The planned transition from the soon-to-be-decommissioned bulk payments processing system BECS lacks sufficient industry “coordination, planning and certainty”, a review by payments regulator the Reserve Bank of Australia (RBA) has found, with the platform of choice for migration, the NPP, requiring “significant uplift across a number of dimensions” to support BECS transactions.
The RBA, in a comprehensive risk assessment paper released this week, outlined 20 recommendations to address concerns regarding risks to the safety, resilience, efficiency, and competition of the account-to-account (A2A) payments system set to inherit the remaining transaction load of the Bulk Electronic Clearing System (BECS).
“These recommendations are steps that the RBA expects industry to address with priority and urgency,” the RBA wrote.
“This will necessitate some degree of reprioritisation to ensure the intended benefits of any transition in account-to-account payment rails are achieved and contingencies are appropriately considered.”
BECS, the primary system for handling batch-based, account-to-account (A2A) payments – including welfare, pension, salary and bill payments – is planned for decommissioning by 2030. The workhorse payments processing and settlements system has been in operation for more than 30 years, and currently handles around 70% of A2A payments.
The plan is to migrate these currently batch-based A2A payments onto Australia’s real-time payments rail, the New Payments Platform (NPP), before this decommissioning date.
Australia, the RBA notes, will be among the first advanced economies to shift all payments processing to a single, real-time payments rail; most jurisdictions have opted to upgrade their existing batch systems to meet the current requirements, particularly regarding messaging standards.
As a result, it said, it will “not be able to draw on overseas experience to inform its efforts to decommission BECS”.
Last calendar year, BECS handled around 3.5 billion transactions valued at $17.4 trillion; the NPP, by contrast, handled just over half the number of transactions (1.7 billion) and roughly one-eighth the transaction value ($17.4 trillion) over the same period.
On average, BECS facilitates close to one million government transfers per day (e.g. JobSeeker payments, the Age Pension, the Disability Support Pension, child support, Health, family assistance, Aged Care, Department of Veterans’ Affairs (DVA) payments, and Medicare), with peak volumes often reaching two million payments per day.
What’s missing?
The report underlined a number of critical, unresolved concerns to be addressed to enable the successful migration from BECS.
1. Vision and strategic objectives: The RBA review found the transition lacks a defined target future state – that is, “a common industry vision” – of what a successful BECS migration would look like as well as a vision for the future of A2A payments.
“It should be clear how the vision and strategic objectives for A2A payments balances the spectrum of interests across the A2A ecosystem and serves the broader public interest.”
2. Governance and coordination, end users and decision-making: The RBA notes that while AP+ (as operator of the NPP) is responsible for the program to uplift NPP capabilities, each BECS member remains responsible for independently managing their individual transition away from the system. As such, there is currently central coordination structure to manage this transition.
A governance and coordination framework will be vital, it said, to enabling the analysis of a more comprehensive set of options for migration.
“The governance framework should oversee feasibility (or cost benefit) analyses, planning activities and prioritisation, sequencing, and coordination. This should include accountabilities over planning and execution, a voice for all stakeholders, and mechanisms to validate the target end date for BECS as a result of the planning process.”
As well, the RBA notes that end users remain price sensitive, with end-user costs needing to be well understood by industry before deciding on options and implementing solutions.
AP+ notes its recent establishment of its ‘Move to NPP’ Steering Committee to lead this coordination initiative, as well as its formal request to the competition regulator to enable it, along with fellow payments regulators and Treasury, “to help drive the overall industry coordination”.
3. Capabilities: The RBA identified a lack of a clear pathway to achieving the required uplift of the NPP to support the significant influx of payments expected to be processed.
Without a clear understanding of how the new system will be able to reliably support the high volumes and range of payments currently processed by BECS, the RBA warns that participants will be reluctant to move their payments off this “widely used, resilient and efficient system”.
4. Oversight and Regulation: According to the RBA, the safety and resilience of payment systems are currently not formally subject to regulation, with the Reserve’s oversight arrangements “based on moral suasion”.
“The breadth of change taking place in the A2A payments landscape highlights the need for the Government to continue to work with the RBA and other regulators to ensure they have appropriate powers to enable them to adequately supervise payment systems into the future,” it said.
Key recommendations
Among the 20 recommendations presented to payments system regulators to successfully progress the BECS migration, the RBA singled out five for immediate attention.
Among these priority areas were a need for:
- industry, with input from the RBA and government, to formulate a clear vision and strategic objectives for the future of the A2A payments system that is consistent with the public interest (i.e. benefits society as a whole) and considers a broader set of stakeholder requirements;
- industry to analyse a more comprehensive set of options for achieving the vision’s strategic objectives and provide a clear articulation of the issues with the current BECS system.
- industry to establish a centralised forum (compliant with relevant competition laws) responsible for governance and coordination of the BECS migration;
- effective information gathering and balanced decision-making, establishing mechanisms to ensure that all relevant information is obtained, verified and meaningfully considered. Information from stakeholders that are not traditionally consulted directly (such as end users) should be included; as well, mechanisms to balance competing interests and manage conflicts of interest need to be established and a degree of independence from these interests ensured in the decision-making processes;
- industry to define success criteria for a bulk payments functionality and assess prospective solutions against these. The criteria should consider public interest objectives, including reliability and contingency, affordability and cost-efficiency, and access and competition.
Responding to the RBA’s risk assessment paper, AP+, which oversees the NPP and its uplift for the BECS migration, said the vast majority of A2A payments transacted through BECS (bulk transactions that contain fewer than 10 payments) can already be “easily sent today via the NPP”.
The challenge lies in migrating the “relatively small share of very large bulk files”, typically sent by government and corporate customers, it said.
To achieve this, the payments authority said it is currently working on a targeted solution with industry – the NPP Multi-Credit Transfer service – equipped to process these high-volume bulk payment files.
