Should you be scared or embrace them?”
Tetiana: Welcome. This is the Curium webinar series. We’ve been running these for over a year now on different topics. I’ll do quick introductions, so I’ll start with myself. My name is Tetiana George. I’m the CEO and co-founder of Curium. We are primarily a technology platform specialising in all questions, claims, and compliance in insurance. But recently found ourselves big advocates of general technology innovation and solving problems that relate primarily to compliance and claims. Today, with us, we’ve got the representatives of the ANZ Bank, Darren and Michael, and I will pass the mic to them to introduce themselves. Darren?
Darren: Hi. My name is Darren Ellison. I’ve been with ANZ for just over 13 years now, have travelled around Australia’s banks for quite a bit, and spent some time in mainland Europe working with large multinationals. I’ve found a niche working with insurance customers, and part of that is helping insurance customers adapt to the existing and new ways of managing liquidity and cash.
Tetiana: Thank you, Darren. Michael?
Michael: Hi, Michael Dukovic. I look after payment development within the product business within institutional. I’ve been at the bank a little bit longer than Darren, 23 years, so almost up to the quarter century, spending time across retail, commercial, institutional, and also spent some time up in Hong Kong across various disciplines, being channel product strategy and business management.
Tetiana: Thank you so much. We wanted this webinar to demystify some of the potentially technical aspects from the point of view of technology and implementation and getting on board with instant payments. There are a few or a couple of myths in the insurance industry, specifically, the insurance industry not being famous for embracing knowledge among the first ones. But we believe today if you walk out with a good understanding of what instant payments are and what they mean for the insurance industry, but also the broader economy in Australia, I think it would be a good outcome.
Tetiana: So, on that note, let’s start with you, Michael. Just tell us, in very simple terms, what is the New Payments Platform, and what is an instant payment?
Michael: Sure. Thank you, Tetiana. So, NPP is probably what your audience has heard a lot about in an Australian context, and what that stands for is the New Payments Platform. It is a central infrastructure that facilitates near-to-real-time payments and has been in Australia for about five and a half years. It was launched back in February 2018. So, I’m not sure if it’s so new anymore. I’ll let you and your audience decide. However, the genesis of the NPP goes back to about 2013 in Australia when the Reserve Bank released its strategic view to the banker. And what they sought from that review was a data-rich 24 x seven. So, they always have a highly available and near-to-real-time payment system as part of their core recommendations. And the rest, as they say, really okay, I might move into a couple of other things, if that’s all right, Tetiana, and maybe talk about what the NPP actually does and what RTP means.
Michael: So, as I mentioned, the NPP facilitates near-to-real-time payments here in Australia on a 24 x seven basis. So whether it is during the day, whether it’s 03:00 a.m., in the morning, at weekends, or on public holidays, the NPP works, sending and receiving payments in near to real-time. The two key brands that define the NPP experience from a customer perspective, which perhaps some of your audience have heard of, are Osko, which relates to the payment experience and Pay ID, which relates to the ability to send payments to aliases such as mobile numbers, email addresses, or ABNs.
Michael: Now, in the case of Osko and Pay ID, the near-to-real-time experience is defined as, and this is across the entire ecosystem here in Australia to which the subscribers of these services sign up, is that 99% of payments are processed within 60 seconds end to end, within 15 seconds end to end. And what I mean by end to end is from the point that I press a button, or you press a button, or any of your audience press a button to send a payment, that that payment is received in the beneficiary’s account and has funds ready to be used within that 15 to 32nd time frame.
Michael: So, interestingly, in the consumer world of these Osko near-to-real-time payments, everyone here has probably been sending them for many years now but may not have known that they’ve been sending them or is aware that they were sending them and they were being received in close to real-time. And the reason for that is that most banks and financial institutions have defaulted their pay.
