In December of 2023, Governor Michelle Bullock of the Reserve Bank of Australia announced the RBA's support for industry and AusPayNet's decision to phase out the Australian BECS payment system. This move is in favour of more modern, digital, and real-time payment systems, specifically Australia's New Payments Platform (NPP) which facilitates real-time payments.
BECS is the system that started in the late 1980s that runs the bulk of Australia’s funds movement each day (ahem – we should clarify, each business day). If you have ever had a direct debit automatically come out of your bank account or sent money to someone from your bank account, then you have used BECS. If you are one of the 99.5% of Australians that have a bank account, I am going to say that it’s extremely likely that you have used BECS.
In her speech delivered at the AusPayNet Summit, Governor Bullock stated that “... it is appropriate that the industry has set a target end date for the BECS framework” and I agree, however, I am sure it was not missed that Governor Bullock opened the subject saying that -
“BECS has been a low-cost and reliable workhorse of the Australian payments system for decades, processing salary and welfare payments, recurring payments to merchants and other account-to-account transfers. In 2022/23, BECS processed around three-quarters of non-cash payments by value and is still heavily relied on by many businesses and government agencies...” 1
In other words, BECS is proven, reliable and relied on, low-cost and ubiquitous. Why in the world then, would we be preparing to migrate away from such a system? (insert murmurs of ‘if it isn’t broken...’).
Afterall, the US is not considering shuttering their equivalent of BECS (ACH) now that their (dual) real-time rails (FedNow and RTP) are in play, nor did the UK wind down BACS after their Faster Payments Service was launched, so, what is Australia thinking? Why do we need to put the workhorse of the Australian payment landscape out to pasture?
There are some compelling reasons!
But - to quote Governor Bullock again “...there are some significant challenges that will need to be overcome for the industry to successfully transition all BECS payments to more modern payment systems.” 1
Absolutely! Challenges abound here. I am not addressing the myriad challenges today though– they deserve their own space. This is all about the why – why is saying ‘Bye bye BECS’ a clever idea for Australia and Australians?
One of the most appealing aspects of a '24/7' payment system, in my opinion, is the ability to send or receive money in real-time. The convenience of transacting anytime, whether it's the weekend, a public holiday, or after 5pm, is pretty darn good.
Imagine not having to wait for your payroll to clear even though it’s a public holiday, to flick money across to your friend for dinner on Saturday night and have it arrive before the bill gets to the table, to pay rent on the day it is due, even though it is Christmas Day, or send your teenage son money to get on the bus because he may or may not have purchased fast food with his remaining dollars at 5:45pm.
You might not need to just imagine many of these things, a great many of us already have these sorts of experiences in real life because our banks have lovingly made NPP payments available to us already. The way that BECS is designed and all the cogs that need to move to ‘settle’ an instruction to send or receive funds just does not gel with the concept of 24/7 availability.
Like hard and soft tacos, why can’t we have both? Read on to ‘Compelling Reason 4’
2. Security and protection– even from ourselves.
Do you know how many people have your BSB and Account number? I don’t, and I am not alone.
We give these details out so freely- we write them down on paper forms, add them to direct debit agreements, tell them to people over the phone, add them to our kids’ class chat groups to collect money for teachers’ gifts and message them to friends.
This is generally benign. What can your mate do with your BSB and Account number after all?... But have you thought about this, anyone can use your bank account details on a direct debit agreement– by mistake or intent, and you could end up paying for someone else’s gardening services or socks or gym classes (not to mention the identity fraud risks).
Yes, you can certainly raise an alarm and flag suspicious activity with your bank. But what if it goes unnoticed? With the multitude of subscriptions and automated payments we have today, it's easy to overlook extra payments being withdrawn. In fact, according to the RBA's Consumer Payment Survey in 20232, 30% of all payments occurred automatically, increasing the likelihood of missing any additional transactions.
Working with rigidity of batch files and limited functions of BECS, these issues are extremely difficult to resolve. BECS is not designed for real-time decision-making or rich data, nor is it designed for overlays and addressing services. It’s hard to retrofit protections for today’s world to a system designed when we were still watching movies on Betamax.
But wait, what about the confirmation of payee services that have recently been created?
Undeniably, these things are a good step in the right direction – they are designed primarily to try and help people figure out if the person they are intending to send money to is real or a swindley-scammer. In other words – these services were developed for direct credits.
Paypa Plane is unique with our Smart Payment Agreement flow in that we can utilise these tools to decide whether an account is likely to belong to the person signing up for a direct debit agreement or not - before any money is moved, but, again, this is an addition to the clunky BECS system, it's a band-aid not a cure.
