How Can New Zealand Prepare for a Next-Gen National Payments Scheme?

Countries around the world are actively upgrading their national payment schemes to keep pace with technological progress, evolving consumer expectations, and advancing business needs. For instance, the UK, Singapore, and China are at the forefront of implementing novel fintech solutions, including real-time payments (RTP), mobile transactions, QR codes, machine learning-based tools, and beyond.

On the other hand, New Zealand is just starting out on its journey to an upgraded national payments scheme. In this overview, we take a closer look at the current situation with Aotearoa’s payments, explain why it calls for changes, and list some of the key considerations local policymakers and other relevant stakeholders need to keep in mind when establishing a new, future-ready solution.

Key Elements of Aotearoa’s Current Payment Landscape

Notably, according to the bulletin on New Zealand’s payment landscape published by the Reserve Bank on November 9, 2022, the local financial ecosystem heavily relies on the Exchange Settlement Account System (ESAS), which is a real-time gross settlement system that enables secure and efficient interbank transactions.

Without ESAS, electronic payments between consumers and merchants would only be possible if they were clients of the same FI. Due to such systemic significance, ESAS sits at the apex of Aotearoa’s payment landscape.

The country has three clearing systems serving different purposes, namely:

• Bulk Electronic Clearing System (BECS), which oversees most retail payments, including direct credits, bill payments, automatic payments, and direct debits between participants.
• High-Value Clearing System (HVCS), which regulates high-value and time-critical transactions like house settlements conducted using the “Same-Day Cleared Payment” (SCP) tool.
• Consumer Electronic Clearing System (CECS), which is responsible for processing EFTPOS and ATM payments.

Each of these clearing systems outlines the rules and standards for data exchange and determines settlement obligations across different types of payments. Yet, given the rapidly evolving nature of payment solutions, some emerging technologies like open banking and digital currencies end up falling outside of these systems’ scope, stalling their adoption.

Overall, it is clear to see that New Zealand could benefit from the introduction of a new payment scheme that takes all the modern payment industry developments and challenges into account. Keep reading to find out how it can be achieved!

How Can New Zealand Effectively Upgrade Its Payment Scheme?

With this in mind, here are five key aspects Aotearoa’s next-gen payment scheme must factor in to yield the best results:

1. A Flexible Architecture for Scalable Growth

The rapidly growing popularity of recently emerged solutions like mobile wallets and digital currencies highlights the importance of building next-generation payment schemes based on a modular, flexible, and scalable architecture that leverages microservices and APIs.

This approach can help minimize friction in payments, enable cost-effective scheme management, and ensure efficient processing of large transaction volumes.

What’s more, to serve as the bedrock of New Zealand’s digital economy, the upgraded payment scheme must be able to support a wide range of payment functionalities, including the currently booming A2A and Request-to-Pay services, mobile wallets, and QR codes.

Moving forward, the scheme is likely to require adaptability to accommodate central bank digital currencies (CBDCs), enhanced cross-border connectivity, and other innovative solutions that are yet to be developed.

2. Advanced Security Measures for Fraud Prevention

Given the fact that fraud methods are continuously evolving, it is crucial for New Zealand’s updated payment scheme to focus on advanced risk prevention and mitigation. This involves implementing robust, machine learning-based security solutions from day one, as well as continuous improvement of the protective measures in place.

3. Connectivity Standards for Innovation

Ensuring standardized and simplified connectivity within Aotearoa’s renewed payment scheme is crucial for cutting down the time to market (TTM) of new solutions. API-led integrations can help achieve it by alleviating the technical complexity of compliance and allowing innovators to access and build novel services on top of the scheme’s functionality.

4. ISO 20022 for Richer Transaction Data

New Zealand’s next-generation payment scheme must adopt ISO 20022, as it brings significantly more value to the table than legacy standards do. This messaging standard enables the transmission of structured and comprehensive transaction data and promotes consistent communication between banks and cross-border systems by providing them with a common language.

As proven by a wide range of jurisdictions globally, the implementation of ISO 20022 supports innovation, boosts new product creation, promotes healthy competition, and leads to improved efficiency in transaction processing, which makes it a crucial element of modern national-level payment schemes.

5. Regulatory Changes for a Safer Payments Evolution

Authorities across the globe pick various approaches to payment scheme implementation - while some introduce strict timelines and penalties for non-compliance, others adopt a more gradual and collaborative approach.

Final Thoughts: Big Changes Are On the Way for Aotearoa

Aotearoa’s major payment industry players, such as the Reserve Bank of New Zealand and Payments NZ, have been discussing the need for a renewed national payments scheme for several years now.

Besides, it has been noted that there is a need to shift the perspective from merely adding new payment rails to fully modernizing payments and building a digital economy that fosters innovation, accelerates the creation of new payment services, and drives their widespread adoption.

Aside from ongoing discussions, there have also been significant actions taken to advance New Zealand’s payment sector, with 365-day payment processing, introduced on May 22, 2023, being one example of a prominent step toward faster and more convenient transactions for all.

Given the continuous efforts from a wide range of stakeholders, it is safe to say that Aotearoa’s national payment scheme is about to enter a new chapter, offering a plethora of fresh opportunities to businesses, financial institutions, PSPs, and consumers.