Tetiana: I might pause here and bring it back to the context of where we are. So, in insurance, there’s a lot of money going in and out of insurers into bank accounts of suppliers, people who are insured and so on. Typically, it does not apply to the entire industry end to end. But I like to take use case by use case. One of the things for example, insurers pay billions of dollars a year in claims, right? This is the biggest payout on their PNL. And so, when we look deeper into how it is done and what the customer gets, we do find that the processing of the payment out from the claim system into the payment system, into the bank, and then back reconciling from that’s been paid, not bounced back, received or paid, and then reconciled back to the claim. This process can take about two to ten days, depending on the size of the operation and how often those payarounds are done.
Tetiana: So what does that mean for the person at the other end, the one receiving? And I’d like to move to Darren and give us a background from today where people need to wait from two to potentially sometimes ten days to get paid to the new world where we’re in already. What’s the impact of this?
Darren: Yeah, the impact of this for insurers is the ability to understand who they’re paying and get an immediate response when it gets executed. So what we’re trying to attempt to do with several insurers is work with APIs to deliver that payment directly to the claimant, whether it’s a refund or an emergency payment. And if there is a bounce back for some particular reason, they’ve got that information immediately and can address that on the phone. And that could be anything from an incorrect payment to an account. It could be the pay ID may have been entered incorrectly and may have an incorrect character within the email field. Still, ultimately, it’s about getting the funds to the beneficiary. And if it does bounce back, they’re aware of that immediately and can rectify the situation without having to wait for banks for two to three days, if not more, to receive their reply files as to whether it’s bounced back.
Darren: So, in the context of it, you can remediate immediately and give us a broader context. Socioeconomically, what does that mean in the new world? Well, in the new world, let’s say you’ve got, let’s talk about internal displacement monitoring and some of the information and figures that have come out. So, between 2008 and 2015 in Australia, 55,000 people were displaced in Australia from their accommodation. Between 2016 and 2022, that figure jumped to 188,000 people displaced, 81,000 from wildfires, 68,000 from floods, and 39,000 from storms. In many cases, they’ve been able to pack information, pack as much of their personal belongings into a car, run out the door, maybe with their mobile phone in their pocket, and try to escape where they are.
Darren: Now, if we’re talking about more statistics, 48.4% of Australians live day to day, sorry, live paycheck week to week. So a lot of Australians, while insurance is almost mandatory these days to cover a lot of their assets, there’s a lot of the Australian population who require the support of banks, the support of government, and the support of insurance companies to be able to go and find accommodation. And to be able to do that, they need money to go and pay for that accommodation while they’re out and while assessors are taking time to get in and assess the damage that has happened from those events. And those events may still be ongoing over that period. And we know from the Lismore floods, for instance, it took several days, if not weeks, to get in and assess all the potential damage, know, fully understand and comprehend the claim size from those sorts of events.
Tetiana: Yes, and I can also attest that many suppliers to insurers are family-run or small businesses. And I would say they would fall into the bucket of living cheques, paycheck to paycheck, in terms of being paid by the large suppliers.
Tetiana: So, if it takes a week or ten days to receive the money for the job that you did two months ago, it can significantly strain the survival of that small business. The consequences are big and significant. And I guess the message we are trying to convey to you today is that while instant payments seem like a thing of the future, they’re actually a thing of the present. They’re already here. As both Michael and Darren were saying, we probably have been using them for a while without knowing it. In other spheres of life for insurers and the insurance industry, it does come with a bit of a change in thinking about how to implement and how to think about them. Darren did mention briefly that there is an API that’s required, and Michael said, “Yes, it’s a 24/7 platform,” so there will be a certain amount of change that insurers need to carry out both operationally and also in terms of systems to actually make that work. If you keep the old process and use the new platform, you’ll still have delays that are caused internally.
Tetiana: So, I guess maybe we’ll try to have a very brief technical understanding of what is required to make this work. And I will open the question either to Michael or Darren.
