A “fantastic” new payments system is coming to Australia that will revolutionise how we make digital payments, according to the Reserve Bank.
RBA governor Philip Lowe reminded the nation of its impending arrival last week when, during a parliamentary hearing, he boasted that “people are going to find this new payment system fantastic – that is my hope”.
Its creation dates back to a review of the system in 2010, and has been under construction since 2014, but we are only starting to learn more details of how exactly it will work.
It is slated to be rolled out in the second half of 2017, with BPAY the first company signed up to use it.
What is it?
As explained recently by The New Daily, one of the important functions of the Reserve Bank is administering the payments system.
This is the computer system that enables non-cash payments to be transferred between the banks. Approximately $180 billion goes through this system every day, the RBA estimated in 2014.
When you send money to a friend from your CBA account to their Westpac account, it is processed by the system. When you buy something on eBay using Paypal, the money is sent to the seller using the system. And when you buy a coffee with your credit card, the cafe and your bank communicate through the system.
The new system is a joint project of 12 institutions, including the Reserve Bank and the big four banks, and was built by the Society for Worldwide Interbank Financial Telecommunication (SWIFT).
A common complaint with digital payments is that they often take hours or even days to be finalised. The new system should fix this.
Currently, high value payments, such as those between the banks themselves, are processed in real time. (As are transfers between accounts at the same bank, which do not use the Reserve Bank’s payment system).
But direct debits and credits by businesses (such as when Netflix automatically deducts your monthly subscription) are not processed until the end of the same business day.
The new system will allow real-time processing for all ‘push’ payments (where you send money; the opposite of ‘pull’ payments like credit cards) within seconds, 24 hours a day, seven days a week.
Have you ever tried to send a digital transfer to a friend, only to run out of room to describe what it’s for? You type “Repayment for …”, and that’s all it allows.
It’s because of an antiquated 14-character limit left over from a time when the payment system relied on punch cards. Governor Lowe has promised the new system will fix this.
“You will be able to send whatever information you like with your payment,” he told Parliament last week. So, no more character limits.
It may also fix another frustrating problem. Have you ever tried to reconcile your credit card statement, only to be left confused by all the names?
Nobody is who they seem. Your local butcher is ‘XYZ Pty Ltd’, your dentist is ‘Prime Solutions’ and the humble corner shop is something lofty like ‘Global Merchant Enterprises’.
There is no guarantee the problem will be fixed by the new system, as it would require merchants to provide more information, and the banks to print this information on our bank statements. But if they want to, the new system will allow it.
The new system should also allow Australians to send digital payments without the need to remember lengthy account numbers and BSBs.
Instead, we may be able to simply type in a person’s email address or mobile phone number, according to Governor Lowe.
Again, how this works in practice will depend on how the banks and other institutions make use of the system. For example, what if your friend has two accounts at the Commonwealth Bank? We should learn these details next year.