In late 2023, the Governor of the Reserve Bank of Australia — Michele Bullock — delivered the Annual Payments Address at the Australian Payments Network Summit. Governor Bullock described the Payments System Board’s strategic priorities, and drew a 2030 line-in-the-sand for Australia's legacy BECS framework. As Chris Ponton Dwyer says, the payments modernisation starter's pistol has been fired.
The Governor's keynote confirmed that the payments industry, through AusPayNet, had set a target date of 2030 for the retirement of Australia's legacy BECS payments framework. In no uncertain terms now, Australian payments are undergoing once-in-a-generation reform and modernisation.
The starter's pistol has been fired.
As the Governor stated, "The payments landscape is changing rapidly, with new business models and technologies entering the space. The industry is also moving from legacy systems towards new platforms that can deliver payment services that are faster, safer and more convenient. We therefore need to modernise our regulatory architecture and payments infrastructure to support these innovations, and we have been working with the Government to update the regulatory framework."
Use of Australia’s fast account-to-account payments system — the New Payments Platform [NPP] — continues to grow, with more account-to-account payments now happening in real-time. In 2022/23 the NPP processed over 1.3 billion transactions, worth more than $1.5 trillion. The Payments System Board Annual Report 2023 noted, however, that most account-to-account payments still occur over the traditional BECS 'direct entry' rails.
Not surprisingly then, the 2030 retirement date for the country's legacy direct entry payments workhorse, has been a catalyst for vital conversations about transitioning to the NPP.
The transition from the old [BECS] to the new [NPP] is massive, and many out in the business world might wonder why is it necessary. Don't our existing business-day-only, bulk-payment arrangements do the trick? There are multiple factors driving the evolution, as the Governor highlighted:
"We understand the reasons why the industry wants to wind down BECS. Apart from the cost of maintaining the system, it has limitations compared with more modern alternatives such as the NPP:
- It processes payments in batches only on business days, compared with the 24/7 operation of the NPP with funds transferred in close to real time.
- BECS is not able to send complete remittance information. As many of you know, the limited number of characters stems from the number of characters that could be carried on a punch card! Decades on, this is no longer fit for purpose. It prevents automating the reconciliation of payments and makes it harder to screen for financial crimes. The NPP uses the data-rich ISO 20022 messaging format, which is the new global standard for payments systems.
- Payments through BECS can only be addressed using BSB and account numbers. By contrast, the NPP incorporates the PayID addressing service, allowing payments to be addressed to an email address or phone number, and it also provides a confirmation of payee service. These features help to reduce mistaken payments and combat some scams.
"The limitations of BECS are becoming more significant as users expect fast payments and the economy becomes increasingly digitised. But there are some significant challenges that will need to be overcome for the industry to successfully transition all BECS payments to more modern payment systems."
MICHELE BULLOCK, GOVERNOR OF THE RESERVE BANK OF AUSTRALIA
Retiring and transitioning all BECS payments to the NPP will be a transformational moment.
As the panel that joined a Zepto Connect webinar on Payment Predictions pointed out, conversations need to start today. It'll be 2030 before we know it. There's a heap of heavy-lifting to be done before BECS is retired to ensure business and consumers are not disrupted.
"Most countries are brilliant at setting up new payment rails, but pretty poor at decommissioning old ones," said Andy White, CEO of AusPayNet during the Zepto Connect session.
"We're showing leadership in Australia by putting that 2030 line in the sand for BECS. It means conversations can start with big enterprise customers and governments around the use cases currently serviced by BECS, and how they could be serviced by modern alternatives moving forward. The discussion around those use cases has to be around the value that more modern digital alternatives can add to them."
ANDY WHITE, CEO OF AUSPAYNET
The 2030 line in the sand will start those conversations around value.
The NPP, particularly now with PayTo in place, has the capability to support all the use cases we see on BECS today. It's true that NPP payments are currently more costly than those on the BECS system. But as the Governor pointed out in her speech, as the volume of payments processed by the NPP rises, the per-transaction cost will come down.
"It is also important to recognise that there are some less visible costs associated with BECS payments. These include manual reconciliation and managing mistaken payments, given BECS’ limited messaging and addressing capabilities," Bullock also noted.
Beyond being real-time, addressing those indirect payment costs associated with manual processes and errors through rich data adds another compelling layer of uplift delivered by payments on the NPP.
So, what do Australian businesses need to consider as they start their journey of transformation and payments modernisation?
I believe there are six key areas of consideration:
- Technical implications
Moving from a batch file process to a real time payment mechanism will have an impact on legacy systems and technology. Organisations need to consider how this will impact their technology architecture and roadmap. - Reporting & reconciliation
Many organisations have built processes on top of existing direct debit payments which will need to be reviewed. There's an opportunity here to drive efficiency with a more data rich system. - Treasury
Instant settlement and flexibility in payment instructions need to be understood to optimise the flow of funds and capitalise on improved liquidity. - Customer benefits & impacts
Forward thinking organisations are not just seeing this as a compliance initiative but as an opportunity to transform the customer payment experience. Instant confirmation and rich metadata will enable organisations to deliver personalised, real time payment experiences that can differentiate their offering and brand. - Operational support
Customer support teams will need to understand these new payment methods in order to support customer queries, and make the most of optimised collections capabilities for missed/late payments. - Commercial implications
It's important businesses understand pricing structures for PayTo, and identify opportunities to optimise their cost base.
Partnering with the right real-time payments infrastructure provider is, of course, a vital piece of future success, too. Expertise, technology, capability and proximity to the payment rails can vary widely. As a directly Connected Institution [CI] on the NPP, Zepto sits alongside major Australian banks for PayTo — the first non-bank with such access.
Meeting the technical connectivity and security requirements to connect to the NPP is not an easy undertaking. Nor should it be, given the need to ensure the necessary safeguards required to operate a real-time payments system.
We’re shaping the future of payments from a rare vantage point — a unique position to spearhead innovation, and chaperon organisations modernising their payment experiences.
The BECS framework has done an incredible job for the Australian economy since its inception in the 1980s. But despite it no longer being fit for purpose, Chris Jewell — Zepto's CEO — is a fan of Australia's Direct Entry system.
"It has enabled incredible value for our economy, and it's really important to recognise we're doing something pretty complex as an ecosystem here in Australia. I can't ever imagine the US trying to have a conversation around decommissioning the Automated Clearing House."
CHRIS JEWELL, CEO OF ZEPTO
"Decommissioning BECS is huge, and we're doing it with an ambition to create even more value for our economy, for merchants and for consumers. But we've got to do it in a way that is secure, and brings reliability and scalability as it replaces something incredibly valuable. Having the 2030 line in the sand means we can all plan the transition to the new world beyond it.
"We are redefining what's possible. And the world is watching."
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