Michael: From a product perspective, what we’ve tried to do, Tetiana and I’ll allow Darren to put the insurance lens over the top of it, but from a product point of view, what we’ve tried to do is create different pathways for our customers to connect to and utilise the NPP infrastructure from a corporate perspective.
Tetiana: So you mentioned 24 x seven and APIs. That’s absolutely a methodology that we have available in terms of making that connectivity via a system that works quite well. APIs work very well in the 24x seven near-real-time nature. So that’s one pathway that we have available to our corporates. But we’ve also made available other pathways.
Michael: For example, and I don’t want to get too technical, SFTP or file-based connectivity, which is a different way of connecting with the bank to manage their NPP payments, which is probably less known in this use case today, which is more instant, as Darren has said, and that reconciliation element. But it is a different way to connect, and it recognises that different customers are at different parts of their journey in terms of their technical infrastructure and want to use NPP in different ways. Therefore, we make available a different way to connect with those different clients.
Tetiana: I would also say the number of fintechs dealing with payments has exploded in recent years. So there’s quite a bit of technological advancement happening in this area. It’s just that a lot of insurers are facing the problem of legacy systems, how they connect and work with them, and what can be done. It’s definitely something to remember and consider, but I did want to shine the light a little more on practicality and some more use cases that we’re seeing, and maybe the benefits of actually going through this somewhat difficult technology exercise.
Tetiana: So one of the benefits, so we did speak about the instant payment to a claimant, for example, or to a repairer, and the fact that when the claims handler presses that final button, yes, send pay, the cash actually moves the bank. And if the APIs and everything is working properly, then essentially that person can see in what Michael says near real-time, I’d say probably, what, 15 minutes until all the tech works, that they could actually be able to see if the payment went through. So, whilst this is nice to have and has a big impact on the customer, what does that mean from the operating model? And in my calculations that I’ve been doing on various companies, it can actually save up to 50% of finance and reconciliation efforts. So that’s quite significant in terms of productivity gain at the back.
Risks and security
Tetiana: Now, there are also a lot of concerns as we evolve in the digital world about security and cyber. And I would like to ask both Darren and Michael, given that we are relying on technology pretty heavily here, what do you reckon are the risks, and do you think they’re greater than what we face now and cyber think about security fraud, all of these, what can go wrong about the process?
Darren: From an insurance angle, I’d say that we have witnessed an uptick in fraud lately. There are a lot more scams out there. There are a lot more compromises of accounts. There are situations where direct debit is being compromised, for instance, and direct debit is one of the largest collection methods for insurers to be able to collect their premiums. And we are witnessing people accessing account details, and it’s occurring across multiple insurers. And it could just be that you’re issuing a corporate cheque, and that person or someone’s intercepted that cheque and been able to get your BSB and account number and then gone off to someone else, whether it could be an investment fintech, for instance, and enter those details and drawn out of your account. Now, you may not be aware of that reconciling next day. So, that fraud has already been perpetrated, and you weren’t even aware of it.
Darren: So this is where real-time payments and, particularly, PayTo, which is the request-to-pay mechanism, will actually create a little bit more value on your collection of premiums. So, what it will do is the ability to send a mandate to a customer’s bank account, and that mandate would need to be approved by the actual customer within their secure banking environment. They will see it, they’ll authorise it, and then they will allow you to draw premiums, whether it’s cycled based on fortnightly, monthly, quarterly, yearly, or it could be variable amounts, flexible amounts, and it’s structured across various industries, so it might be that variable amount you might be looking at topping up. So PayTo will give validation that the recipient is actually the one signing up for the policy, and you’ll be able to draw those funds out of that account based on what’s been agreed. It’ll eliminate the need for things like direct debit request forms and direct debit service agreements. You’ll get validation of the person you’re trying to debit. It won’t completely eliminate the potential for fraud. There are instances out there where we’ve seen someone acting as a mule, someone who has a legitimate account but has been forced to manage this sort of fraud or perpetrate this sort of fraud. But once you start to delve into the individual aspects of it, it can be quite personal for many of these people. PayTo doesn’t eliminate it all, but it does help mitigate a lot of it.
