The New Payments Platform (NPP) is the Australian equivalent of the UK’s Faster Payments Service – only on track to be implemented just under 10 years later.

Real time payments are a no brainer. Daily Fintech wrote about the implications these payment systems have on consumer behaviour back in June of 2015. For small businesses they turn card payments into the equivalent of cash payments in terms of speed of access to funds. They have implications on how working capital is allocated and how businesses plan and strategise. So, what do you need to know about the NPP?

Who’s involved

Like Faster Payments, the NPP is a collaboration between the Reserve Bank and industry players. Direct access to the NPP is restricted to Authorised Deposit-taking Institutions (ADIs). The founding members of the NPP, of which there are 13, have all committed funding for the build and operation of the platform. The NPP will be built on the SWIFT platform.

There is a slight question mark about how non-founding ADIs will join the NPP in the future. At a meetup held at the Tyro Fintech Hub last week, the incoming CEO Adrian Lovney indicated it was likely that ADIs joining in the future would be expected to stump up the same contribution the founding members did to join and create the platform initially.

While this might seem fair and equitable, should the Australian banking sector get shaken up like the UK’s has on the challenger banking front, this could be problematic. The majority of the founding members of the ADI have very deep pockets. Challenger banks, unlikely so.

How will non-ADIs, fintech startups being a prime example, access the NPP?

They’ll need to connect via an existing member, and strike up commercial agreements with them directly. They’ll be classed as ‘overlay services’. It’s not clear at this stage how much influence the NPP body will have over commercial agreements overlay services look to set-up directly with member ADIs. It may be possible for a fintech to connect with an existing overlay service as well, pushing them further down the food chain.

For ADIs who are looking to partner with overlay providers to deliver services they don’t have an appetite to build directly, this will provide an avenue for bank to fintech collaboration. For fintech providers who want to compete head on with the established banks, they could possibly partner with either Cuscal or Indue instead. For fintech providers keen to partner with Tier 2 banks, Australian Settlements will no doubt be the go to member.

What are the risks here, if any? Well, given some banks do provide overlay-like services already, it seems to me that there is a possibility they could use their direct access to the NPP to control a non ADI’s competitive position in the market place, most likely by pricing them out. This should be tempered somewhat by the fact Cuscal and Indue will be able to offer access, but it certainly limits the ability by a fintech to shop around for a better deal.

Is there a stand-out feature of the NPP?

Yes – the quality of the remittance information that will be able to be transferred will be much richer than what is possible today with the existing 18 character limit for Direct Entry Payments. This is thanks to the adoption of ISO 20022 payment messaging standards.

How is the UK approaching working with fintechs and challenger banks?

Fintech TransferWise were recently one of the first to connect to the UK’s NPP equivalent, the Faster Payment Scheme, through its New Access Model. This new scheme allows companies like TransferWise and challenger banks to partner with newly accredited fintech payment aggregators who have connected to the central network. This removes the need for these sorts of fintech companies to work directly with a sponsor bank or connect directly.

Why would they do this? Well, for a challenger bank just starting out, transaction volumes would not justify the cost of connecting directly. And working through a sponsor bank does not guarantee them true real-time payments either. It’s a ‘Catch 22’ situation, as the Faster Payments scheme pointed out in its white paper detailing how its New Access Model came about.

Fintech startups who are keen to operate in Australia should be getting their heads around how the NPP works now, and what their relationship will be to founding members or overlay services. Whether becoming an overlay service or working with one is on the cards, I’m guessing there’s not going to be many free lunches here at all. So putting some heat on the participants to find out what those costs are going to shake out at will be key.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.