When it comes to the next phase of innovation in real-time payments, Australia is leading the world in enabling extraordinary transformation for business and uplifting the customer experience.

This is the takeaway from a series of flagship NAB Transaction Banking events in Melbourne and Sydney featuring specialists in the future of payments for Corporate and Institutional Banking customers.

Jon Adams is NAB Executive, Transaction Banking Product, and says right now is the most exciting time for payments he’s seen in his 20 years in the industry.

“Payments is integral to everything that our customers do,” Adams says. “It’s also something that’s really evolving. Today is the most dynamic time I’ve ever seen in payments. We’re going to see a massive amount of change in the next three to five years and there are some really exciting opportunities.”

Adams was speaking on a “Future of Payments” panel hosted by NAB Executive, Transaction Banking, Johan Westh, alongside NAB Hive Executive Sam Mendelsohn and Ian Lennie, co-founder of payments fintech Zepto.

In a poll held ahead of the discussion, event participants signalled PayID, PayTo, digital wallets and blockchain as among important evolving payment options they expect to be using.

Adams says there are a number of powerful mega-trends driving this rapid change in Australia today. These include the rise of real-time payments for business through the New Payments Platform (NPP) and the adoption and growth of open banking. The mega-trends are underpinned by the harmonisation of the global ISO 20022 standard which is now giving access to more structured data to work with.

“Together these things are really going to help accelerate and shape account-to-account payments for businesses,” Adams says.

Surge in real-time transactions for business

The RBA first rolled out the NPP in 2018 to facilitate real-time payments for consumers and help set up Australia’s economy for a digital future¹. Developments like PayIDs have made it simpler to pay and receive payments, while richer payment information has provided a greater level of transparency and simplified account reconciliation.

While the NPP initially focused on consumers, the business world is fast paying attention, with NAB seeing a 40 per cent increase in the number of NPP digital business transactions and about 120 per cent in value in the past year, Adams says.

A March 2023 milestone for NAB saw a million NPP payments processed in a day compared with about 3-400,000 two years ago². Adams says areas ripe for growth are recurring payments – or direct debits – which account for a billion payments a year in the industry, as well as bulk direct entry – uploading a file of supplier payments or payroll for instance – which also covers a billion plus payments³.

The next payment functionality to roll out on the NPP rails is PayTo, which enables real-time third-party initiated payments⁴. It promises to give greater control over direct debits and provide alternatives to card payments, while creating efficiencies for business in back-office reconciliation.

“What I’m most excited about now is PayTo because that fully digital ability to initiate payments is such a huge enabler,” Adams says.

“Australia is actually leading the world on this. When I’ve talked to my bank equivalents in the UK, they’re actually pretty envious of what we’re developing on NPP.

“The application of these new services built on top of the NPP rails is going to be huge.”

Adams says PayTo allows businesses to create payment agreements with their customers within the bank’s digital banking channels. The benefits of this “digital native” form of direct debit include:

• No paper forms or the need to store agreements;
• No three-day dishonour period so there is no need for a collateral-backed limit;
• Real-time notification of payment receipt;
• Reduced risk from fraud and scams;
• Customers can see payment agreements in their banking app reducing calls/queries.

Fintech game changer

As PayTo goes live for all the major banks this year, there is also a great opportunity for fintechs to innovate in an ecosystem with viable reach for businesses to tap into.

Use cases include global e-commerce services connecting systems in real-time through Application Programming Interfaces (APIs). An example would be a simple checkout solution integrated with the banking system for customer authentication to enable efficient, secure online purchases.

NAB has already invested in this space, taking a stake in London-based fintech Banked⁵ whose technology allows merchants to take this sort of PayTo digital payment directly from customer accounts without using a debit card, enabling a smoother, more efficient “pay by bank” option for consumers and businesses.

“It is a significant investment in the future of payments in this country, so we are doing extensive testing prior to going live, to keep our customers safe and ensure very high resilience. It will be game changing once it is deployed shortly,” Adams says.

