The world has had phone banking for almost 40 years; internet banking has been ubiquitous for 20 years. Computers don’t operate solely Monday to Friday, so why on earth is it only in the past couple of weeks that NZ’s payments system has geared up to work weekends?
Some things just bug you. Why people don't thank you when you hold the door open for them. Why people rush to buy overpriced houses because everyone else is buying them. Why anyone likes pineapple lumps. And one thing that bugged me for years was why money couldn’t go from one bank to another bank at the weekend. Buy a car on a Saturday, sell something on Trade Me – payment didn’t go through until Monday.
Payroll only worked Monday to Friday. Same for a scheduled payment for your electricity bill or settling up with the travel agent for your big trip.
It made no sense.
I could understand it when everything was cash and cheques – you needed people. But banks have been digital for decades. If my computer works at weekends, why didn’t theirs?
So when a couple of weeks ago banks announced with great fanfare they were switching to 365-day banking, it was a good excuse to find out the answer to my long-time question: "Why the hell has it taken so long?"
I went to the top – Steve Wiggins, the chief executive of Payments NZ, the industry body that manages the systems that move six trillion dollars around Aotearoa each year. And Wiggins introduced me to the expert: Jamie Wood, manager of clearing systems.
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I don’t know what I was expecting, but what blew me away is it’s taken 10 years, thousands of people and hundreds of millions of dollars to get to a situation where if I sell my Toyota Corolla at a car fair on a Saturday, that money will come to my bank account pretty much straight away. Where if I am a small business expecting payment from a big client, there’s no excuse for them to say: "Sorry, the money won’t be in your account until Monday."
What also blew me away was there were hundreds – hundreds – of bank staffers working over those first two weekends after the 365-day payments system was introduced to make sure everything worked okay. People from banks’ credit card teams, consumer payments, bill payments, bulk payments, even the Reserve Bank. Sitting in front of their computers for hours waiting for the sky to fall. Checking for sneaky errors building up behind the scenes that could potentially cause their payments system to crash.
Spoiler alert, it didn’t. But it felt a bit like Y2K – that moment on December 31, 1999 when the clocks ticked over to 2000 and businesses, banks and governments wondered if computer systems designed to deal with dates starting with a 19 and which suddenly had to deal with 2000s, would come crashing down.
They didn’t either, but it had been a lot of work to get there.
“I talked to one of the banks, not even one of the big ones, and they had close to 100 people on over that [365-day payments] weekend,” Wiggins says. “The bigger ones would have had more than that. Making sure transactions went through and ended up in the right place, that they didn’t get stalled or rejected.”
It sounds like it should be kinda simple. Surely you just untick the box that stopped payments on Friday night and started them back up on Monday.
Unfortunately not, Wood says. Five-day-a-week banking was hard-wired into almost every system in every bank in the country, a throw-back from the 1970s, when there were cash and cheques, and everything was done in your bank branch, by (human) bank tellers and human back office staff, and when cheques winged their way in vans from one place to another.
Even in the early days of computers being used in banking; even when computers could do the hard stuff on their own, no one imagined a world where banking would be needed seven days a week.
Banks had always operated Monday to Friday, so their computers did too. Strange but true.
“We often talk about herding cats; this is herding lions or a herd of elephants.” – Jamie Wood, Payments NZ
“So your credit card system wasn't able to transact or run core processes over a weekend; the bank’s reconciliation engines, the bank start-of-day and end-of-day processes didn’t run over a weekend. Lending systems, deposit systems, all these things literally shut down on Friday night and opened back up on Monday.”
So moving to 365-days-a-year payments wasn’t just a question of computers swapping files with each other, Wood says.
“Just about all systems within the banks, and the IT infrastructure behind it had to be reviewed, upgraded in some way, shape or form, and then connected back together.
“The scale of the project was enormous and it made for a lot of very nervous people.”
But that’s not the whole story either. The banks didn’t just need to implement a new system; before that they needed to decide on what type of system they wanted, and how it would work, and when it should come on board.
