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Payments innovation: Trends to watch in 2023

Whether it’s cross-border or domestic, the pace of change in payments is moving fast. Westpac’s Global Head of Product Nish Dharmaratne outlines what to expect in the months ahead.

The payment system in Australia is changing rapidly, with the pace of digitisation picking up, growing interest in the use of digital currencies and a continued focus on finding ways to further reduce friction in payments.


Banks are working to speed up international payments, and international standards-setters are pushing ahead to standardise the data that accompanies payments, paving the way for faster and safer domestic and global transactions.


Banks are also preparing to make the most of the New Payments Platform (NPP), an instantaneous payments infrastructure owned by a consortium of Australian financial institutions, including Westpac. On the list for 2023 is simplifying payments by using the NPP’s PayID feature and the introduction of a safer and instant replacement for direct debits via PayTo.


In the following Q&A Westpac Institutional Bank’s Global Head of Product, Nish Dharmaratne explains some of the key payments trends to watch in 2023.


Where are we up to with PayTo, the new version of direct debit to run on the New Payments Platform?


The major focus for all the banks is to go live with the PayTo feature, which is expected in April 2023.


Right now, the comparable product is direct debit, which is much less digital and depends on how the merchant runs the direct debit mandate. Some run it electronically. Some run it with paper forms. Some just accept PDF. 


All of that will be changed into a much more digitised experience, centralised & well-kept database of records, with a system that ensures consumer requirements and rights are upheld every time we take information from them. PayTo is more than a direct debit as I see it. It extends the consumer experience to another level. 


Consumers will give consent to the merchants digitally. The merchant will connect with their bank, which will initiate the bank to bank settlements within a matter of second via NPP rails. Information sharing will happen in a very smooth electronic manner.


It’s a very efficient and secure way of giving instructions  – and there’s the benefit of real-time settlement, which means the merchant can rest assured they will get their money quickly. For most of the small to medium businesses, this is extremely important. They have a right cash flow cycle and collecting faster and efficiently, will improve the working capital of their businesses. For large biller organisations, this is another convenient method of receiving the dues, and allowing greater choice in payment options for their customers. 


PayTo for consumers, allowing payment mandates between individuals, goes live in April and the merchant component is expected later. All the banks are exploring the best solutions to bring this to market.


Last year saw New Payments Platform Australia, BPAY and EFTPOS come together to form AP+. What does the combination of Australia’s three main payment scheme operators mean for banks and, ultimately, their customers?


AP+ has published its roadmap and they're working through what it means to execute on it now & to the future.


For banks, the roadmap provides a very cohesive way of thinking and making their strategy aligned with the industry. In fact, banks see this as a complimentary model that reduces the operation of three schemes. That's really good, because the banks previously had to work with three different groups running these industry schemes.


I think the customer is really going to be at the receiving end of all of this in a very positive way, because all the work that we're doing to make payments in real time and to provide digital experiences is reducing costs and providing a better experience for the consumer.


We have seen massive growth in PayID, the scheme that allows people to use their email address, phone number, or an Australian Business Number to make and receive payments instead of using bank accounts and BSB numbers. What role do you expect PayID to play in payments in future?


PayID growth is significant. And now the industry is starting to think about how we could use PayID to reduce the fraud and scams that became so prevalent during the COVID pandemic and its aftermath.


PayID today is a value-added service for consumers. PayID supports prevention of fraud by allowing a specific individual registration that can be used for payments, instead of allowing Account Number & BSB available in payer-to-payer transactions. 


Banks and the business community need to build more use cases around PayID. For instance, how might PayID be used to help a utility company collect payments and reconcile accounts more easily?

The next phase of investments is going to be about monetising these services. Now we have to think about how to convert these services and help businesses or governments find a way to support the end consumer or citizens. 


For example, there’s potential to use PayID for Centrelink payments to consumers and tax payments to the ATO. They are still using bank account numbers and BSBs.


What can we expect to see in international payments?

Two things, both relating to real-time payments.

First up, based on the current industry plan, Australian intermediary banks should be able to transfer instant payments via the New Payments Platform to other banks, when they've received funds from a foreign bank. In Australia, this is expected to be live in late 2023, or earliest in 2024. 


Let's say a Bank in the UK is sending money to an Australian Bank for a beneficiary whose account is with Westpac. The Australian Bank (intermediary) should be able to send that payment in real-time to Westpac and the account holder should be able to receive it via the New Payments Platform. It’s important to note that the intermediary bank will complete sanctions and fraud monitoring and may convert the currency to AUD before the payment enters instant payments. All these will evolve as the industry matures with this offering. 


The second thing is the future vision to connect the real time payments systems across the borders. That is where the UK real time payments system is connected seamlessly to Australian real time system. Recently Singapore and India tested out connecting their two real time systems, and it will be good to monitor their progress. 


What’s happening with the introduction of the new international standard for payments, ISO 20022?


The new standard provides for much more structured and richer data to accompany payments, so there’ll be more consistency and efficiency in payment processing. Banks can process payments more quickly and sanctions screening time will be faster. 


Companies can receive richer data for reconciliations. ISO 20022 went live 20 March 2023 globally for international payments and in Australia for high value payments. Due to the magnitude of the change there is a co-existence period (old MT messaging and new ISO messaging) that runs until Nov 2024 for Australian high value payments and Nov 2025 for international payments. This gives the industry time to implement the standardisation so that customers can take advantage of the benefits.


There has been a lot of talk about a Central Bank Digital Currency (CBDC). How is Australia tracking?


The Reserve Bank of Australia has put together a consortium of financial institutions and has collected use cases to filter them down to a couple to test.


More recently announced the use cases, and banks are at proof-of-concept stage. It will be interesting to monitor the next steps, as banks will be keen to test this in the second half of this year.


Over the next year we’ll be determining how we will operate around this framework. What type of transactions are banks going to be comfortable to leverage in the CBDC framework? What practical use cases will be adoptable, and what kind of regulatory framework can we expect in Australia on CBDC to follow. 


What is Westpac doing with virtual credit cards, that is, a digital version of a credit card that can be programmed for use for specific payments or values?


We have partnered with a card provider for a virtual card solution to support our clients manage their supplier payments and low value, one off payments via a virtual card solution. This is coupled with advanced reporting and reconciliation capability for companies, reduces administration burden in managing large number of suppliers spread across the world.


For example, a company with 3,000 or 4,000 suppliers, can use a virtual card, reducing friction fraud and making their payments process much easier.


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