Banks beginning seven-day payments processing 'nothing to crow about'

Thursday, 25 May 2023

A lot of shopping is done at the weekend. From Friday, many payments will be processed within 30 minutes instead of the next business day.

The banking industry is celebrating the launch of seven-day a week processing of bank payments, but financial tech entrepreneur Ben Lynch says the milestone is “nothing to crow about in 2023”.

From today, banks will process payments every day of the week, including weekends and bank holidays, with ANZ, ASB, Bank of China, BNZ, Citi, HSBC, ICBC, Kiwibank, TSB and Westpac all participating.

For consumers and businesses, it will mean being able to pay people, or receive payments, and know they will usually have the money within 30 minutes of the transaction.

“It’s great,” said Lynch. “Finally. But, we shouldn’t be celebrating. It’s a step in the right direction.”

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Former commerce minister Kris Faafoi defended himself against criticism for not regulating open banking in May 2019.

The project has been completed by Payments NZ, which styles itself as “a governance organisation at the heart of the payments system”, but is a company co-owned by ANZ, ASB, BNZ, Citi, HSBC, Kiwibank, TSB and Westpac.

Payments NZ chief executive Steve Wiggins said the change was the next step in modernising the payments system, allowing for both consumers and businesses to pay and be paid any day of the year, including weekends and public holidays.

“We’re excited to see the next evolution of payments in Aotearoa, which is the end of the traditional ‘five business days’ model for electronic bank payments,” says Wiggins.

Around $1.5 trillion a year goes across the country’s payments system.

Wiggins said the move was only part of building the payments system of the future.

Lynch said the clear next step was for banks to release their stranglehold on the payments system by introducing “open banking”.

Ben Lynch, founder of Dolla, a new domestic phone application that allows people to make direct payments to small businesses, like cafes, at a fraction of the cost of the Visa/Mastercard payments system.

Open banking is the term for the tech-driven revolution in financial services overseas involving tech companies building money management and payment apps for consumers, which cut the cost of banking.

But for open banking apps to work safely here, New Zealand tech companies need safe and secure interfaces with banks (known as APIs) to access their customers' banking data, and banks have been dragging their heels in providing them.

“The biggest thing that can come out of seven-day payments is open banking,” Lynch said.

Lynch launched open banking start-up Jude in 2017 but slow progress on open banking stymied its growth.

“I was young and naive,” he said.

“Minister Faafoi sent that letter in 2019 saying what’s happening,” Lynch said.

Then-Commerce and Consumer Affairs Minister Kris Faafoi upbraided banks for their open banking go-slow. At the time, he said the United Kingdom had had secure open banking API standards for two years.

“The banks here make positive noises about open banking, but it's a big threat to their profits,” Faafoi said.

It wasn’t Faafoi’s first voicing of concerns about how slow banks were going, having spoken of his disappointment with progress in 2017.

In November last year, David Clark, who was Commerce and Consumer Affairs Minister at the time, announced the Government was working up legislation to introduce open banking to New Zealand, a move he said would increase bank competition.

The shift to seven-day processing could have some unintended negative outcomes. People who fell victim to scams at weekends would have less time to reconsider, and get banks to block the payments.

Payments NZ chief executive Steve Wiggins.

However, Lynch said such fears were not a reason for holding back.

Instead, the shift to seven-day processing should be accompanied by banks beefing up fraud protection, including following overseas banks in setting up systems to match account names and numbers.

“What is needed next is verification you are paying to the right person,” Lynch said.

“You can put Mickey Mouse, send it to any bank account, and it will go,” Lynch said.

That was already being done by some banks overseas, including in the United Kingdom and Australia.

ASB’s parent bank Commonwealth Bank of Australia has launched a service called Namechecker, which is designed to help its customers avoid “false billing scams” and mistaken payments.

“An account name that doesn’t match an account can be a sign of a false billing scam,” CBA says on its website.

”This occurs when a scammer hacks into a business’ email account and redirects existing payment requests, or initiates new falsified payment emails,” it says.

“On the other hand, a mistaken payment occurs when you enter incorrect account details by making a typo, or you’ve been given the wrong information.”

The very largest payments would not be moved on to the seven-day processing.

“High value transactions, such as house settlements, will continue to operate under the existing ‘five business days’ model and will not be impacted by this change,” Wiggins said.