As the Australian regulator presses financial institutions to update and modernise their payments infrastructure, Payments Consulting Network’s Research Director, Catherine Batch, talks to well-known payments expert and Cuscal’s lead on PayTo, Nathan Churchward, to get a better understanding about the developments with the New Payments Platform (NPP).
PayTo is the latest service to be rolled out and has been developed by NPP Australia in collaboration with financial institutions, fintechs and payment service providers. The PayTo service is designed to make it easier to pre-authorise payments from bank accounts with the payments occurring in real-time and PayTo agreements being managed by the payer using their internet or mobile banking app. Nathan Churchward describes the functionality to amend, pause, resume, or cancel the payment authority as “a shared domain with reciprocal responsibility.”
The service went live on 30 June 2022 with several payment service providers and financial institutions as early adopters, but the full industry-wide rollout is still progressing. The Reserve Bank Governor Philip Lowe recently wrote to the major bank CEOs seeking assurance that they will be ready to launch PayTo no later than April 2023.
While PayTo is set to modernise the way bank accounts are used for payments there are key points to be aware of. It is time to lean in and learn.
CB: With PayTo, you can pay directly from your bank account, with control at your fingertips – is there any risk to a business for accepting payments using PayTo?
NC: PayTo reduces the risk to a business overall. Currently, any payments reject on the first direct debit payment because of mis-entered payment details.
PayTo also reduces the risk of a payment instruction that hasn’t been authorised. When a payment agreement initiates, the customer can see the payment agreement in their online banking app which allows them to click to authorise or raise any concerns.
Currently businesses hold the risk that disputes can happen years into the future from the date of the initial transaction if a customer says they have not authorised the payment.
CB: There is a question that is often asked, if a person does cancel the agreement what happens?
NC: If the PayTo agreement is paused or cancelled the business that has established it will be notified and they will be able to take proactive steps to make alternative payment arrangements with the customer.
It’s important to note that a paused PayTo payment agreement does not cancel the commercial arrangement that is in place between the customer and business, as these two aspects are treated separately. There is no more or less risk to a business as the payer still owes the business the money as a contract is still a contract.
CB: What are the overall benefits of PayTo?
NC: If no funds are available then a business will know immediately, therefore it provides certainty of outcome.
It is the immediate response when the payment is initiated which makes the big difference. As for chargebacks, they are removed from the transaction experience. That is, within the payments process, even before it reaches a claim, if the payment is not in line with terms of the PayTo agreement, then it will not be accepted. It’s the responsibility of the Initiating Party to validate the payment initiation against the agreement – not the payee’s bank.
Say for example, if I had maximum limit of a $200 payment and a $2,000 payment was attempted the payment service provider would reject the transaction based on the rules.
This presents a better customer experience with improved transaction efficiency given the greater visibility to the customer’s bank. With the validation comes greater certainty and overall confidence in a transaction. The fact it will reject upfront ensure issues are dealt with immediately.
The obligation is on the payment service provider and not the merchant as a means of protection which provides greater certainty for both parties.
In most PayTo use cases there is a set transaction amount but with the customer’s agreement a slightly higher transaction limit can be set to provide a buffer to enable additional payments when needed which can be useful for traditional direct debit environments like gyms and childcare centres where additional services can be added and easily paid for using the same payment facility.
CB: We know that PayTo is an integrated digital payment solution. Can you tell us about what we can expect from a payment innovation perspective?
NC: There are three broad categories of innovation –
Firstly, there is ‘loopback’ – innovation that is visible to the user through notification and user controls.
Then, ‘customer experience’ – essentially there is trust engendered based on the innovation that allows the customer to feel confident and in control.
And finally, ‘product based’ – is essentially what is embedded in commerce which means the experience mimics the way the business wants to interact with the customer.
CB: Covid helped us understand how to use a QR code, how do you expect QR codes will transform the customer experience?
NC: We have some of our payment initiators who will use the QR code mechanism – and that sits in front of PayTo. That is, the PayTo payment will be initiated by QR.
A QR code can initiate a range of actions. Payment is just the start. Things like – populating location, loyalty program access, connecting to a marketplace, sending out offers, and initiating multi-party processes. Overall, PayTo allows safe digital integration that aligns with the Consumer Data Right (CDR) – which will grow over time, as CDR evolves.
CB: We can expect gradual adoption of PayTo – do you have any intel on what will have the greatest uptake?
NC: We are seeing an interest from ecommerce – there are lots of reasons to accept another type of payment. It also offers a lower cost method of payment.
PayTo can be more beneficial as the monetary value of the transaction increases. Account-to-account funding can reduce the overall cost of the transaction. And it can be a much lower cost of transaction especially when the merchant service fee or MSF is avoided.
Most organisations have a preference that their customers ‘stay on platform’. This is particularly important for cloud-based business services whereby the experience is fully integrated.
Author: Catherine Batch, Research Director, Australia, Payments Consulting Network.
For more on Cuscal’s PayTo proposition visit Cuscal | PayTo for business | Pathways to access PayTo .
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