The Government has confirmed that the Reserve Bank of New Zealand (the RBNZ) will lead a major programme to modernise New Zealand’s payments infrastructure and introduce real-time payments in New Zealand. This initiative will involve collaboration between key government agencies and industry, aiming to deliver a payments system that meets the needs of modern New Zealand society and the digital economy.
The Government’s media release can be read here and the RBNZ’s announcement here.
Who needs to read it? Why?
Banks, payment service providers, fintechs, and businesses involved in payment processing should take note. The proposed changes, if implemented, will affect how payments are made and received across New Zealand. Legal and compliance teams should also monitor developments closely, as new legislative and regulatory frameworks will accompany these changes.
What does it cover?
The RBNZ will develop a proposal to modernise domestic retail payments infrastructure. To drive forward this programme of work, the RBNZ intends to establish:
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A Governance Forum made up of senior representatives from the RBNZ, The Treasury, MBIE, DIA, the Commerce Commission, the FMA, and the Public Services Commission. This group will set strategic direction and endorse advice to Government.
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A Policy Working Group, chaired by the Reserve Bank, comprised of SMEs from across the public sector, to provide legislative, regulatory, and governance advice.
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A Technical Working Group, chaired by the Reserve Bank, and comprised of industry participants (in particular Payments NZ) to design a roadmap for implementation, including technical requirements and rules.
Payments NZ consultation on next generation payments
This announcement follows Payments NZ’s consultation paper on its proposal for next generation payments (NGP) which closed earlier this year. The NGP paper similarly proposed a body of work focused on modernising New Zealand’s payments eco-system. Notably, NGP de-prioritised the introduction of real-time payments, with a stronger focus on strengthening payments security, improving customer experience, and encouraging the adoption of emerging technologies. Accordingly, it is an interesting development to now see the Government positioning real-time payments as a key priority.
Industry feedback on NGP was mixed, and whilst there was general support for the work being done and the benefits for society, the commercial benefits for those who would bear the cost (the banks) were not clear and accordingly the business case did not stack up.
The RBNZ’s letter to Payments NZ
The RBNZ has written to Payments NZ seeking its support with this programme of work. It is hoped that the Government’s work programme will further (and not duplicate) the work already done on NGP, with an additional focus on ensuring that the approach aligns with government priorities. The RBNZ has asked Payments NZ to take an active role in supporting working groups to develop a more comprehensive road map for payments modernisation. You can read the RBNZ’s letter to Payments NZ here.
Our view
A Government led approach to payments modernisation is seen overseas
Comparable jurisdictions with the most advanced payments systems have generally taken government-led approaches to payments modernisation, often involving central banks as key driving agencies.
By way of example, the Bank of England is actively involved in shaping the UK’s New Payments Architecture. Similarly, the Reserve Bank of Australia played a significant role in the creation of the New Payments Platform, a real-time payments system launched in 2018. In each instance, Government involvement focused on the appropriate balance of competing public policy objectives, including driving innovation and competition, while maintaining systemic stability.
Government leadership in payments modernisation ensures that our national strategy is driven by public policy rather than commercial objectives and reduces risk of fragmentation or monopolistic behavior that can arise from private-led initiatives. It also aligns technological developments with national policy goals, such as efficiency, financial inclusion and innovation, all of which are important as society becomes more reliant on payment systems and the digital economy.
Value of real-time payments
It is pleasing to see the Government recognise the broader policy benefits of payments modernisation, which will be an essential piece in the puzzle for driving more innovation and competition in the market.
Real-time payments are viewed internationally as essential building block for innovation in financial services, and can achieve benefits such as:
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enhancing productivity and improving liquidity for businesses and consumers through faster settlement cycles;
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mitigating delays in clearing and settlement, reducing operational costs for financial institutions and businesses;
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provides governments and regulators with better visibility into transaction flows for anti-money laundering and tax compliance purposes (by moving away from batching); and
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fosters fintech participation and innovation, creating a more competitive ecosystem.
This is, however, one area of many areas that will need to be the focus of the payments modernisation work plan. In particular, other jurisdictions that have implemented real time payments warn of the significant increase in fraud and scam risk. Modern payments infrastructure enables better management of fraud and scams, and we will need to balance innovation and speed with robust consumer protection measures.
What next?
The RBNZ is developing Terms of Reference and draft work plans, which will be shared with relevant parties in due course. We expect more information on governance structures, working group composition, and timelines for deliverables to be released shortly.
Payment system participants should consider participating in consultations and working groups to ensure feedback is understood and properly addressed. If you have questions about how these changes may affect your business or would like assistance engaging with the consultation process, please contact one of our experts.
This article was co-authored by Dave Hancock (Solicitor) from our Banking team.
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