Michael: I’ll just say I agree, Darren. I’d add to that, probably two points we think about NPP and how it differs from the perspective of existing payment infrastructure, and then we put a cyber and fraud lens over the top of that. Where we see most of the fraud is actually scams and social engineering. It’s not necessarily a flaw in the infrastructure itself, the banking app, or the piece that sits behind that. It’s often good old social engineering that tends to be the major cause of fraud in a PayTo context. When you think about that, Darren’s points around authorisation happening behind or within an Internet banking security environment really reduce the opportunity for that type of engineering. Coupled with that is two-factor authentication as well. So not only is that user expecting something in their internet banking channel because they’ve agreed to a service, so they see that come into their internet banking channel and have the opportunity to authorise it. Many of the banks are taking the view that beyond that, we’ll actually add another step of security, which is two-factor authentication around that approval. So, for those reasons, as Darren said, we will certainly expect to see a reduced incidence of fraud compared to direct debits today, where those controls just don’t exist.
Tetiana: I would also add that depending on the size of the players, and I see it primarily with smaller companies, there’s another risk that is very easy to mitigate. When people who work in finance take files from one system and move them to another system, they often forget that this move often happens in an unsecured, unprotected environment, sometimes hastily. These files contain private BSB account information and names of people, and they can get lost, like when sent via email. This then becomes prone to social engineering intervention or stored on, let’s say, a desktop while transferring quickly somewhere here and there, and then the laptop gets lost. So, there are a lot of these unfortunate cracks in the current process, and they do not contribute to the overall security of the end-to-end payment. I am a big proponent of not making people part of the problem but supporting them to solve it. So, in that instance, if you’re removing manual interventions, you are actually improving the process and strengthening the security around it.
Pay ID and PayTo
Tetiana: Now, Darren mentioned, and we did exchange these things: PayID, PayTo. Maybe just a brief understanding from Michael, so we did mention that, but just give us the definitions. What is a Pay ID, and what is PayTo, and what do they do, and how are they different?
Michael: Sure. So, a PayID is an alias or a different way for a payment to be sent compared to a BSB and account today. If we rewind before MPP, there was only a BSB and account that someone could send a payment to. Fast forward to the NPP context, and we can now send payments to a mobile phone number, an email address, or an ABN still linked to a BSB and account in the background. But we’re actually addressing payments in a different way. That’s what a Pay D is. PayTo is the next evolution of the new payments platform, which I mentioned kicked off in 2018, and it introduces, as Darren said earlier a request-to-pay type service. What I mean by that is up until today, only push payments were possible over the NPP framework. So I could push a payment outwards to you, Tetiana, Darren, or anyone on this call. PayTo introduces the ability for someone to go and collect funds, to pull funds, and that is done based on an authority being sought first for that money to be pulled. Suppose I’m a corporate insurance company potentially utilising the PayTo service. In that case, I can send a request to one of my customers for an insurance premium, for example, over twelve monthly instalments that will be received in the internet banking channel for which that particular customer banks. That customer then reviews that request for twelve months, X amount of dollars each month. If they’re happy with that, they then accept that within Internet banking, and that then provides the authority to the insurance company to go and collect those funds in line with that agreement twelve times during the course of the year for the X amount of dollars each month. So, that is a very simplistic summary of the PayTo service, which was launched this year.
Tetiana: I would like to add another interesting use case, which is the collection of excesses. Many insurers rely on third parties to collect excesses on their policies. As mentioned earlier, some of these third parties can be small family-run shops. If you ever saw an insurance policy, you’d be overwhelmed by the creativity in calculating excesses based on circumstances and determining the applicable amount. This already creates a lot of confusion within the insurance operation and claims processing, making it challenging to decide which excess to request.
