How the NPP can help you win the war for customer relationships

New Payments Platform
How the NPP can help you win
the war for customer relationships
Authors:
Nathan Churchward and Natalie Yan-Chatonsky
17 September 2015

Contents
02 How the NPP can help you win the war for
customer relationships
04 Four trends impacting your payments business
08 Although challenges abound, the NPP
offers solutions
09 Unlocking stronger customer relationships
with the NPP
10 Better experiences mean stronger relationships
13 How to start getting ready for the NPP
15 The way forward
16 About Cuscal
16 About the New Payments Platform
17 About the co-authors

2 / How the NPP can help you win the war for customer relationships
Rapid innovation has made it an exciting time
in the Australian banking industry. At the
centre of that excitement is the forthcoming
New Payments Platform (NPP), an important
initiative that promises to not only position
Australia as a global leader in real-time
payments, but also help the banking industry
address some of its greatest challenges. In
the process, it will bring numerous benefits to
financial institutions and other organisations,
as well as to the customers they serve.
How the NPP can help
you win the war for
customer relationships
Moving money around in Australia has historically been
a slow process fraught with pain points. Yet with the
arrival of the NPP in 2017, many of the inefficiencies that
encumber the current system will be removed. In their
wake, Australians will be able to transfer funds quickly
and easily, 24 hours a day, 7 days a week, for the very
first time — even to accounts at other banks.
24/7, Real-time.

For consumers, the NPP is important not only because
it will make sending and receiving payments simple
and easy, but also because they’ll be able to enjoy the
convenience of doing so from their mobile phones,
tablets, or computers in just a matter of seconds.
For the banking industry, the NPP represents an
opportunity to create the back-office efficiencies
necessary to deliver these and other services. Even
more importantly, it will be essential ammunition in
the war for retaining and acquiring new customers.
In the pages that follow, we outline four trends that
are currently creating challenges in the banking
industry and are therefore central to many companies’
strategies. We also describe what the NPP is and how
it will help address those challenges, demonstrating
the return on investment (ROI) it will generate along
the way.
In addition, we explain why the NPP will become
critically important to customer relationships and why,
to reap all of its benefits, financial institutions need
to start getting ready for it right away. The paper
concludes with some practical advice about what
financial institutions need to do now to start preparing
for the NPP.

Four trends impacting
your payments business
Source: “Strategic choices for banks in the digital age”, McKinsey & Company, January 2015.
These include:
1. The digital transformation of banking
Every industry either already has or soon will be disrupted by the rise of digital
technologies. Banking is no exception. In fact, digitisation is fundamentally
changing the industry by automating previously manual processes, creating
opportunities for new products and services, and enhancing customer experiences.
For the banking industry, this digital transformation has the potential to either be
the next big opportunity or one of its greatest threats. For those organisations
that embrace digital innovation and get it right, the upside potential could be
significant. Increased revenue from new offers, business models, and products,
combined with the greater efficiencies and lower operational costs that digital
technologies enable, have the potential to increase profits by 40 percent or more
(See Figure 1).
Figure 1: A comparison of the potential threats and opportunities of digitisation
Potential threats
Innovative new offers by competitors
Increased revenues from innovative new
offers and business models
Margin compression
Increased revenues from new
products, distinctive digital sales,
and using data to cross-sell
Increased
operational risk
Lower operational costs from
automation/digitalization and
transaction migration
Potential opportunities
+5
+10
+45-35
-6
-16
-13
+30
Up to 35% of net profit eroded for digital laggards. Over 40% of net profit upside for winners.
A number of exciting innovations are currently
reshaping banking in Australia. When it comes
to payments, four main trends are converging
that promise deep and lasting change to the
financial services industry.
TOTAL

No.
Debit Cards
Credit cards
Cheques
BPAY
120 120
90 90
60 60
30 30
0 0
1997 2001 2005 2009 2013
Figure 2: Growth of non-cash transactions
Source: ‘The changing way we pay: trends in consumer payments’, The Reserve Bank of Australia, June 2014.
Yet the thing about digital is that it cuts both ways. While early adopters stand to
reap the benefits, laggards who don’t take action could face a variety of threats,
including increased operational risk, compressed margins, and lost sales. In fact,
as Figure 1 illustrates, failure to embrace today’s digital transformation could
result in net profit erosion of up to 35 percent.
2. The growing volume of non-cash transactions
While they say cash is king, over the past decade its use, like that of cheques, has
been steadily declining. In their place non-cash transactions via debit and credit
cards have surged (see Figure 2). This shift is largely due to the growing ease and
convenience of non-cash transactions. For example, the number of card terminals
at merchants increased by 35 percent between 2007 and 2013, helping to pave
the way for their widespread usage today.

