Overview of the current affairs associated with the introduction of NPP
This study addresses key issues associated with the introduction of the New Payment Platform (NPP) in the Australian Banking sector. The study is divided into three parts. The first part addresses the overview of the current affairs associated with the introduction of NPP. The second part addresses the impact of NPP on the Australian banking second. The third parts reflect on the impact of coursework in responding to the study issue.
In 2017, the Reserve Bank of Australia (RBA) announced that it was on the verge of launching a New Payment Platform (NPP) system. NPP would allow instants transfer of funds between two different banks. Before the introduction of the NPP, it took three business days for funds that had been transferred from by one bank to reflect in an account held by another bank. The practice caused inconveniences especially when customers were in dire needs of money (Chow, 2017).
Several factors caused the previous three days delay. First, banks can only make money transfers during the working hours of the day. This means that money transfers cannot be made at night or past the working hours. When a payment request is placed on a weekend, customers have to wait until the next working day for the bank to process it. In such a situation, it would take approximately five days for a transfer to materialize. Second, banks required more time to detect and address to transfer requests associated with fraudulent activities (Worthington, 2018).
For a long period, customers have been pushing for faster options for money transfer. On the other hand, mixed has had mixed reaction concerning the push to reduce the period it takes to transfer funds between two different banks. With the call by the Reserve Bank of Australia, many banks and financial institution were forced to adopt the new system or lose their customer to their competitors. The RBA maintains that the best way of competing in the Australian banking industry is to satisfy the needs of customers (providing instant payment option) (Hunt & Terry, 2018).
Nevertheless, there are some banks which are still adamant. By March of 2018, three out of four big banks in Australia had already launched the new NPP system. The Westpac, National Australian Bank, and Commonwealth Bank have already launched instant money transfer between two banks. The banks stated that it takes less than a minute for the transferred funds to reflect in the recipient account. The NPP system also allows customers to make payments without entering account the BSB number. However, ANZ Bank is yet to NPP system. The bank has maintained that it was still testing the new system. The banks want to ascertain that NPP not only provides instant transfer, but customers will enjoy the safest and best experience (Worthington, 2018).
In summary, Australian banks still have mixed reaction about the NPP system. With others see it as an opportunity to enhance best practice and customers experience, others think that it is risky.
Instant transfer of payment using the NPP system has attracted both positive and negative reactions. Just like any other new project, the NPP system is expected to cause both positive and negative impact on the market. First, the new system is supposed to bring about effectiveness and efficiency in the payment system. The effectiveness and efficiency of the system are based on its convenience, a competition which brings about quality services, reduction of transaction period, and increased number of transactions which increase profitability of banks and satisfaction to the customers.
Impact of NPP on the Australian banking second
First, customers will enjoy convenience and instant transfer. Unlike the previous system which took three days before the money would reflect in the account of the receipt, it will only take only 30 to 45 seconds for money to be received under the NPP system. Customers will no longer have to wait for banks’ working days to make money transfers- using online transfer option, under the new system, customers will send and receive funds instantly during holidays, weekends, early in the morning and late at night. Customers will enjoy more convenience and speedy recipient of funds using NPP system (IMF, 2006).
Second, the launch of the NPP system will cause more competition in the banking industry. Customers have been pushing for the reduction of the period it takes before transfer between two banks materialises. Considering that the players in the banking and financial industry offer similar products and services, customers enjoy high bargaining power. Likewise, the switching cost from one bank to another is insignificant. Therefore banks will be forced to adopt the new system or lose their customers to competitors. Already the majority of banks in Australia have already adopted the NPP system and are using it as a competitive advantage (Rövekamp, 2017).
Third, the number of transfer per annum is expected to increase. Based on the United Kingdom’s experience, the NPP system will speed up transaction completion. Two years after the Faster payments system was in the UK in 2007, 500 million transactions had been completed. Seven years later the system had already completed 5 billion transactions. Generally, the system has seen the increase on transactions completed per annum by 15-20%. In June 2017, over 136 million transactions were processed in the UK. Just like the trend that has been witnessed in the UK, NPP system is expected to increase the number of the instant transaction completed in Australia per annum (Lomnicka & Ellinger, 2011).
Fourth, the digital market is expected to thrive. The global market is slowly shifting towards the digital market. The introduction of the NPP system, customers will have the ability to make instant purchases. On the other, sellers will receive payments within a shorter period which allows restocking in an appropriate time (Lomnicka & Ellinger, 2011).
