Setting the scene for next generation capability
A cornerstone of Payments NZ’s payments modernisation efforts is transitioning Aotearoa New Zealand towards real-time payment capabilities, which will enable a broader range of functionality, including:
- Simple verification.
- Payee identifiers.
- Rich data.
- Improved fraud solutions.
- Greater payment choices.
- Cross-border payment corridors.
In Chapter 1 of the Industry Strategic Investment Case (ISIC) we set out the broad ecosystem benefits of payments modernisation and the reasons why an investment in real-time payments is imperative for the future of payments in Aotearoa.
Payments modernisation – a global perspective
Countries around the world are devoting considerable effort and investment towards modernising their critical payments infrastructure. Trends include:
- Governments and regulators recognising the role payment systems play in supporting world-class digital economies, serving vulnerable groups, and helping to create regional hubs to support trade and create new payments corridors.
- Technological innovations which have boosted adoption of digital financial services and given consumers an expectation of immediacy.
- Payment ecosystems expanding and becoming more diverse, with an increasing number of formal and informal participants.
- Countries updating their payments infrastructure in response to the continued rise of real-time payments, open banking, new messaging standards, digital identity and cloud technology.
- New forms of money, including stablecoins and central bank digital currencies (CBDC), and new contexts for exchanging value, such as the metaverse.
Payments modernisation in Aotearoa
While the existing interbank payments system in Aotearoa currently meets the needs of the majority of New Zealanders, it is not suitable as a foundational platform for the future. We need a platform which can:
- Deliver transfers of value in real time.
- Support enhanced functionality.
- Support a more open and diverse ecosystem.
- Support money neutral value transfers.
- Deliver improved cross-border payment experiences.
The risks of not taking action now
Of the 38 OECD countries, Aotearoa is the only country to have not implemented, or committed to implementing, real-time capability. The introduction of real-time capability is a pre-condition for further payments modernisation efforts and for delivery of our modernisation roadmap. That is clear from the statement from Te Pūtea Matua the Reserve Bank of New Zealand (RBNZ) on the need for real-time payments capability in Aotearoa.
If Aotearoa does not commit to a viable pathway to real-time capability, we risk:
- Failing to address the country’s productivity challenges, which will impact our competitiveness and ambitions to become a world-leading digital nation with a vibrant and inclusive digital economy.
- A growing gap between what customers and businesses want and what our traditional batch system can deliver.
- Ceding the payments landscape to others, such as technology companies with social media and messaging-based solutions.
- Being unable to fully harness the value of modern flexible payments messaging standards and the API assets already created by the API Centre.
- Failing to meet regulatory expectations that have been clearly articulated by the government? and the RBNZ.
- A growing gap between Aotearoa and our major trading partners that do have real-time capabilities, especially given the trend to connect retail payment systems to improve the speed, security, and efficiency of cross-border payments.
- A more fragmented payment market which puts interoperability goals at risk and sees traditional value chains break down.
Aotearoa is uniquely positioned to learn from the efforts of other jurisdictions that have already delivered payments modernisation initiatives. We have an opportunity to leverage insights from earlier generation deployments in those countries and do it better, delivering a world-leading next generation ecosystem anchored in real-time payment capabilities.
We explore this further in Chapter 2 of the ISIC, which presents an initial foundational ecosystem design.