Meanwhile innovations in card acceptance technology such as the adoption of
contactless card payments, combined with advances in mobile banking and tap
and go technology, have made non-cash transactions fast, easy, and convenient.
What the data clearly shows is that when those conditions exist, Australians are
happy to use non-cash transactions, particularly if they’re tied back to their own
funds rather than a line of credit. This has been particularly true for millennials
and small businesses, though it’s rapidly spreading across a much greater portion
of Australian society.
3. Fintech companies are increasingly disrupting the industry
Financial technology (fintech) companies are not only proliferating, they’re also
playing a key role in reshaping the financial services industry. For proof of their
growing presence, just look at the explosion of global fintech financing activity
in recent years. Consider, for example, that in October 2014 alone, more than
$1 billion flowed into fintech start-ups around the world, more capital than was
deployed for the same purpose in all 12 months of 2008 combined.1
Of course it’s not just that we’re in the middle of a fintech boom, both globally
and in Australia. Far more important is the way that these start-ups are disrupting
financial services by building niche products that are better suited to meet the
needs of specific segments than anything most incumbent providers are capable
of producing.
4. Major banks are adopting customer-centric approaches
to product design
All of that fintech activity is putting the rest of the industry under pressure. As
a result, many organisations are adopting more customer-centric approaches to
product design, focusing on the needs of their target markets and how to create
value for them. That in turn has meant embracing agile development practices,
which all four of the major Australian banks have implemented. By doing so, they
have been able to test and learn from their target markets, respond quickly to
changes in requirements, and reduce the risk of launching products that don’t
meet the needs of their target market.
Simply put, the big banks are starting to behave more like start-ups. They’re
using agile methodologies to get to market faster and to ensure that the products
they’re crafting will appeal to the specific needs of their target audience. The
result is that better customer experiences are getting out to market faster, putting
even greater pressure on the rest of the industry to keep up.
1
“50 Best Fintech Innovators”, AWI, KPMG Australia,
and the Financial Services Council, December 2014.

Analysing what
the competition is
doing can go a long
way toward helping
shape future plans.
What could this mean for you?
All four of these trends are signs of the dramatic
shift that the banking system has undergone in
recent years, and bring considerable challenges
with them for the industry. For example, consumers’
expectations have changed. Today they not only
want, but also expect, their interactions with financial
services providers to be fast and easy. And they want
to be able to make payments in new ways, typically
through mobile phone apps. As if that weren’t
enough, competition is heating up, with fintechs and
big banks bringing new innovations to market.
For today’s financial institutions, all of this means that
adaptation is crucial. They not only need to figure
out how to give their customers what they want, but
also how to quickly upgrade their back offices so that
they’re capable of dealing with today’s faster, digital
world. Any prolonged hesitation in adapting their
businesses to digital is the equivalent of allowing their
competitors to eat their lunch.

Although challenges abound,
the NPP offers solutions
For many financial institutions the secret to long-term
success will be dealing with a combination of customer
experience and back-office challenges so that they’re
able to not only take advantage of new opportunities,
but also keep pace with the major banks.
The NPP offers an obvious solution. Borne out of a
2012 mandate by the Reserve Bank of Australia, its
focus is on making instantaneous payments the new
normal in Australia as they already are in a growing
number of countries. As a new, real-time payment
stream for low-value payments, the NPP will provide
Australian consumers and businesses with a fast,
reliable, and data-rich mechanism for making day-to-
day payments.
By making the payment experience more efficient,
the NPP will eliminate many of the back-office
challenges currently hindering organisations, freeing
them up to focus their efforts on improving customer
experiences. And, by facilitating the convergence of
commerce and payments, the NPP will help make
those experiences better. The result will be Uber-
like scenarios where payments are instantaneous,
hassle free, and an increasingly integrated part of
consumers’ lifestyles. Some of the NPP’s key features
will include:
•• A centralised addressing service that allows
customers to use their mobile number or email
address as an alias for their bank account details.
•• The Initial Convenience Service (ICS), the
industry’s first overlay service that will have its own
consumer brand and industry marketing campaign,
giving participating financial institutions a common
solution across their banking channels. For
consumers, businesses, and governments, the ICS
not only fulfils the promise of immediate payments,
it also eliminates the burden of education by
creating a common experience.
•• Transaction by transaction settlement, which
means that the NPP will be a true real-time
payment system capable of offering nearly
instantaneous payment processing and settlement.
Importantly, unlike with other faster payment
schemes across the world, all of these features will
be available from day one. That, plus the fact that
Australians are early adopters with a track record
of readily embracing new payment mechanisms,
is a clear sign that unlike faster payment schemes
elsewhere, Australian uptake will accelerate quickly.
The question is: will
your business be ready?

