NPP Functionality and Access Consultation: Conclusions Paper 5. Conclusion

The Reserve Bank, with support and input from the ACCC, has undertaken a public consultation on the functionality of, and access to, the NPP. The overall conclusion from this consultation is that the NPP is enabling new payments functionality that largely addresses the gaps identified by the Bank in its 2012 Strategic Review of Innovation. The Bank agrees with stakeholders that pointed out that much of the perception about lack of functionality and access difficulties is related to the slow roll-out of the NPP by some of its participants. It is now over a year since the NPP was launched and some major banks are still in the process of making NPP payments available to customer segments. Given that payment systems are networks that often require a critical mass, the slow progress within some participants has delayed the development of some of the planned ‘central’ functionality – for example, no decision has yet been made regarding the request-to-pay and payment-with-document overlay services. The slower than expected roll-outs by some participants appears to reflect the complexity of their systems and underestimation of the degree of investment needed to meet delivery timeframes.

The slow and uneven roll-out of NPP services has been disappointing and the Bank will continue to push participants to prioritise their development of NPP services. To overcome possible coordination issues amongst participants in the development of new capabilities, the Bank is recommending that NPPA's Board introduces a power for it to mandate that specified NPP core capabilities must be supported by participants within a specific period of time, with a sanctions regime to apply if participants do not comply. However, if this approach is not sufficient the Bank will consider the merits of a regulatory solution to ensure that NPP functionality meets the evolving needs of users of the payments system. Having said that, the Bank recognises that NPPA has an ambitious development agenda that if fully implemented would likely address most of the functionality issues raised during the consultation. In addition, it should also be acknowledged that, despite the delays, there are now 80 institutions connected to the NPP and providing fast payment services to their customers and use of the platform is continuing to grow.

Stakeholders have identified a number of access issues that could present potential barriers for new participants, such as the current requirements that new participants are ADIs and must make a material capital contribution. A few stakeholders in the consultation argued that designation and an access regime imposed by the Payments System Board would be the best approach to manage these potential issues. In particular, they felt that it was essential that access to the NPP be managed independently of the direct participants who may have perceived or actual conflicts of interest. The Productivity Commission also recommended an access regime for the NPP in its 2018 report on Competition in the Australian Financial System. In contrast, NPPA, some of the NPP participants and some other stakeholders argued that the current access framework is working well, pointing in particular to the large number of entities that have indirectly connected as identified institutions. They would prefer that the NPP be given sufficient time to demonstrate that it promotes open access and competition in payments before an access regime is considered. They felt that the current risk-based framework strikes a balance between open access and protecting the security of the payments infrastructure and the data within it.

The Reserve Bank agrees that the access issues discussed in this report, if left unaddressed, could raise policy concerns. Accordingly, the Bank has made a number of recommendations for NPPA to take action in relation to requirements for participation in the NPP, the required capital contribution for participation and the governance arrangements involving the NPPA Board. The Bank considers that it is reasonable to give NPPA and its participants the opportunity to act on these recommendations before considering the imposition of specific regulation. The Bank will be monitoring progress on these recommendations closely and will continue to liaise with potential entrants to ensure that the operation of the NPP is consistent with the promotion of competition and efficiency in the payments system.

The Bank is requesting that NPPA provide a public written response to the recommendations in this report by end July 2019, explaining how it intends to implement the recommendations and over what time period. The Bank will then seek regular updates from NPPA on its progress in addressing the recommendations.

The Bank will, with the assistance of the ACCC, conduct another review of NPP functionality and access issues commencing no later than July 2021. This review could take place earlier if the Bank becomes aware of significant issues or concerns regarding NPP access or functionality. If the Bank assesses that there has been insufficient progress in addressing the recommendations made in this report, it will closely consider the case for regulation via an access regime or standards imposed on the NPP and its participants.