365-day a year electronic payments coming to NZ next year, but real-time payments still years away

New Zealand banks will start processing electronic payments 365 days a year from next April, however moving to real-time, always-on payments remains years away.

Currently NZ banks send and settle payment transactions only between Monday and Friday, and not on weekends or public holidays. Settling typically occurs every half hour at the major banks with payments then taking an hour or two to reach the bank at the other end of the transaction. Card payments tend to get bundled up and processed daily.

From April 22 next year most banks will begin processing direct credits, bill payments, automatic payments and direct debits 365 days of the year. This means individuals and businesses will be able to receive and send electronic payments to and from their bank account to an account at another bank any day of the year.

Steve Wiggins, Chief Executive of Payments NZ, the bank owned company that governs NZ’s core payment systems, told interest.co.nz moving to 365 days a year payments will “keep the momentum going on the economy through seven days and not stop on Friday afternoon and wake up again on Monday morning.”

“If we look at the value that goes through with direct credits, automatic payments, we put through over $1.6 trillion a year through that. So moving that line to seven days a week has got a really significant impact,” Wiggins says.

The move to 365-day payments is the culmination of the SBI365or settlement before interchange 365, project which has been bubbling along for several years.

NZ one of two OECD countries without real-time payments

However, a move to real-time payments remains years away even though Wiggins acknowledges NZ is one of just two Organization for Economic Co-operation and Development (OECD) countries that doesn’t have real-time payments already. The other country is Israel.

Real-time payments mean consumers, merchants, and financial institutions can pay friends and customers, settle bills, and transfer money immediately, 24/7. It means payment can be made exactly where and when it’s needed, which can be especially useful when transacting online or via an app, and for small businesses.

“Real time’s definitely on the radar. We certainly envisage that by 2030 consumers will be able to pay in real-time, there’ll be a lot of information, [it’ll be] data rich. The system will always be on and it’ll be safe and secure,” Wiggins says.

He says it’s important that real-time payments are aligned with the country’s characteristics.

“That work is in progress and underway in terms of what is the right outcome for New Zealand,” says Wiggins. “The work has begun but it’s early days in terms of the evaluation.”

In a report on real-time payments Deloitte notes that most existing real-time payment systems offer an instant, 24/7, interbank electronic fund transfer service that can be initiated through one of many channels including smart phones, tablets, digital wallets, and the internet.

“In such a scheme, a low value real-time payment request is initiated that enables an interbank account-to-account payment fund transfer and secure transaction posting with immediate notification features,” says Deloitte.

“Real-time payments can benefit financial institutions, merchants, consumers and society by offering enhanced visibility into payments, by enabling better cash management and by helping businesses better manage day-to-day operations by improving liquidity. The liquidity improvement can be especially impactful to small merchants who may be used to waiting days for their settlement, possibly creating a positive impact on their cash flow and daily sales outstanding,” Deloitte adds.

Australia’s New Payments Platform (NTT) has supported real-time account-to-account payments including payment initiation, clearance and settlement, since its launch in February 2018. It was developed after a review of the Australian payments system by the Reserve Bank of Australia’s Payments System Boardwhich among other things is tasked with promoting competition in the market for payment services, consistent with the overall stability of the financial system.

Payments NZ oversees a self-governing industry, and is owned by ANZ (26.79%), Westpac NZ (22.97%), BNZ (19.4%), ASB (19.11%), Kiwibank (4.74%), TSB (2.60%), HSBC (2.20%) and Citibank (2.19%).

Wiggins says it takes time for real-time payments systems to gain volume, pointing to the Reserve Bank of Australia chart at the foot of this article. It places NTT transactions behind debit cards, credit cards, direct debits and credit transfers.

“Not everything moves on to the real-time platform from day one,” Wiggins says. “[But] if we look at that short to medium-term impact of moving the core system from five to seven days [a week]it will have a significant benefit.”

Ten banks to offer 365-day payments

Meanwhile, 365-day a year payments will kick-off with the 10 banks that use Payments NZ’s Bulk Electronic Clearing System on board. This includes the eight Payments NZ shareholders, plus Bank of China and Industrial and Commercial Bank of China.

Wiggins says other banks such as Rabobank, Heartland Bank, SBS Bank and The Co-operative Bank need to make commercial arrangements with their agent banks that undertake settlements for them, such as BNZ and Westpac, if they’re to provide 365-day a year payments.

He believes the processing of electronic payments every day of the year will boost competition.

“There’ll certainly be further opportunities for competitive plays that may not have been previously available because of the lack of payments settling over the weekends or on statutory holidays. So I think there could be some innovation that occurs off the back of that and as a result of that,” says Wiggins.

He says time will tell how participants and customers want to use the new service, and whether there’s an overall increase in the volume of payments, or whether existing payment volumes will be spread out over more days.

*In a series of articles on NZ’s retail payments system in 2020, I called for a move to real-time payments noting this could negate the need for payments terminals and Visa and Mastercard’s interchange, boosting payments from the likes of smartphones.

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