Unlocking stronger customer
relationships with the NPP
Since it’s an industry-wide solution, choosing to ignore the
NPP simply isn’t an option for financial institutions. In fact,
any industry participants that fail to embrace it will quickly
be viewed as behind the times, not focused on their
customers, and ultimately irrelevant in the marketplace.
It’s a potentially fatal blow that’s completely avoidable.
The biggest potential
benefit the NPP can
offer is to create
greater customer
intimacy, helping
you win the war for
customer relationships.
While there are costs associated with getting ready
for and implementing the NPP, they’re minimal
when compared to the benefits it will bring,
which include:
Greater economic activity
When it’s fast and efficient to do so, individual
consumers, small businesses, and governments
will increasingly make their payments digitally
from their transaction account.
More opportunities
The NPP will allow financial institutions to create
more opportunities to attract customers and their
money. In the process, they’ll also increase their
ability to cross-sell other products and services.
Plus, by bringing additional utility to transactional
accounts, the NPP will help ensure those accounts
become more important to customers’ day-to-
day lives. They’ll go from being something looked
at periodically (typically when they get paid), to
people’s primary financial hub that they consult
on a daily basis, or even more frequently.
A level playing field
It used to be that big banks and well-funded fintech
start-ups had cornered the market on innovative
new products and services. With the NPP, however,
any financial institution — big or small — will be
able to create innovative payment experiences for
its customers.

Better experiences mean
stronger relationships
In fact, the NPP will lay the groundwork
for making payments very personal and
central to the way that people interact
with financial institutions and similar
organisations. The number of transactions
that customers make will increase, so the
volume of interactions they have with their
financial institution will also increase.
Customer experience is of paramount importance in any
marketplace with very similar products and services; this
is particularly true in financial services. This means that the
ability to offer superior payment experiences will become
essential to meeting expectations and driving retention.
Not only does it promise to increase customer satisfaction,
it can also make customer engagement spike dramatically.

That’s because the NPP will increase the variety
of ways in which consumers can make payments,
offering digital payment solutions (on top of the
already available cash and cards). For the consumer,
the advantage is ease and convenience. For the
industry, however, transforming businesses to manage
end-to-end digital payments opens up a whole raft of
new opportunities to engage with and cross-sell
to customers.
One example of this, for consumers, is where a buyer
is looking to transfer a large sum of money to a
seller (for example buying a car or a house). Current
payment solutions don’t service this scenario very
well, making it an anxious time for both buyer and
seller. For situations like these the NPP can enable
financial institutions to offer their customers greater
control and safety, either with straight transactional
services which confirm the transfer of money or by
developing overlay services which can add extra
value by drawing in extra, relevant information from
government bodies, or review websites for example.
For business customers, there will be opportunities
to optimise their inflows and outflows of money,
which could create efficiencies around resource-
intensive administrative tasks like the reconciliation
of payments, invoices and expenses to customers,
suppliers and employees.

