TransferWise exec says regulators need to encourage competition in payments

TransferWise says Australia’s central bank should encourage competition across the real-time payments system.

TransferWise global chief technology officer Harsh Sinha

TransferWise’s global technology boss Harsh Sinha says Australia’s central bank and regulators are inhibiting direct access to the real-time payments system for non-banks, which stifles competition and makes them reliant on incumbents.

Richard Branson-backed Trans­ferWise, a technology-led money transfer and foreign exchange group, ramped up its local push last year after the World Bank in 2018 found Australia was the third most expensive Group of 20 economy for money transfers.

Mr Sinha said while Australia was making strides on improving payments infrastructure with the rollout of the real-time New Payments Platform, access was a significant issue for TransferWise.

“It’s very critical and important to have that (direct) access ... guarding that access basically inhibits competition,” he said in an interview.

“As you have more gatekeepers through which you have to go — as a new financial services company or any other financial services company going to the bottom payment rails — that just adds more friction and inefficiencies, including higher costs.”

The NPP was developed by a group of financial institutions including the Reserve Bank and was introduced about two years ago.

It allows users to make electronic account-to-account transfers with funds available in real-time.

Direct access to the NPP is limited to banks with a full or restricted licence. It requires a company to have a settlement account with the RBA and to become a shareholder in the NPP’s parent entity, NPP Australia.

Mr Sinha — whose career has included stints at PayPal and eBay — called on Australia to look at how other jurisdictions including Britain were managing access to their real-time payments infrastructure.

“In the UK we became the first non-bank to directly integrate into the fast payments scheme and also have a settlement account with the Bank of England,” he said.

TransferWise has had dialogue with local regulators on its NPP access concerns and is also exploring becoming an indirect participant via a third party.

But Mr Sinha said becoming an indirect player meant added cost and also exposed TransferWise to risks if the party it joined through had technology problems or a system shutdown.

For broader banking services, TransferWise partners with Macquarie Bank in Australia.

The RBA’s position on access to the NPP doesn’t look like changing in the near term, according to a submission it made to a Senate committee last month.

“The (Reserve) Bank is satisfied that NPPA’s decision to retain the ADI (authorised deposit-taking institution) requirement for full and clearing participants appropriately balances risk and open access considerations, particularly given the indirect participation options,” the document said.

The central bank also pointed to a further review of access and functionality for the NPP that it would conduct with the competition watchdog, starting no later than mid-2021. “This review will be an opportunity to reassess whether NPPA’s access arrangements are warranted in light of developments in the market. This review could commence earlier if the Bank becomes aware of significant issues or concerns.”

Part of the RBA’s and NPP’s concerns are thought to centre on ensuring direct participants have high-level risk controls and resilient systems.

Money transfer, foreign exchange fees and charges have also been a hot topic for the Australian Competition & Consumer Commission, which examined the market and released a final report released in September last year.

The detailed report said Australians bought more than $40bn in foreign currency each year and further competition in the supply of those services could deliver “significant savings” for consumers. It also said in some cases the major domestic banks were charging 20 per cent more than lower-cost money-transfer groups.

The ACCC made recommendations including that the federal government set up a working group to consult on payments infrastructure and also bolster disclosure requirements for banks and others for money transfer and foreign exchange charges.

“I didn’t think it went far enough” Mr Sinha said of the ACCC report, adding that end consumers needed line-by-line disclosure of all fees and mark-ups to make decisions.

In a testimony to US Congress last year, Mr Sinha stressed TransferWise believed consumers and businesses would benefit from faster, lower cost payments.

“Moving money should be like sending an email — instant. It’s simply the digital movement of data,” he said at the time.

A funding round in May last year valued TransferWise at $US3.5bn and its services are available in 59 countries.

Last year, the company also partnered with Bendigo and Adelaide Bank-backed digital bank Up on the integration of TransferWise’s money-transfer system. Globally, banks including Monzo in Britain and Bunq in The Netherlands are among those that have partnered with TransferWise.