And it wasn’t just one bank. Payments NZ is made up of 10 banks, plus the Reserve Bank, and they all had to make those decisions, internally and externally. And when you have a project that needs significant investment from each bank and lots of technical staff to be involved, it’s not easy getting a decision.
“Everyone has different risk profiles, different strategic priorities, different views on what’s important and what’s not, and where the payment system fits.
“We often talk about herding cats; this is herding lions or a herd of elephants.
“ANZ might have the view that the payment system should head in this direction, and ASB in that direction and Westpac in that direction. It can take a lot of time to get that coordination so we can all get to the starting line together to then implement that change,” Wood says.
Meanwhile, because it’s about interconnected payments systems – ANZ paying BNZ, which is paying Kiwibank, which is paying Citibank or Kiwibank or Westpac etc – every bank has to be on track and finished before the system can be turned on, every bank has to be ready.
Wood says both he and Wiggins had full heads of hair when the seven-day payments project started.
And of course 365-day payments wasn’t the only major bit of work Payments NZ, banks, their strategy people and their IT departments were having to do. Over the 10 years of the project there were major changes being made locally and internationally, which all needed bank money and staff resources.
There was decentralisation of the whole system, moving from the clearinghouse model where all payments were settled in a single process overnight (but where failure of one bank could have a catastrophic impact on all banks), to where settlement happened hourly or even half-hourly – during the week.
There was increasing pressure from government, consumers and non-bank digital payment and financial companies for the system to move faster towards open banking and the use of so-called ‘application programming interfaces, or APIs’ to allow third-party providers access to consumer banking information such as transactions and payment history.
There was a big RBNZ-spearheaded policy review for branches of overseas banks. And there was a huge global cross-border payments data messaging system project involving tens of thousands of banks worldwide but which, because of our time zone, hit New Zealand first.
This latter project (ISO 20022) was a particular nightmare, Wiggins says. It was meant to go live in mid-2022, but was delayed until November, and then as that deadline approached, Payments NZ heard it was delayed again – until April 2023.
That put it on a potential collision course with the 365-day payments launch, which was scheduled for May.
“That was a bad day,” Wiggins says.
“Globally, all of these thousands of banks have all these resources focused on November, and now we’re going to stretch it out to April,” Wood says.
New Zealand banks expecting staff to be available to work on 365-day payments at the beginning of 2023 found they were still involved with ISO 20022.
“In the end we ended up pushing [365-day payments] out by six weeks,” Wood says. “We tried to find a reasonable timeframe where we reduced the risk [of launching too early], but didn’t extend the cost and the effort for everyone by too much.”
Did the earth move?
So, has everything changed?
A bit. Basically, while the banks now have the capability to process payments seven days a week, Wiggins says, it’s up to customers whether they choose to switch their own systems or not.
“Inland Revenue has said ‘No, we’ll stick with our existing processes’ – it’s challenging for them to make those changes. But then you’ve got the likes of Southern Cross which went out and said they are moving to seven days.
“If you’ve got a direct debit with Southern Cross that falls on the weekend, they will be taking the money – so get ready! But they will also pay out claims on the weekend.”
Reserve Bank numbers from the first weekend show 10 percent of payments that would previously have gone out on the Monday, instead went out on Saturday or Sunday, Wood says.
“I think that’s quite impressive – that’s without us doing anything. It’ll just keep building.”
Meanwhile some of the frustrations for customers in the five-day-a-week system have gone. People doing casual shifts on Saturday and Sunday – in a supermarket or hospitality venue, for example – can now get paid immediately. People selling their car or buying a secondhand bed on Trade Me can have the money transferred within an hour and go pick up their purchases.
There’s no more relying on sending a screenshot of your bank account showing the money’s gone out.
Wiggins also hopes the new system will encourage bigger companies to pay their bills on time.
“I think this will demystify a lot of things; provide more transparency. Companies that have tended to use [five-day payment] for their cash flow advantage will no longer have that in their toolkit.”
And as more innovation comes into the banking system, with third party payment and financial services companies getting access to customer accounts through open banking, 365-day payments will become increasingly important, Wood says.
