Banks in Australia are considering shutting down their direct debit (ACH-like) network. Now that their real-time, New Payments Platform (NPP) is up and running, the idea of reducing support costs by retiring the direct debit network is gaining support. I don’t know of another payment rail in modern history in the U.S. at least, that has ever been shut down. The industry always seems to have a need for all payment types, regardless of how little incremental capability they hold in comparison to new rails. With the arrive of real-time payments, ACH, wire transfers and cash will certainly co-exist. Checks will see a further decline, but here too, unlikely to disappear in the foreseeable future.
Australia, with its national, mandated real-time network and a manageable number of financial institutions is thinking differently about supporting two separate payment rails. This excerpt from ITNews:
Australia’s big four banks and their nimble mid-tier competitors face the prospect of being stuck supporting billions of dollars in legacy infrastructure under a looming fork in the road between the existing direct debit system and new real-time payments under the New Payments Platform.
A paper from the Reserve Bank of Australia-supported platform released this month cautions that as consumers and merchants increasingly move towards real-time payments, institutions sticking with the direct debit system will likely have to support two sets of rails as consumers transition.
The hydra-headed transaction systems scenario is in large part caused by the shift from data skinny “pull” payments requests under veteran the direct debit system and data-rich “push” requests-for-payment (RfP) under NPP enabled services.
Many real-time payments markets are starting to move away from traditional debit style ‘pull’ payments, towards a ‘push’ payment type, or credit transfer. This allows the customer greater control over the timing, the amount and the regularity of payment. Direct debit is still being used in countries where it is a common payment method, e.g. the UK, however the trend is for real-time payment rails to support RfP as a viable alternative,” the NPP paper observes.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group