Zepto is an Australian fintech also specialising in the next generation of account-to-account payment solutions⁶. Co-founder Ian Lennie says he believes business will adopt PayTo faster than previous NPP applications.

“For PayTo, the discussion has changed dramatically in terms of our experience engaging with clients,” he says. “It really is a game changer. It’s about the transformative nature of how this will flow through to back-office reconciliation, bulk processing, bill payments and customer experience uplift, all across the board at a business level as well as consumer level.”

Lennie expects to see a proliferation of bespoke fintech services and payment offerings based on account-to-account which will meet different demands between businesses and their customers. These services will iterate and consolidate in a similar way to the buy now, pay later space, he says.

“I love the fintech bank partnerships which are going to be coming to support this massive change and getting corporate Australia ready to go for it,” Lennie says.

Smart partnering

For NAB Hive’s Sam Mendelsohn, running the bank’s in-house fintech that is transforming the merchant payments capability highlights some recent changes across the banking industry.

Mendelsohn says the big shift has been a move to smarter tech partnering to bring seamless experiences for customers, with NAB orchestrating partnerships to build end-to-end solutions.

As well as the investment in Banked, he says NAB has also invested in DataMesh⁷ as part of a broad array of partnerships with other fintech companies including Cybersource, Fiserv, Pollinate, Quest Payment Systems and Reimagined, all aimed at providing demand access as innovation occurs.

“Building the right baseline technology layer that you can aggregate from is critical,” Mendelsohn says.

“It’s about how you build that flexible layer you can iterate from and bring fast innovation in from partnerships. To identify and back the people that are building this great, super smart technology – that’s the kind of bold new world that we are living in.”

Mendelsohn says payments innovation can provide the opportunity to get the edge in competitive industries by focusing on what customers are demanding of their experience – both internally and externally.

An example is a pilot project which decouples payments software and hardware to create the next generation of terminal. It’s done through an app which can be placed into any Android-run device to offer faster more flexible software solutions for customers.

“We’re building out our own suite of software where we can release daily if we want,” he says. “If a customer has a piece of feedback, we can deploy those features you used to have to wait six months for.”

Seamless solutions

With the ongoing decentralisation and fragmentation in payments, Mendelsohn says effective orchestration of the many ways to pay will also be vital for the merchant space.

“When you’re selling to your customers, giving them 50 ways of paying may sound like great choice but ultimately it’s about trying to identify what is going to resonate and give them a great experience and then orchestrating that.”

To get there, Mendelsohn says while the payments conversation often starts at a finance unit, success today means bring together a range of experts in the business together.

Adams agrees and says while traditionally the conversation in payments has been with CFOs and Treasurers, today there needs to be the CTO and tech team as well as experts from customer experience and product in the room.

“This is where you’re going to get the most value out of the future payments environment, so I would really strongly encourage that,” he says.

In summing up the discussions, panel moderator and NAB Transaction Banking Executive Johan Westh noted the excitement in the next phase of innovation in real-time payments and the upcoming launch of PayTo, and also the complexities to navigate on the way to business readiness.

Westh stresses the exceptional enablement of the new payment infrastructure to make banking simpler and transformational for business operations and customer experience. He says NAB and its customers need to work together to help find solutions that embrace the opportunities in the months and years ahead.

“Let’s make sure we stay and work together on this for how we plan this out over the next couple of years,” he says. “Please reach out to your specialist, if you haven’t already, and sit down and discuss what this actually means to you and your business together.”

¹ The New Payments Platform | RBA
² NAB payments data.
³ Ibid
⁴ Banking and Payment Services | Reserve Bank of Australia Annual Report – October 2022 | RBA
⁵ National Australia Bank makes its PayTo play, invests in Banked (afr.com)
⁶ Direct Debit and NPP Enterprise-Ready Payment Solutions (zepto.com.au)
⁷ NAB Ventures leads $30 million investment round in payments software company DataMesh – NAB News