Another ground-breaking aspect of the NPP is
its centralised real-time addressing service. This
will reduce the risk of mistaken payments, as the
recipient’s alias will always be validated in real-time,
even for scheduled payments. It’s also expected to
reduce the overall volume of manual tasks that need
to be performed by staff from financial institutions
when customers make mistaken payments, leaving
them more time for higher value tasks.
It is important to highlight that because of restrictions
with the NPP addressing service, customers can only
use one mobile number (or email address) as an alias
per bank account. Given that today most Australians’
transaction accounts are at the centre of their main
banking relationship2
(See Figure 3) and customers
belong to an average of four financial institutions3
,
in the future, people are likely to consolidate the
number of main financial institutions that they engage
with. And, with the NPP, they will primarily use the
transaction account that’s tied to their mobile number
as their Main Financial Institution.
2
RFi Group’s Report ‘Main bank share of key products in Australia’
3
http://www.roymorgan.com.au/findings/5542-big-four-banks-improve-
main-financial-institution-consideration-february-2014-201404160451
This means that if financial institutions fail to get their
customers to link their mobile number to their bank
account they stand to miss out on the fees and cross-
selling opportunities that the NPP will produce. For
that reason, it’s essential that industry participants
promote NPP use early on to help ensure that as
many of their customers use them as their MFI for
their transaction account.
Main bank share of key products in Australia
Percentage of banking customers that hold product
Percentage of banking customers that hold product with main bank
Percentage of
products held
with main bank
84%
79%
42%
59%
41%
95%
79%
75%
74%
70%
69%
39%
35%
76%
22%
32%
30%
22%
20%
14%
9%
7%
8%
Life insurance
6%
5%
2%
8%
3%
18%
4%
Car loan
SMSF
Personal loan
Credit card
Term deposit
Home loan
Online savings
account
Investment
property loan
Transaction
account
Source: RFi Group’s 2015 Report
Figure 3: Transaction accounts are the lead product for Main Financial Institutions

How to start getting
ready for the NPP
First and foremost, having the right mindset is crucial.
That means recognising the NPP as a commercial and
customer relationship opportunity, rather than viewing
it as a compliance exercise. It also means having an
external focus. Financial institutions need to devote
some time to developing a broader view of the market
and how their peers and competitors are approaching
the NPP. Given the current disruption from digital
disruptors and fintech and the move to customer
centricity, forming an independent market view is
particularly important.
Looking at how competitors are going to apply
the NPP to their business and customer base, for
example, will help uncover important insights into
how to focus your own energy and resources. Will
those competitors put all of their payments through
the NPP or only certain ones? Will they provide their
customers with access to the NPP as a matter of
course, or position it as a premium add-on service to
make money? Analysing what the competition is doing
can go a long way toward helping shape future plans.
And, it can be particularly useful when it comes to
deciding which additional products and services to add
after adopting the NPP.
Along with monitoring competitors’ media channels
closely, financial institutions can gather insights by
attending payments industry events and fintech
meetups. The key is to be proactive and to learn as
much as possible to help shape your own planning
and implementation.
It’s not enough to simply recognise that the NPP is a
critically important development for Australia’s payments
industry, it’s essential for financial institutions to start
getting ready for it now.
13 /

In addition, financial institutions shouldn’t be afraid to experiment
with developing new NPP products and services. In fact, all players
should take a page from CommBank’s book and its development
of the Kaching app. Wanting to build out and test its capabilities
around person-to-person payments, CommBank launched Kaching
as a stand-alone payments app in 2011. Once it was proven and
understood, the capability was migrated into its main mobile
banking app. This is a great example of best practice and one that
can and should be mirrored by financial institutions looking to
adopt the NPP.
Of course getting ready for the NPP will take more than
just buy-in or a shift in mindset. There are a number
of more tangible steps that need to be taken as well.
These include:
•• Talking to core and channel banking system providers
and budgeting for implementation activity in 2016
and 2017
•• Updating core banking systems so that they can
integrate with NPP transactions
•• Updating mobile and internet banking channels
to accommodate the additional information that
comes with NPP transactions and new transaction
types like payment requests and payments with a
linked document
•• Thinking about change management within internal
operations teams and training them alongside sales
and customer service teams
•• Talking to legal to update terms and conditions
•• Planning a robust marketing launch that leverages
industry activity
•• Educating customers and getting them ready to use
the NPP for real-time payments
This will all take time. With the launch of the NPP only two years away, it’s
essential to start now. Unlike in other countries where uptake of the NPP was
initially slow, in Australia we expect it will be rapid because of the advanced
features the NPP will have from Day 1 and Australians’ enthusiasm for digital
innovations which add real value. Financial institutions that are slow to adapt
are in danger of being left far behind. With the NPP, the best course of action is
to get ahead of the curve and take full advantage of the benefits it will bring.

