Fintechs operating as overlay service providers through the New Payments Platform could incur higher costs for using the real time network under pricing changes expected to take effect in 2023.
Banking Day has confirmed through several payments industry sources that overlay providers were notified by Cuscal in the last month that the formula for calculating their transaction fees was being overhauled.
Cuscal is a “full NPP participant” institution that is directly connected to the real time payments platform.
Cuscal collects fees from fintechs (overlay providers) for connecting their payments services to the NPP.
The NPP also collects what is known as a wholesale fee from Cuscal and other full participants.
Under existing arrangements, the overlay providers pay a flat fee for each transaction they push through the NPP but the recent notifications from Cuscal indicate the fee will be restructured to a percentage of the value of each transaction they settle through the platform.
So, instead of paying a flat fee regardless of the size of the transaction, fintechs connected to the NPP by Cuscal are set to pay a fee that will vary according to the value of the transaction.
Cuscal’s disclosure of the looming price changes might be significant because it could point to a shift in the wholesale pricing approach taken by the NPP’s board and management.
The NPP has not yet signalled any changes to its method for calculating the wholesale fees it levies on full platform participants such as Cuscal and the major banks.
Nor has the NPP confirmed that the fee changes that will apply to overlay providers sponsored by Cuscal are linked to a planned overhaul of its wholesale pricing.
However, the NPP is likely to come under pressure from fintechs, payments system end-users and regulators to clarify how it intends to set wholesale fees after next year.
Payments experts believe the recalibration of Cuscal’s transaction fees is probably part of a wider agenda to incentivise the large banks, Cuscal and other NPP participant institutions to drive more transactions through the platform.
Sydney-based payments expert Bradford Kelly believes the pricing shift signalled by Cuscal indicates that the NPP is moving to new fee arrangements are likely to generate revenue for the major banks.
“NPP needs to incentivise the big four banks to take NPP payments,” Kelly said.
Kelly suspects the NPP is developing a pricing model akin to the interchange arrangements used by global card schemes.
“By moving from a volume based pricing model to a value based pricing model, NPP is looking to incentivise the big four banks to pump more transaction volumes through the NPP by basically paying them to do it,” he said.
“The only way to do that is to pay them and implementing a value based pricing model similar to Visa and MasterCard.”
A move by the NPP to value-based wholesale pricing is potentially controversial because it might undermine the prospects for lowering transaction costs as volumes increase on the platform.
In a December 2019 submission to a Senate inquiry into financial technology, the NPP indicated that wholesale fees would taper as the platform matured.
“NPPA has not yet established a wholesale transaction fee on a per transaction basis as current transaction volumes do not support the determination of a fee that would incentivise usage of the platform but intends to do so in the future, and to continue publishing the derived NPP wholesale transaction cost,” NPP Australia told the Senate inquiry.
“As volumes on the platform grow, the wholesale transaction fee will come down and that same wholesale transaction fee will be charged to all NPP shareholders, regardless of size and the number of transactions that they are putting across the platform.”