18 November 2016
Over the past four years, Kiwis might have noticed transactions showing up in their bank account much earlier in the day. That’s thanks to a group of banks and payments industry organisations, including our team here at Payments NZ, working hard behind the scenes to collectively speed up payments processing.
The foundation of this faster payments processing was laid in 2012, when the industry invested in a new set of modern payments ‘rails’ called Settlement Before Interchange1. SBI as it is better known, was set up to process the bulk of New Zealand’s electronic payments such as bill payments, automatic payments, direct debits and direct credits. Today, 40 million transactions go through SBI each month totalling nearly $100 billion. That is about 15 times more value than all of New Zealand’s cards transactions in the same period. By the end of 2016, SBI will have processed over 1.1 trillion worth of transactions in a year. It’s no wonder then that SBI is an enabler of the New Zealand economy by moving money around the country as efficiently and safely as possible.
Lately, SBI’s core participants (banks) and the industry have been working together to further evolve and improve payments certainty and processing times.
From the end of November 2016, there will be two changes that further improve payments processing. The industry will be working to a new best-practice guideline of a 1-hour processing timeframe for electronic credits2 and direct debits. This means funds transfers between banks will occur more often throughout the day, so everyday payments such as bill and automatic payments, payroll, and tax payments should be available in accounts even earlier.
The other change also being implemented is called ‘cleared funds’ and is a change to how electronic credits are managed after they have been processed. Electronic credits will no longer be dishonoured for insufficient funds. Putting the technical details3 of this to one side, what this change will do is make it much more likely that the recipient will have immediate access to use the funds received in their account. This is because the receiving bank knows they have significantly lower risk that the transaction will be reversed, and their increased certainty makes it more likely the bank will make those funds immediately available for the receiving customer to use.
For individual account holders, there may be some changes they will need to make to their payments settings as these changes are rolled out. If there are changes required, banks and financial institutions will be in touch with their customers to let them know.
In a wider context, the changes will significantly increase the velocity of money in New Zealand, which is good news for our country’s economic efficiency. These changes are not the last of the improvements to payments processing. Behind the scenes the industry continues to work on improving SBI and other payments systems so that Kiwis can pay who they want, when they want and how they want.
If you want to see how our payment systems stack up against other comparable countries, see our Benchmarking New Zealand’s payment systems report. For more information about the cleared funds initiative, see Electronic credit processing improvement is introduced.
1. Refer to the Settlement Before Interchange case study for more information.
2. Electronic credits include: Direct Credits, Automatic Payments, and Bill Payments. These are commonly used to pay bills, ‘pay anyone’ using online banking, payroll and tax payments, etc.
3. Refer Electronic credit processing improvement is introduced for more information.