The way forward
The case for the NPP is compelling. It promises
to revolutionise payments in Australia for
financial institutions and organisations, as well
as for the customers they serve, bringing an
array of benefits in the process. Yet to enjoy
these benefits, financial institutions need to
take immediate action to ensure that they’re
ready for the NPP from day one.
That’s because the NPP is truly a double-edged sword. While it’s a fantastic
opportunity to drive engagement, it also has the potential to be equally damaging
to financial institutions that are slow to adapt. As we’ve seen, getting customers
to link their mobile number to their transaction account is likely to be crucial.
Those who succeed in doing so will be the winners, while those who don’t stand to
be further marginalised.
The NPP offers a valuable new tool to help win the war for customer relationships.
But to be able to use it effectively, financial institutions need to have a plan and
strategy in place. With the clock ticking, the time to start is now.
For more information about Cuscal’s NPP solution, contact your account manager
or visit www.cuscal.com.au/npp.
Don’t get
left behind

About Cuscal
Cuscal is one of Australia’s leading providers of
end-to-end payments solutions, working with more
than 100 clients across a diverse range of industries
including major names like Australia Post, Bendigo
Bank, CUA, ING Direct and Velocity.
An authorised deposit-taking institution (ADI)
supervised by the Australian Prudential Regulation
Authority (APRA), we also own and operate the
rediATM network and provide switching and acquiring
services for roughly 1/3 of Australia’s ATMs.
For more than 40 years our business has been built
on a strong foundation of partnering, but never
competing with clients. We are the ‘brand behind
the brand’, providing dependable, yet innovative
payments solutions and cost-effective transactional
banking services.
In recent years we have helped our clients to
operate at the forefront of banking innovation. We
were the first to issue a Visa Debit card in Australia
and our redi2PAY app was the first HCE-based
mobile payment solution in the Asia Pacific region.
We are one of the architects of the New Payments
Platform (NPP), working alongside Australia’s major
financial institutions to design this pivotal banking
infrastructure which will revolutionise Australia’s
payments industry.
The New Payments Platform (NPP) is new
infrastructure for Australia’s low-value payments.
It will provide Australian businesses and consumers
with a fast, versatile, data-rich payments system for
making their everyday payments.
Twelve leading authorised deposit-taking institutions
(ADIs) committed funding for the build and operation
of the NPP. These institutions became the founding
members of NPP Australia Limited – a new industry
mutual company set up by APCA to steer the NPP
Program going forward.
The 12 founding members of NPP Australia are:
•• Australia and New Zealand Banking
Group Limited
•• Australian Settlements Limited
•• Bendigo and Adelaide Bank Limited
•• Citigroup Pty Ltd
•• Commonwealth Bank of Australia
•• Cuscal Limited
•• Indue Ltd
•• ING Bank (Australia) Limited
•• Macquarie Bank Limited
•• National Australia Bank Limited
•• Reserve Bank of Australia
•• Westpac Banking Corporation
About the New
Payments Platform

Nathan Churchward
Nathan Churchward joined Cuscal in April 2014
as Senior Manager, Payments and is responsible
for Cuscal’s payment product management and
operations as well as championing product innovation
and management training.
Nathan brings over 25 years’ experience working
in financial services and telecommunications in
product design and management roles. His portfolio
at Cuscal oversees the management of payment
services including Direct Entry, BPAY and chequing
products and responsibility for operational delivery.
His team is actively working on the development of
innovative new payment solutions for Australia’s New
Payments Platform (NPP). Throughout his career
Nathan has been passionate about successfully
identifying consumer behaviour patterns and
harnessing eCommerce platforms to maximise
operational efficiency.
Natalie is an experienced product innovation leader,
creative entrepreneur and trained designer who
connects the dots between ideas, businesses and
people. She uses a customer-centred design approach
to uncover market opportunities in the payments
industry and commercialise ideas through a product
development process.
With the development of the New Payments Platform
(NPP), and as part of Cuscal’s payments products
team, Natalie is currently identifying opportunities
where Cuscal can make payments simpler and more
meaningful for financial institutions, businesses and
their customers.
About the co-authors
Natalie Yan-Chatonsky

For more information about Cuscal’s NPP solution
contact your account manager or visit
www.cuscal.com.au/npp

How the NPP can help you win the war for customer relationships

More Related Content

What's hot (19)

Similar to How the NPP can help you win the war for customer relationships (20)

How the NPP can help you win the war for customer relationships