Financial services juggernaut BPAY has long been the preferred method for the majority of government agencies and businesses to cheaply present and collect on their bills.
But could BPAY be about to snap up hundreds of billions of dollars in volume business on the flipside side of the government payments coin?
Probably Australia’s biggest cash pump, BPAY over the past week has revealed its rapidly preparing to clip the other half of the payments ticket: people accepting money going into their bank accounts rather than letting it go out.
Think payroll, the myriad of welfare payments and rebates (effectively a payroll), tax refunds … and very importantly payments between individuals.
BPAY (which is more or less cooperatively owned by Australia’s banks) quietly let loose a gorilla last week when it revealed it intends to have a suite of new wholesale real time products and services ready to hit the market by 2017.
The new offering will allow government agencies, businesses and individuals to execute instant payments between accounts that will also carry a far richer data stream.
Known as the ‘Initial Convenience Service’ (ICS) the new BPAY facility is a step shift in the way payments are delivered in Australia.
It’s also the first major capability to emerge from the $1 billion overhaul of the of Australia’s antiquated interbank direct deposits payments system that has for decades meant that electronic payments executed in seconds take two days to clear – and more on weekends.
Dubbed the New Payments Platform (or NPP), the big RBA propelled payments system rebuild (that’s NPP, not ICS) replaces the myriad of ageing proprietary bilateral links between institutions that have been on the nose with the Reserve Bank of Australia (RBA) for years because of their propensity to stymie systemic innovation.
(To avoid confusion the new BPAY product sits on top of the NPP in what is known as an ‘overlay service’. We’re looking for a simple analogy, but the best we can think of is like a railway: with NPP being the tracks, services like ICS being locomotives and bank and other institutional products being carriages.)
Well before the NPP took shape, BPAY had previously made a concerted run at innovating and upgrading payment services between banks and their customers to real time through the MaMBO (Me at My Bank Online) project.
But the bid ultimately fell over because of quarrelling and fears by competitors to the Commonwealth Bank of Australia that feared that bank could gain a formidable head start and competitive advantage.
The hissy fit and walkout by Melbourne-based banks ultimately prompted the RBA to swap its regulatory carrot to stick to spur on systemic innovation in payments and the NPP was born.
“MaMBO back in its time was well ahead of what BPAY were attempting to put into the market,” BPAY chief executive John Banfield told Government News.
With the build of the NPP now well under way – with a dozen participants on the platform including banks, industry groups, online providers and the RBA itself – BPAY has well and truly returned to the innovation fray with a move that should quickly turn policymaker’s heads.
For starters the launch of the ICS will position BPAY to potentially pick-up outgoing government payments as well as revenue coming in. That’s huge.
Mr Banfield characterises the new Initial Convenience Service as a significant extension of BPAY’s existing payment services to offer customers (businesses, banks and government) and everyday bank account holders the ability to push direct payments to each other in real time.
No more overnight batching, depositing of cheques, wating for funds to clear… transactions happen there and then. Ask yourself why in 2015 it still takes two days for funds to clear.
The new ICS will also have the capability to allow people – whether they are tradies, government agencies or just everyday people – to generate or ‘push’ account-to-account payment requests for an amount of money that can then be authorised by the recipient, with the funds moving instantly.
This means you can split a bill at dinner or pay a tradesperson on the spot via a mobile phone number instead of using cash … a development that will no doubt please the Australian Taxation Office far more than credit card schemes.
The real time ICS transactions will also be able to carry the equivalent of a small document – 280 characters – in the payment message which will be able to show up as valuable rich data to indicate from whom and what the payment was made for – a huge jump from the previous 18 characters.
At a strategic level, Mr Banfield confirms that the offering of the ICS – which was won through a competitive tender – firmly moves BPAY’s offering into the ‘payables market’, rather than sitting primarily in the receivables space, or bills.
It’s quite a big deal for government and not for profits because two major opportunities for innovation open up in reas that have been sorely aching for upgrades for at least a decade.
The first and by far the biggest opportunity is the hundreds of billions of dollars of payments a year paid out in the form of welfare payments, tax returns and rebates and refunds.
In the 2015 financial year, payments from the federal Department of Human Services totalled around $165 billion and the amount will only grow with the population.
At the same time the federal government has indicated it will spend between $1 billion to $1.5 billion on replacing Centrelink’s 30-year-old Model 205 mainframe based welfare payments application.
Although Mr Banfield and BPAY are staying diplomatically silent on the giant government system replacement, there’s a glaringly obvious question as to what degree a government would need to build its own bespoke payments engine if there’s already alternatives in the market.
The elephant in the room is whether a commercial, off-the-shelf service already in the market could offer a significantly better degree of capability at a substantial discount for taxpayers.
That might not please multinational software and systems integration companies, (think SAP and Accenture) but there is an argument such an outcome could serve taxpayers and welfare recipients better.
(Also in the mix is the government’s approach to market via the Department of Health to try and outsource parts of Medicare’s payments claims processing, the present status of which remains unclear.)
Just how far Centrelink’s plans for a system replacement have advanced is a bit of a moot point.
Although there’s been plenty of ministerial jawboning and political backbiting, what the preferred architecture model looks like is still a little unclear with a formal approach to market from Centrelink yet to emerge.
Mark Williams, BPAY’s chief development officer also diligently steers clear of the big Human Services system rebuild question, but he is very happy to talk in a general sense about the BPAY Initial Convenience System’s potential applications in government payments.
“It’s the simple ability to send disbursements out in real time,” Mr Williams says, noting emergency payments are clear candidate for instant payments.
He has a point. While few question the proficiency and professionalism of Centrelink’s emergency, disaster and crisis management responses the fact is that often welfare officers wind-up paying out cash to bushfire or flood survivors because it’s simply the fastest way to get the money moving. Not that Mr Williams mentioned Centrelink.
And the bigger the disaster, the riskier cash gets. What ICS will potentially offer is the capability for government to inject funds instantly and directly into peoples’ bank accounts, send a message with the payment and visibility that every deposit has hit its mark.
“The ability to send payments out in real time and get real time information of the fate of those payments, that they have actually reached the destination account and they are available to customers right now could be quite important,” Mr Williams says.
Aside from emergencies, Mr Williams observes there could also be other efficiencies reaped by virtue of the richer information carried with new transactions.
“The extra information could be quite important,” Mr Williams says. “Its hugely powerful because of the cost efficiencies of sending documentation electronically —but also because of the process costs when people ring up and say ‘I got this letter in the mail’ [or] ‘I’ve got this money in my bank account, what is it for?’.”
Away from welfare payments the other clear big opportunity for BPAY’s new outbound payments offering is employee payroll and supplier payments.
With an employee headcount of close to 2 million people, Australia’s public sector as market would have to be the single biggest employer in the country. And while retail and transactional banking services are typically competitively procured, what the BPAY ICS offering provides is a white-label ability for retail banks to rebadge capabilities and sell them into government payroll clients.
Suppliers to government who get payments in the form of direct deposits from purchase orders, cheques and credit cards also stand to benefit, along with taxpayers.
While both the federal and New South Wales governments have mandated that suppliers can be paid by credit card on request to speed up payments for purchases, corporate credit cards typically take a healthy percentage cut in the form of interchange and merchant service fees — a cost that is either absorbed by the supplier or sheeted back to the taxpayer by reloading it into the invoicing process.
For banks supplying government it’s an interesting dilemma because they will have to balance the money made off issuing lucrative corporate cards against keeping a big transactional customer happy.
But after decades of inertia, it’s nice to have a choice for a change.
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