An increase in fraud activities is expected to increase with the introduction of the NPP system. Before the introduction of NPP, RBA had developed several security measures that protected users from fraud and insecurity incidences. Bank would guarantee the security and authenticity of the transfer as well as ascertain that the money was generated from legal activities. Evidence from the UK showed that the number of recorded fraud activities increased by 132% in 2008. This trend is expected in Australia as well. While acknowledging the expected security and fraud impact on instant transfer, RBA has already enhanced security and protection through launching improved verification steps, use of artificial monitoring system to identify unusual payment behaviours, introduce enhanced fingerprinting devices and biometric login. Likewise, banks will also be required to enhance their ability to detect and resolve fraudulent activities (Stein, 2017).
Impact of coursework in responding to the study issue
The financial market is associated with numerous risks. Individuals are expected to balance between the perceived benefits and the associated risks. Risks should only be accepted with higher returns are expected. This scenario is applicable in accepting or rejecting an instant payment system. Some of the benefits associated with an instant transfer of funds include increased speed, convenience, more transfer and boom in the digital market (Davies, 2017). On the other hand, customers risk losing their money because of increased exposure to fraud activities. Therefore, customers will have to weigh between the benefits and risks of instant bank transfer. Customers will then have to adopt the NPP system when the benefits outweigh the risks or stick with the three-day option when the risks outweigh the benefits. After going through the course, benefits associated with the NPP are more than the risks (Yeates, 2018).
Likewise, people tend to react differently from the introduction of new information. Moreover, new information can be useful or harmful depending on how the industry reacts to it. This is the case of the Australian banking industry. The introduction of the NPP system has brought a new dimension competition on the market. Customers are snow switching to banks that are providing instant transfer options. It is evident that customers will always go for the products or services that give them satisfaction based on their needs and preferences. Therefore, the course has sharpened my understanding of the situation facing the Australian banking sector (Valverde, 2016).
The study sought to establish the impact of the New Payment Platform (NPP) system that was introduced by the Reserve Bank of Australia (RBA). The NPP allows instant transfer of funds between two different banks from the previous three days waiting period. While some banks have already adopted the new system, others are still adamant citing security and fraud issues. Some of the benefits associated with the NPP include increased speed, convenience, more transfer and boom in the digital market. A study of the UK faster transfer market showed recorded an increase of frauds by 132%. However, RBA has put in place several security measures to counter security issues such as fraudulent activities.
References:
Chow, K. (2017, 10 5). Instant funds transfers between banks to be possible from January next year. Retrieved 10 7, 2018, from ABC: https://www.abc.net.au/news/2017-10-03/instant-bank-transfers-will-soon-be-a-reality/9012270
Davies, A. (2017, 10 3). Banks to switch to real-time payments from Australia Day. Retrieved 10 7, 2018, from The Guardian: https://www.theguardian.com/australia-news/2017/oct/03/banks-to-switch-to-real-time-payments-from-australia-day
Hunt, B., & Terry, C. (2018). Financial Institutions and Markets. Sydney: Cengage.
IMF. (2006). Australia: Financial System Stability Assessment, including Reports on the Observance of Standards and Codes on the following topics: Banking Supervision, Insurance Regulation, Securities Regulation, and Payment Systems. New York: International Monetary Fund.
Lomnicka, E., & Ellinger, E. P. (2011). Ellinger’s Modern Banking Law. Oxford University Press.
Rövekamp, F. (2017). Cash in East Asia. Sydney : Springer.
Stein, L. (2017, 10 4). Instant funds transfers: What’s changing and how will the new system work? Retrieved 10 7, 2018, from ABC News: https://www.abc.net.au/news/2017-10-04/how-will-instant-payments-actually-work/9010400
Valverde, S. C. (2016). Bank Funding, Financial Instruments and Decision-Making in the Banking Industry. New York: Springer International Publishing.
Worthington, S. (2018, 2 13). New Payments Platform: Instant bank transfers are finally here, but are they safe to use? Retrieved 10 7, 2018, from ABC: https://www.abc.net.au/news/2018-02-13/new-payments-platform-are-instant-bank-transfers-safe-to-use/9442920
Yeates, C. (2018, 2 13). Bank transfers in less than a minute as real-time payments rolled out. Retrieved 10 7, 2018, from The Sydney Morning Herald: https://www.smh.com.au/business/banking-and-finance/bank-transfers-in-less-than-a-minute-as-real-time-payments-rolled-out-20180211-p4yzyp.html
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