As banks and institutions connected to the NPP prepare to accept incoming international payments, realtime cross-border transactions are becoming a reality.
The change will make international payments easier for those connected, and offers benefits like increased transparency, richer data, and reduced costs. However, as with any new product or service, the change brings with it new compliance obligations.
The realtime revolution
Being able to deliver realtime international payments is a competitive advantage in today’s globalised economy and, in Australia, it will soon be a requirement for NPP participants. The NPP’s infrastructure is designed to facilitate instant fund transfers, providing a stark contrast to the traditional multi-day processing times.
For over five decades, Australia's economy has been underpinned by the BECS batch processing system, a reliable workhorse allowing for payment clearances within a 1-3 day window. This system provided a predictable workflow for operational and payment teams, affording them a buffer to manage associated obligations and risks.
However, the shift towards realtime payments presents new challenges for institutions: realtime fraud detection, immediate risk assessment, and around-the-clock operational demands. Legacy systems and processes designed for a 9-5 workday within a 1-3 day clearance framework are rapidly becoming obsolete in the new landscape. The change is not just a technological upgrade but a fundamental transformation in how financial transactions are managed and monitored.
Christian Westerlind Wigstrom, Cofounder and CEO of Monoova, observes that "the distinction between ‘at home’ and ‘abroad’ is increasingly muddled. Consumers and companies are expecting the speed, transparency and security associated with domestic transactions also when a payment crosses an international border. The opportunity inherent in catering to these consumer expectations comes with a serious challenge to conventional best practices.”
New compliance obligations
Realtime international payments open up opportunities for Australia to continually establish itself as a global leader in financial services. In the short term it poses operational, technological, and compliance challenges as we both look to the future and ensure obligations are met in the present.
Part of the challenge lies in the ability to identify and mitigate risks instantly. In a realtime payments environment, a delay in detecting a risk can mean the irreversible transfer of funds, posing a significant threat to AML/CTF processes. This is a marked departure from domestic transactions, where parties are typically easier to validate.
As a part of the shift to realtime international payments, financial institutions could have new AML/CTF obligations to meet, including IFTI reporting to AUSTRAC. This requirement, which starts from 30 April 2024, places a considerable responsibility on the participants to have stringent compliance processes in place.
In this environment, automation becomes not just advantageous, but necessary. The instant nature of the NPP means that delays in identifying and addressing issues can lead to significant gaps in compliance and risk management. Financial institutions look to sophisticated regtech and automation tools to help meet the needs of this evolving opportunity.
Simplify reporting obligations
Manual processes and ambiguity in the rules makes it difficult to accurately report IFTIs for many financial institutions. And for banks and fintechs that may not have processed IFTIs before, meeting their AUSTRAC obligations can be more challenging.
The right technology can simplify the complexities of regulatory reporting, by automating manual processes, increasing accuracy and efficiency. It can help mitigate risk, maintain regulatory compliance, and streamline business processes.
For those institutions that navigate this transition effectively, the opportunities are vast. They stand to not only meet the evolving expectations of their customers but also to position themselves as leaders in a rapidly changing global payments landscape.