Tetiana: However, when it comes to the third party, let’s assume a car repair shop, that’s when the catastrophe is bound to happen because many of them make mistakes. Unfortunately, in the current world, there are significant delays between the time you request that excess, the time somebody collects it, the time you confirm they’ve collected it, receive the cash, reconcile the cash, and compare it to what you determined the excess should be on the policy versus the actual cash received in the bank. Often, weeks have passed. In my previous career, as well as in our current work, we’ve witnessed a lot of leakage. This concept applies not only to motor repair shops but to a wide range of third-party suppliers.
Tetiana: With PayTo, you’re essentially reclaiming the ability, right, and ease to request that excess directly and reconcile it directly. You won’t need to run any exception reporting, reconciliations, or manual checks. Effectively, you’ll be targeting one of the largest sources of leakage in the claims context.
Tetiana: Now, I would like to ask Darren, we’re advocating that it’s great for you to adopt this. What happens if you don’t adopt it?
Darren: Well, there’s no “if you don’t adopt it, you’re going to fall behind” kind of scenario. You can still process payments; the direct entry network is still available, albeit a bit slower. However, when you consider the context of claims and receiving premiums, for instance, let’s say you have a claim and you want to make that payment promptly, or you have a refund due to a total loss, or you need to make an emergency payment without real-time capabilities. In such cases, you won’t provide the same level of customer experience as your competitors.
Darren: When you think about the customer’s experience, especially during a stressful event, getting the money to them as quickly as possible sends a strong message that your organisation is there to support and help them. While the goal is to minimise claims, a positive customer experience reduces churn, which is crucial in the insurance industry.
Darren: When it comes to premium payments, we need to consider that one in three Australians has missed payments to financial institutions, mortgages, insurance, or card payments in the last year. Additionally, 15% of Australians change banks or bank accounts annually, and 10% change credit card providers. These are significant numbers.
Darren: So, if you’re trying to debit a premium from someone using PayTo, for instance, and they’ve changed banks during the year, you won’t need to engage with every single organisation involved in the direct debit process to update their information. PayTo can seamlessly migrate that service when customers change banks, ensuring you can continue premium payments without disruptions or chasing overdue payments. This creates a competitive advantage in terms of customer experience, which is crucial in an industry with inevitable customer churn. If you’re issuing a refund promptly, it leaves a positive impression, even if the customer has moved to another insurer.
Darren: They’ll remember the experience of receiving an immediate refund. So, when they shop for insurance again, they may decide to return to your company based on their positive past experience. There are several factors to consider. In terms of cost, when you’re looking at PayTo potentially replacing credit card payments, it has the potential to replace fee-based payments as an option. Customers receive an instruction to pay without the need to enter lengthy biller codes or reference numbers. This streamlines the payment process and can result in cost savings. We estimate that insurers spend around $400 million annually to collect premiums via credit cards. So, while we understand that rewards points are important, Pay Two offers another cost-effective option that consumers may prefer. Companies like Coles and Woolworths are already exploring PayTo as a payment method to potentially incentivise customers through discounts on policies or loyalty programs.
Darren: It’s something worth considering, although discounts in insurance can be complex and must be approached carefully. Some major Australian players have already embraced this new payment method.
Tetiana: Could you tell us a bit about their experiences and outcomes with PayTo without naming names?
Darren: I wouldn’t describe it as a new world. Real-time payments have been around for a long time. For example, Japan implemented instant payments in 1973. However, we’re now seeing countries like the United States and Europe, India, and Asia, all moving toward instant payments. This includes the development of 24/7, always-on payment models. Considering what this means, it’s not just about domestic instant payments; it also opens the door to cross-border instant payments. As these networks develop and connect, we’ll see faster cross-border transactions, potentially reducing waiting times from days to hours.