Digital payment systems enable things like PayID which is an addressing service designed to prevent you from needing to ever share your BSB and Account details, either to make payments or receive funds. Addressing services like this only require that you share your email or phone number, which is much easier and more secure.
3. Straight Up Speed
In a close relationship with Compelling Reason 1. ‘Availability’ sending and receiving money within seconds is great. This seems like a no-brainer but, it’s not always recognised as such a high-five moment. In the US, where the real-time payment systems are just warming up, I hear a lot of grumbles of, ‘show is the use cases’ for real-time payments. There are lots of reasons for this real-time payment skepticism in the US, there are more money movement options available, you can have ACH or Same-Day ACH, peer-to-peer payment apps make people think that real-time money movement has occurred, and you can bounce money between Mastercard and Visa cards here (not possible in Australia). Regardless, here’s some cool things that real-time money movement can do:
Immediate welfare or relief payments, auction payments as soon as the hammer has fallen, payroll (finish your shift on Friday night, get paid immediately), precise payments to optimise interest rates for loans (or the other way – for interest earning), overnight and weekend businesses can actually do overnight or weekend business, secure ‘payment on delivery’ for goods and services. There are loads more.
An economy that hums in real-time is a good thing – particularly if that country has goals to enable and leverage a ‘Digital Economy’ (Australia’s Government flagged this as a priority in as part of the ‘Digital Economy Strategy 2030’ released in 2022).
One of the arguments I hear in the US is ‘everyone wants to get paid quickly, but no one wants to make the payment quickly’...That’s probably true, but the real-time funds transfer is just the pipe – the infrastructure. The products and services that bring this infrastructure to life can also bring in all the tools and management capabilities to determine how and when to trigger a payment, that means that if you are a business or a consumer that wishes to make a payment on the exact due date and not a second sooner, real-time payments are even better! You can send the payment the ‘day of’ and don’t have to worry about processing time slowing things down, as opposed to sending it the day or two days before. In other words, real-time payments can bring better cash management and financial controls.
4. Focus of investment for the future
Decommissioning a payment system that does not align with the future goals of industry or the economy means that resources no longer need to be diverted away to support it. It means that the full weight of focus, innovation, resources, and capital can be directed towards systems and structures that help us move forward. Banks have a great many plates spinning at any given time. Changing regulations, increased competition, cost-of-capital, interest rates, open data, scam protections, technology changes, cyber and info security are just the tip of the very complex iceberg. Removing one legacy system goes a long way to drive focus to creating better products and services on new ISO2022 real-time infrastructure.
I focus on banks here because they are the gatekeeper to the payment system in Australia and in the US. Banks have the biggest influence on what type of payments are distributed through the ecosystem – they are the ultimate transaction wholesalers when it comes to account-to-account payments. However, the same ‘focus of investment’ effect applies to every other payment-system user – from service providers to businesses.
Australia has a lot of room to grow in the payment’s game. According to the World Bank 3, in Jan 2023, the Fintech sector in the UK was worth $9.1bn, that is 0.29% of their GDP, the US sector was worth $25.1bn at 0.11% of their GDP and Australia $0.6bn at 0.04% of GDP. Looking at the percentage of GDP alone, Australia clearly has room for growth. Focused, industry wide investment in a payment system fit for the future is a strong building block for that growth.
Obviously, there will be costs and complexities as the transition starts to happen, but the benefits of investing now for long-term gains will be worth it.
Reason number 4 is really the kicker, if we want to take full advantage of the speed, security, and availability, we can’t half-do it. For this to really, properly work and to unlock the greatest advantages, we can’t carry excess baggage with us, no matter how reliable it has been. Eventually, it will weigh us down, and we must prepare to move on without it.
Decommissioning a payment system will be an incredibly challenging thing (I know I have not addressed the challenges here). Yes, it will be very expensive, but it would be harder and more costly over time would be to do nothing. To continue supporting a system that grows less relevant by the year as we all inexorably start shifting gears, as consumers and businesses increasingly start expecting funds ‘now’, would be to dilute our focus on making the Australian payment system and infrastructure the best in the world.
It is a compounding harder and more expensive issue when maintaining legacy systems takes on a life of its own. When the band-aids and patches are bigger than the underlying function, they are held together... That is when we would really have a problem. Not only would every innovation or new efficiency have to tether back to the ‘old thing’, but resources would need to be diverted to maintain and support it.
This move, to start planning for BECS to be decommissioned, will allow us to collectively prevent our payment system and banking systems from getting stuck in aspic by keeping a system built for life in the 1980s hanging in there. It will allow us to look together towards a future where funds move in real time and there is not a spiral perm in sight.