than ever for collaboration and co-operation to see new payments systems reach their full potential and have special service offerings across the value chain”.

As the industry continues on the journey to develop a new payment s system, the fundamental demands of developing a payments system to compete in the space will remain the same know your customers and your own unique asset capabilities.

This is going to become of increasing importance as the merchant market opens up, it’s enabling proliferation of the category as the immediacy of being paid means that commerce can occur much faster and to any individual selling a product, even without the ability to accept credit card.

Michael also gave me some insight into the opportunities beyond immediacy of payments and how there’s going to be a unique change in the nature of payment messages. Today, these statement messages are restricted by 16 letter character limits, short description that don’t allow for much information.

The new systems will introduce “new standards that give more features reach information in the message. For example businesses that pay the other businesses will be able to send extra remittance information or a pdf of an invoice etc.”

Globally, Australia is in an exciting position, there are a lot of legacy systems and infrastructure and a long way to go to catch up with the likes of Japan, Korea and Singapore but this is the first new payment system in the last 20 years.

Legacy infrastructure has inhibited the development of e-commerce and a level playing field, it’s a vital time for the big four banks in Australia to stay ahead to compete. Or will we see the customer power moving away from the hands of a few?

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