Transcript of Question & Answer Session Leaning In Towards Better Payment and Clearing Systems

Thanks very much, Michele. Indeed, you touched on what for economists and indeed regulators our two favourite Cs: competition, where it's healthy and effective, and consumer outcomes. And thank you for agreeing for a little carbon-free fireside chat this afternoon, so we won't be taking questions from the floor, folks.

Now, Michele, you shared with us some really interesting comparator metrics, I think Sweden and the UK in terms of the rollout of the NPP and Australian take-up rates. If you would now, to sort of step back for a moment after a couple of years of, well four, five years of the journey that the RBA's been through here, where do you see Australia today in the international leader board in terms of a pro competition in a consumer-friendly payment system?

Sure. Well, I think we're right up there actually. Australians do have a reputation of being very fast adopters of new technology, and in fact the schemes often tell us that if they're going to trial new technology and innovation, they tend to look to Australia to have a go at it. We were very quick on the uptake of tap-and-go once it got going, so I think with the New Payments Platform, as I mentioned in my speech, we are really at the cutting edge here. Our fast payment service offers a number of things that others don't. There are certain advantages in being a fast follower in these sorts of circumstances, so I'm very confident that what we're ending up with is something that's really right out there.

Okay. So maybe if we return to the other C, and that's the competition C, it'd be really great if you could just un-bundle or elaborate for us on how does the NPP translate to competitive outcomes within the banking system?

There's probably three facets to this. The first is, and you mentioned this in your opening remarks, the NPP was developed as a utility model and an open access infrastructure, and so it promotes competition by providing a number of different ways that financial institutions, and potentially businesses, can connect and use the functionality of the NPP, so it's very much designed to encourage many financial institutions and businesses to use them. So that's good for competition.

One thing I should add is that we have a number of aggregators who are directly connected to the NPP and they provide substantial access to a number of small institutions, so this is really good for those small institutions. A large number of them were there on day one. That was fabulous. So that was a great success story.

A second point is that it's designed to encourage competitive overlay provisions, so this is where different firms, it might be fintechs, it might be banks, they can develop services that use the NPP, and they can develop that and they can compete amongst one another with these services using the actual utility of the NPP.

And the final facet I would mention is that the NPP has this thing called PayID. This is the addressing service which allows you to associate a phone number or an ABN with bank account details. This actually will be quite helpful for consumers in being able to change banks, because at the moment it's quite a bit of effort to go and change all your banking arrangements and notify all the merchants you have arrangements with. If you've got a phone number, you can associate that with whatever bank account you like, you can port it. So all you need to give businesses is your PayID, your phone number, and you can port that more easily.

There's another development which NPP is working on as well, which is a consent and mandate service which ultimately will, I think, make it easier for people to move their direct debits … So, these things that are sort of standing as barriers to people moving financial institutions, I think it will assist in that way as well.

Okay, well, let's move to the second C, and one of our favourite Cs, the consumer outcomes. The immediate funds availability that we get delivered through the NPP, which is in pretty stark contrast to the current but old style direct electronic payments system where there's a one- to two-day delay before funds availability occurs, and we're now in a world where transactions are ubiquitous. Like, rewind the clock 30 years, a household might do 10 transactions a week. Most folk today can do 10 transactions on the tram before they get to the office. So when you look at it through that perspective, do we have a sense, then, across the transactions that we've got now in Australia, what percentage of them are instantaneous?

The NPP itself is still only very small. In the graph I showed, there's around about 16 million NPP transactions (per month). The direct entry system by comparison is about 800 million transactions and cards are about 200 million transactions, so it's still small. But, as I said, it's been designed to allow lots of transactions to actually move through these systems.

So, I anticipate that once consumers, once the network effects are there and consumers can be confident that the payments will go to the person they want to send it to and they'll go quickly, I think people will start to take it up and you'll see things move very quickly. There will be some transactions that won't need instantaneous payment, but I think people will really like the idea that once the money … So at the moment, the money comes out of my account, but the person I paid can't use it for a day or so. I think people will really like the idea that once it's gone, they'll be able to use it.

So, clearly the take-up rates is the clear focus for the RBA in terms of what one of your litmus tests of success of the NPP getting up and running so it does deliver all those benefits, and you did make reference, as I think your Governor has previously, to the slower pace of take-up. Indeed, I think you used the word "underwhelming" pace of take-up by the big four banks. I guess, what's the critical mass point for you, and what is it that the RBA can do to sort of nudge or shove the banks along a little bit here, Michele?

Well, critical mass involves all four major banks. I think there's no doubt about that. It doesn't need absolutely every financial institution, but it needs the big four banks in Australia if it's going to be successful, and we're gradually getting there, so that's positive. But the Reserve Bank can't force … we can't regulate to make them do it, so we've got our usual arm-twisting, cajoling, encouraging, and I think we've done a pretty good job at getting things done just by using those stock standard moral suasion techniques.

Okay, we'll be getting back to that later this afternoon when we do the regulatory toolkit after lunch, because that's definitely one of them. From the consumer's perspective, though, how much transparency do they have? When you were talking about the tap and go and what triage that takes them through, how do they know how their payments are being transacted and whether or not they're getting the lower cost option with the NPP?

At the moment, banks are not charging customers for making payments through the NPP. I think there's a couple of things about transparency. It's obviously very important that consumers have transparency over costs. The fact that there's a brand called Osko, which hasn't been able to really advertise a lot yet, but there's a brand which will tell people, I know that's going to be a fast payment. So that's transparent for them that it's going through that particular system.

So I think they will, and their banks obviously are obliged to make sure that they are aware if there are any transaction costs on their payments. But at the moment, NPP customers aren't being charged.

And on a final note, maybe, because I'm just keeping a watch on the time, and we're going to hit our KPIs today, being on time. With any network, it inevitably transforms and changes over time. Do you see, with the evolution of technology and the current NPP, that there will be an NPP2 down the track?

I don't think so much an NPP2. I think the way it's been designed is to allow functionality and overlay services to use it. It will evolve over time in terms of functionality. I don't think we'll necessarily need to rebuild the whole infrastructure again, because the way it's been designed, I think allows for functionality to be perhaps introduced in a centralised way and also for new functionality to come through overlay services, so I think that's the way we'll see it evolve.

And that competitive dynamic in that overlay, bringing the innovation with it.

Yes.

All right. Well, look, thank you for translating what can at times be a very dry topic when it's talked about, into something that's very tangible and linking it to the two Cs that matter: competition and consumer outcomes. So, please join me in thanking Michele.