Reserve Bank Of Australia Demands Instant Transfers Within Four Years

This week the Reserve Bank of Australia published its review of innovation in the nation's banking and payment services. While it highlighted several clear advances, the regulator identified a number of "market failures that may prevent innovation[s]" — innovations such as real-time payments, the ability to make low-value payments outside business hours and same-day settlements of all "Direct Entry payments".

The full document, a 1MB PDF, can be found on the RBA website. It's chunky in content and hardly a thrilling read, so here are the important parts I was able to see.

Firstly, how about those "market failures":

[The Reserve Bank] is satisfied that there are some market failures that may prevent innovation in the payments system. In other words, market forces might not be sufficient to produce some types of innovation that are in the public interest ... In large part they consist of coordination problems that make it difficult for industry players to agree to implement an innovation that requires collective effort to succeed. It is also possible that existing commercial arrangements might make it difficult to build a business case, for instance because new services will attract business away from existing profitable business streams.

Coordination problems and difficult commercial arrangements? Sounds about right.

Given these "failures" can be addressed, real-time payments would be a priority for the RBA:

The ability of individuals, government agencies and businesses to make retail payments, with the recipient having visibility and use of those funds in near to real time, is an objective that seems likely to become more pressing. Indeed, one of the key trends identified ... was an increased focus globally on speeding up payment processing through faster settlement or payment initiation.

The RBA believes instant, or near-instant payments have benefits beyond convenience for the average person. For example, it could be used by the government to provide immediate financial relief to businesses and individuals. It's also confident that if banks can manage instant payments to customers of the same institution, it "makes sense that this type of functionality should be available across financial institutions".

So-called "low-value" payments outside of business hours were also identified as an achievable innovation. The RBA notes that while such payments can be initiated on weekends and public holidays, processing can take days:

However, the systems used for the exchange of non-card payment instructions between institutions do not generally operate on weekends, meaning that no [transactions] are exchanged between banks and no interbank settlement occurs. Banks' accounting systems also do not generally recognise weekends for account posting purposes.

Together, these factors mean that the recipient of a [payment] initiated after a bank's cut-off time on a Friday night might not receive those funds until Tuesday. The same might be true for a merchant accepting a payment via eftpos on a Friday night. These delays are of course longer during long weekends.

In an attempt to get banks and merchants to implement these changes in a practical timeframe, the RBA has outlined a number of dated "strategic objectives". I don't know how much sway the Reserve Bank has in enforcing these, but the agency must have some confidence, stating it won't "rule out the possibility that some could be delivered sooner":

  • Same-day settlement of all Direct Entry payments (by end 2013)
  • The ability to make real-time retail payments (by end 2016)
  • The ability to make and receive low-value payments (Direct Entry, real-time payments and crediting of card payment receipts) outside normal banking hours (by end 2016)
  • The ability to send more complete remittance information with payments (by end 2016)
  • The ability to address payments in simple manner (by end 2017).

A key objective is the establishment of a system that would provide real-time retail payments, with real-time funds availability, by the end of 2016. This type of system has been a focus of innovation in a number of other countries.

If you're diligent enough and have the funds available, getting payments sent on time is usually not a big deal. But we don't live in a perfect world. Surely technology can deliver real-time payments within four years, if not sooner? It's certainly not a convenience I'd say no to.

Newtown graffiti / Flickr, licensed under Creative Commons 2.0

[RBA, via ZDNet]


Comments

    That would be good - hate waiting for payments to clear, especially when trying to balance direct debits and payments that dont show up at the same time, or direct debits that subtract money from an allocated payment.

    My wife is from Thailand and she could not believe when she arrived in Australia how the greedy banks hold on to your money for a few days when you transfer it. When she logs in to her Thai equivalent of Netbank she can transfer funds to other accounts with the same bank as well as other banks instantly. She can also pay bills and buy mobile phone credit via EFT and this is processed instantly as well. If a developing country like Thailand can do it then Australia should definitely be able to do it. Just another example of big business in Australia taking us all for a ride.

      However... they still use passbooks and good luck doing anything account related not at the branch you opened the account. Plus paying to draw money at a different branch of the same bank without copping a fee. Or getting any sort of satisfaction if there's an error or fraudulent transaction.
      Swings and roundabouts.

      The fact that we are developed is the cause of the problem. No doubt your wife's bank doesn't have 30years of legacy systems that they have to overcome every time they want to add a new feature. It's a little like mobile telecoms - the developing nations have more advanced features. Why? Less regulation (and thus consumer protection) and they've just leap-frogged the copper infrastructure that we invested in.

    Maybe opening after 4pm?

    Read the article "Rich". This is about the ability to process payments in real-time not about bank opening times, which is a completely different topic. There's no excuse for payments to sit in "cyberspace", earning the banks millions of dollars before they reach their intended destination. Yet another cash crab by the banks and about time they were called on it.

      How does it earn the bank money if it's effectively "in limbo?"

      I simply argue that it's dumb that they act as though servers need weekends and public holidays off.

        The overnight intrabank money market of course. http://www.economagic.com/em-cgi/data.exe/rba/FIRMMICM
        A fraction of a percentage of transactions don't go through successfully so need some people to sort them out each night. Not much extra effort to make a far better service.

    Four years? The RBA is being kind with the carrot.
    Would be doable now if they wanted to take the stick out.

    How about accepting deposits via eftpos and/or across ATM networks?

    Yet just a month ago APCA was happy to keep cheques around.

    What about cheques? 3 Days is a joke, and in some cases up to a week!

    Anyone who knows anything about liquidity in the banking system will recognise that the benefits are far outweighed by the costs and complexities in implementing these changes. It is not a technology barrier.

    The RBA has a woeful record in forcing through market improvements because they are generally so removed from reality. The RBA brought in both credit card fees and the effective mandatory ATM fees because there were "market inefficiencies". Funnily enough, from a consumer's point of view (mine) the system is worse now than it was.

    They should stick to their knitting and fiddle with monetary policy. Leave the retail-level stuff to the market or another more qualified government department.

    Funny that with all this technology they cant even match the speed of cash, something created thousands of years ago. You hand the cash to someone, they are paid instantly, yet if you do these things electronically you have to wait. Cheques though need to go die in a corner somewhere. Seriously does anyone anywhere still use these dinosaurs.

    Let's see if the banks come through and at least catch up with the times. More likely we will all get flying cars and jetpacks before we get instant payments throughout the industry for all transfer types.

    Australia is a banana republic....the land of zero innovation.

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