Commissioner criticises NPP shareholder model

Speaking on a panel at the Australian Payment Summit on Tuesday (27 November), the head of payments policy at the Reserve Bank of Australia, Tony Richards, suggested that there is “some precedent” for there to be a rule that new entrants, such as “neobanks” or other fintechs, must become shareholders in the New Payments Platform (NPP), which was developed by a consortium of 13 financial institutions to facilitate instant, cross-institutional transfer of funds on a 24-hour basis.

“Existing shareholders have invested a lot in the NPP, and I think there is some precedent for new systems to have rules that new entrants are required to become shareholders because you want to encourage people to sign up to fund the build of the new system,” Mr Richards said.

“If you tell people that [they] don’t have to pay a subscription fee, [that they] can join in day two and not pay anything, you won’t get anyone to sign up and fund the build on day one.”

However, Stephen King from the Productivity Commission (PC) said that he doesn’t think such a model “works very well” in boosting competition, drawing parallels to the National Broadband Network (NBN).

“You’ve got a structure where the parties that will be most damaged by successful competition are the exact same parties who own the facility and will set the terms and conditions for the equity investment,” the commissioner explained.

“Even if the price is made transparent, experience in other [parts of the] utilities industry shows that it’s very hard for parties that really will be innovative and disruptive to get in – even when the rules are clear. [This is] because they’ve still got to get past the exact same people that they will be disrupting.”

Mr King continued: “I think telecommunications in Australia showed us… at least 25 years of failed disruption because the structure of the network or bottleneck part has never been properly resolved in this country until we tried to roll out the NBN. We all know where we are [with that].

“That’s the Productivity Commission’s fear with the NPP.”

The commissioner said there are also “information issues” and called for greater clarity about things like what type of information shareholders or those connected to the NPP via a shareholder’s payment gateway will be able to get about customers and whether the obtainable information is valuable.

“It’s not clear exactly, even if you’ve got access to the NPP, what are the things innovators need around, for example, an exchange settlement account. [Is] the direct access to an exchange settlement account what you actually need to be an innovator in this space?” Mr King added.

He admitted that these questions cannot be answered today but noted that past experience shows that “when you have the parties that will be most hurt by the disruption owning [that shared asset], then you’re unlikely to get those questions resolved in a way that promotes competition without some regulatory intervention.”

“[The intervention] may be light-handed, may be an access regime, but there has got to be a regulator in there,” Mr King said.

The RBA in October launched a consultation seeking feedback on issues related to the functionality of, and access to, the NPP.  

The central bank said at the time that, with the support of the Australian Competition and Consumer Commission, it will assess whether the strategic objectives of the NPP have been met, address the concerns raised by some entities that the services offered through the NPP do not meet their needs, and discuss the NPP-related recommendations presented by the PC in its final report on competition in the Australian financial system, including imposing an access regime and identifying ways to improve the functionality of the NPP to boost competition.

While the rollout of the NPP by the major banks has been slower than expected, the big four are now providing NPP payments for a majority of their retail customers and, increasingly, their business customers.

Further, 70 smaller institutions have connections to the NPP, despite not being shareholders in the organisation established to oversee the development and operation of the platform, NPP Australia, according to the RBA.

The RBA noted in October that while BPAY’s Osko is the only overlay service provided for the NPP, it expects other payment services to be developed by different parties.

NPP Australia and SWIFT said they would be developing an NPP API sandbox for third parties to build and test applications, while the former is also reportedly planning to enhance the functionality of the platform, including by developing a central “consent and mandate service”, which would store payment authorisations by consumers and businesses.

[Related: Big four will ‘gobble up’ challengers: PC commissioner]