Darren: Another development worth mentioning is e-invoicing. The ATO has mandated e-invoicing for all contracts under a million dollars with the federal government. Small businesses dealing with the federal government must accept e-invoices. E-invoicing is also accepted by access points like MYOB or Xero. The ATO is looking at integrating PayTo with e-invoicing, creating an ecosystem where invoices are sent directly to PayTo, and a PayTo agreement is established simultaneously. This isn’t just about individuals; it extends to B2B transactions, streamlining and improving efficiency.
Tetiana: To sum it up, we’re witnessing the emergence of a new ecosystem that will involve more and more businesses, both within and outside of Australia. While it may take some time to consolidate, we have experience with the technical aspects. In one instance, it only took 14 data fields of an API to facilitate instant payments. The complexity depends on the size and requirements of the organisation. Moving to PayTo is a worthwhile consideration.
Questions from the audience
Tetiana: Now, I’d like to open the floor for questions from the audience. Please use the Q&A chat to ask your questions.
Tetiana: We have a question: “50% saved effort is significant. Where do the savings in productivity and finance reconciliation come from?” Angela asked this question.
Tetiana: I can address that. When people reconcile, it’s relatively straightforward when everything goes smoothly. You can download one file with a thousand claims and corresponding payments and then upload the same file for reconciliation. However, the manual effort increases significantly when bounce-backs occur in about 1% to 5% of payments due to various reasons. Companies have different processes for handling these exceptions, which can involve escalations, investigations, and security measures. For a small number of payments, dealing with exceptions consumes a disproportionate amount of time and effort. PayTo reduces this effort because it minimises exceptions. Additionally, reconciling recoveries onto claims can be complex, especially if recovery agents simply deposit cash without specifying where it should be allocated. While some companies use bots and RPA solutions for this task, many still perform manual mapping, which can be time-consuming and costly.
Tetiana: Next, there’s a question about the capability to pull information from the API and validate the pay associated with the Pay ID before submitting the payment.
Michael: That capability isn’t available, but there is demand for it. It’s something under consideration for future development.
Darren: I would like to add that when you log into your personal banking account, you may already see PayTo tabs, even though no organisations currently issue PayTo mandates. So, while it’s available for individuals, it’s still being developed for corporate use, including the ability to pull payments.
Tetiana: Is PayTo applicable to foreign currency payments?
Michael: No, it’s limited to domestic AUD payments.
Tetiana: How does PayTo impact existing credit card companies and payment platforms in terms of profitability and market share?
Michael: This is a good question for credit card companies to consider. As we mentioned, PayTo, being an account-to-account platform, may offer economic advantages for billers who provide it as a payment option to consumers. We anticipate that there may be a migration from traditional credit card payments to PayTo over time. Companies that issue credit cards or operate payment platforms may need to adapt to this changing landscape.
Darren: We may start seeing the PayTo button on the payment gateway or payment page options provided by companies like Adgen, Worldline, Stripe, and others. This gives consumers more choices, and they may choose PayTo for its cost-effectiveness.
Tetiana: There is a question about PayTo availability in New Zealand, especially for organisations with operations in both Australia and New Zealand.
Michael: While my expertise is primarily in Australia, I understand that New Zealand has been exploring instant payments. They may already have such capabilities or are in the process of developing them.
Tetiana: Any idea on the time frame as to when payTo will be available in business accounts?
Michael: Regarding the availability of PayTo on business accounts, most of the industry is currently linked up for consumers to receive PayTo requests for payment. In terms of business accounts, that’s a work in progress. ANZ is close to launching the availability of PayTo for business accounts, and the industry is expected to follow suit over the next twelve to eighteen months.
Thank you all for joining this webinar. We value your time, and we try to adhere to the schedule. If you have further questions for our participants, please contact them directly. They will be happy to address your inquiries. We look forward to seeing you at our next webinar. Thank you, Darren. Thank you, Michael. And thank you to everyone who attended today.