“In theory, an SME could introduce cool innovation around budgeting, for example, and they could partner with a bank. But until now if you want that service to include making payments, you get stuck on a Saturday and Sunday because everything would stop. Now these types of innovations could continue through the weekend.
“This is the sort of developing capability we’re hoping we’ll start to see over the next 12-18 months.”
Too slow, wrong focus
Problem is, ask those same innovative payments companies what they think of the 365-day payments system, and they aren’t necessarily awestruck.
“I mean it’s nice, but to be honest I don’t think it makes a material difference,” says Ben Lynch, founder and CEO of Dolla, an app-based payment system allowing businesses like cafes, food trucks and farmers markets (and their customers) to buy and sell more cheaply than using credit cards.
“I mean businesses have known for a long time that if someone pays on a Friday night they aren’t going to see the money until Monday. I'm not sure it’s going to make a big difference to their cash flow situation.”
What Lynch and other small fintechs (financial technology businesses) want, he says, is not more inter-bank payments, but banks opening up to third party providers. He says it's that which will provide the real benefit to customers.
“There’s nothing in the work [Payments NZ and the banks] have done that has anything to do with external parties; nothing that will change the game for people wanting to build new products based on open banking.”
What Lynch wants to see in banking is the sort of competition New Zealanders see in the telecommunications and electricity markets – where it’s pretty easy to move your account from one provider to another to get a better deal. That’s seen a raft of smaller providers come into the market.
But that hasn’t happened in banking – Lynch says other countries have been more proactive in opening up banking. The UK took the first steps in 2017, pushed by the Competition and Markets Authority and government regulation. Six years on, customers are seeing real benefits from increased competition in the market. Australia is 18 months behind the UK, Lynch says.
But in New Zealand, even the first steps – getting the four largest banks to be operationally and technically ready to share payments and account data with third parties – won’t happen until mid-to-late 2024.
Jack Pinczewski is Asia-Pacific government relations manager for London-based international money transfer company Wise, based in Australia. He says 365-day payments are a step in the right direction, but real time payments would be better.
Even with the seven-day-a-week system, payments take 30-60 minutes to move from one account to another; real time means they go immediately.
“In the summer I went to buy a fan on [Australian marketplace] Gumtree. I showed up to buy the fan from this lovely couple, and I pulled out my phone, went into my bank account and transferred the money to their account. Thirty seconds later they received the money and I went on my way.
“Moving to real time payments can offer significant value to consumers and businesses – getting New Zealand businesses and workers paid sooner – and improving speeds for cross border currency transactions,” Pinczewski says.
Aotearoa has fallen behind, he says.
“It’s important for New Zealand to develop the payments space as a critical piece of microeconomic reform. There is a handbrake effect on economic growth which prevents opportunities for New Zealanders taking advantage of innovative fintech solutions to their financial needs.”
Steve Wiggins says Payments NZ looked at going direct to real time payments, but it was more complex and expensive than 365-day. Also, he says overseas countries that have introduced real time banking almost all offer it as a premium service, meaning customers have to pay extra for it – and most choose not to.
“Australia implemented a real time system four or five years ago, and currently it’s only transacting 6 percent of the transactions; the rest of it goes through in six windows a day, five days a week.
“What we’ve done is moved everything to seven days a week, so we are benefiting everyone, not just the 5 or 6 percent.”
But both open banking and real time are on the cards for the future, Wiggins says.
“It’s not either/or, they can happen concurrently. In terms of real time, we are working with the industry to determine what that next generation system will look like, and later this year we’ll be able to show a foundation design and develop an industry strategic investment case, and then how that’s going to be delivered from both a governance and technical point of view.
“And then we’ll have to say ‘Right, when should this occur and who’s going to build it, who’s going to govern it, who’s going to pay for it.”
Another 10-year project?
Definitely not, Wiggins says.
“We’ve been working with a provider who works globally in the real time space. I think at the end of this year we’ll have a pretty good idea in terms of what the design is going to look like.”
