Banks eye new payments system with multiple settlements per day instead of just one

By Gareth Vaughan

Payments NZ, the new bank owned company overseeing the domestic payments system, hopes to have a new multi-settlement per day system in place later this year replacing the current system where transactions settle just once daily, overnight.

Steve Nichols, Payments NZ's CEO, told interest.co.nz this was the key project the new entity was working on. Payments NZ was set up last October to take over the Electronic Credit Systems Code and the Direct Debit Systems Code, which document operational agreements and arrangements among banks for clearing electronic credits and direct debits, from the New Zealand Bankers’ Association.

Payments NZ's shareholders are ANZ, BNZ, Westpac, ASB, Kiwibank, TSB Bank, HSBC, and Citibank. Its board has three independent directors - former Brierley Investments Ltd executive Patsy Reddy, ex-head of the Consumers Institute David Russell, and chairman and former Foodstuffs Wellington boss Tony McNeil. Each member bank also has one representative on the board.

Nichols said Payments NZ was responsible for industry level implementation of the new settlement system.

"The banks are creating a new platform for interchange of transactions and that will be multi-settlement per day as opposed to the one overnight settlement process that we have at the current time," said Nichols.

There would be a minimum of five daily settlements under the new system initially, with this potentially increasing in the future. The change was largely a technology upgrade and had been in the planning for several years. Nichols said as with any IT system upgrade there was a "huge cost" involved but he wasn't privy to the exact numbers the individual banks were forking out.

"They (the banks) are all building their own systems around this. Our responsibility is industry level testing and implementation," said Nichols.

The targeted launch date for the new system is the last quarter of this year. "Visibly" customers wouldn't necessarily notice a difference.

"Probably the key thing is the speeding up of the transfer of funds around the market," Nichols said. "It opens a whole lot of opportunities in that space through faster settlement initially anyway, faster settlement of funds transfer."

Potential access for building societies and others; Bank account number portability 'a whole different issue'

Payments NZ would also look to broaden access to the payments system, Nichols said. This could mean the likes of building societies, which currently have their transactions run by one of the major banks through agency arrangements, would instead be able to transact directly with the participant banks.

After introducing new rules designed to make it easier for customers' to switch accounts between banks late last year, Nichols said he was heading to Australia next week to discuss what had been done in New Zealand with the Australian Bankers' Association.

Australia, following banking industry reforms announced late last year, is mulling the introduction of full bank account number portability.

"Whether that actually eventuates remains to be seen," Nichols said.

"Account number portability is a whole different issue because it has IT implications and there’d have to be a lot of thought go into how that would work."

Kiwibank is keen on the concept with the state owned bank's CEO Paul Brock telling interest.co.nz last October he'd ultimately like to see the banking industry emulate its telecommunications counterpart and introduce bank account number portability so when customers switch banks they can take their bank account number with them.

Asked whether other banks were keen on the idea, Nichols said it wasn't so much about the level of interest as to how it would actually be achieved.

"Because obviously there’s huge IT implications," said Nichols.

"The steps that have been taken are certainly steps that have improved the ability to transfer accounts between banks. But as to the next step that remains to be seen and we’ll watch what happens in Australia as well."

Nichols was previously managing director of Mike Henry Group, which sold travel insurance in New Zealand. Now part of Interglobal Insurance Company, the group - in which Nichols and two others owned 72% - was sold to private equity firm Alchemy Partners in 2006.