Below is a list of selected terms used in this document. Relevant definitions have been adopted from documents related to the New Payments Platform.
Addressing Service A service that delivers the ability to identify an account at a Participant as the destination for a message using the Alias Identifier (such as a mobile phone number or email address) of the Payee rather than the account number.
ADI
Alias Identifier
Basic
Infrastructure (BI)
Authorised deposit-taking institution. ADIs (banks, building societies and credit unions and other ADIs) are supervised by the Australian Prudential Regulation
Authority (APRA).
The unique identifier of an Alias. Examples include a phone number or an email address.
The set of proposed arrangements comprising a Switch, Addressing Service, communications network and linked RBA real-time settlement through the Fast
Settlement Service.
An account held at the RBA by financial institutions to settle financial obligations arising from the clearing of payments.
Exchange
Settlement
Account (ESA)
Fast Settlement
Service (FSS)
FSS Allocation
Initial Convenience
Service (ICS)
Overlay Service
The RBA RITS settlement service that will be used by the Basic Infrastructure to complete transfer of value associated with NPP payments.
The portion of the RITS Member’s Exchange Settlement (ES) Funds balance available to the Fast Settlement Service for settlement of New Payments Platform
(NPP) payments.
The proposed set of arrangements constituting the first Overlay Service. The Real
Time Payment Committee’s proposal is for the ICS to focus on personal convenience payments, particularly those using mobile channels.
A payment service that connects to the Basic Infrastructure to provide added functionality to users. Overlay services are likely to be tailored to particular contexts and/or types of customers and may be commercial and competitive in nature.
Payee Participant The participating institution of the Payee. The Payee Participant is responsible for clearing a payment instruction coordinated by the Basic Infrastructure. Payee
Participants may include ADIs, Non-ADIs and other payment service providers.
[For the purposes of this paper, it is assumed that the Payee Participant is an ESA holder]
Payer Participant
Reserve Bank
Information and
Transfer System
(RITS)
RITS Allocation
An institution participating in the NPP capable of initiating payment instructions into the Basic Infrastructure for clearing and settlement. Payer Participants may include ADIs, Non-ADIs and other payment service providers. [For the purposes of this paper, it is assumed that the Payer Participant is an ESA holder]
Australia's real-time gross settlement (RTGS) system, which is used by banks and other approved institutions to settle obligations arising from the exchange of payments and securities transactions. RITS shares its user interface and liquidity with the FSS. FSS is a separate 24x7 infrastructure for high speed settlement of high volume NPP payments.
The portion of the RITS Member’s ES Funds balance available to RITS for RTGS settlements during RITS opening hours.
Switch
Utility Company
The component of the Basic Infrastructure that provides Switching Services including the receipt and transmission of messages to other components and
Participants of the NPP.
The proposed mutual organisation, which will own and govern the NPP Basic
Infrastructure. The Utility Company's membership consists of Participants and other approved entities.
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The Fast Settlement Service (FSS) will be a new RITS service supporting settlement of payments from the New Payments Platform (NPP). The FSS will provide line by line settlement of individual Settlement Requests received from the NPP’s Switch provider, testing each request against the paying participant’s balance of Exchange Settlement
(ES) Funds in the FSS in near real time. If testing is successful, settlement will occur irrevocably and unconditionally.
During February/March 2014, the Reserve Bank held consultation meetings with each
NPP participant 1 to discuss their liquidity management, monitoring, reporting and alerting requirements in relation to the FSS. This Information Paper has been updated to include the outcomes of this consultation process. It replaces FSS Information Paper
2 issued in February 2014.
In June 2012, the Payments System Board (PSB) of the RBA released its Strategic
Review of Innovation in the Payments System: Conclusions . The PSB identified certain strategic objectives that it considered would address gaps in the payments system. One of the key objectives was the establishment of a system that would provide real-time retail payments, with real-time funds availability, by the end of 2016. In November
2012, the PSB endorsed the RBA Core Criteria as the framework to assess any industry
Proposal. In February 2013, the Real-Time Payments Committee (RTPC) established by the Australian Payments Clearing Association (APCA), finalised a Proposal to deliver a fast payments solution for Australia. The Payments System Board (PSB) welcomed the
Proposal as making substantial initial progress towards meeting the strategic objectives established.
The Proposal aimed to deliver the strategic objectives by facilitating fast payments for consumers and businesses by end 2016. This includes the ability to send more remittance information with payments, provide for easier addressing of payments as an alternative to specifying a BSB and account number, and enable close to immediate funds availability to the recipient on a 24x7 basis. The Proposal addressed the gaps through a layered solution consisting of the Basic Infrastructure (BI) and Overlay
Services, including an Initial Convenience Service, intended to address the customer propositions (e.g. real-time funds availability).
In June 2013, the industry initiated the NPP project to deliver the program and created a program Steering Committee (which includes RBA representation) to oversee its delivery. The NPP Program will establish a Utility Company which will be an industry owned and operated mutual company responsible for the operation of the BI. Currently
16 Authorised Deposit-Taking Institutions (ADIs) and the RBA have signed up to support the NPP Program and its funding. The Program has recently completed the planning and requirements phase for the NPP and is currently involved in the process of selecting a suitable vendor for the provision of BI services. The NPP Steering
Committee will remain responsible for the project until its implementation.
The BI will consist of three main components: Network services, Switch services, and an Addressing Service. Settlement services will be provided by the FSS. The BI will support the exchange of fast, flexible payments messaging between ADIs and other approved participants. The FSS will provide for the immediate settlement of NPP transactions using Exchange Settlement (ES) Funds.
1 Meetings were held with NPP participants who hold an Exchange Settlement Account.
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Overlay Services will use the BI to offer payment schemes and services tailored to particular contexts and types of customers, and may be commercial and competitive in nature. The industry has a process in place to determine the services to be provided by an Initial Convenience Service (ICS), as the first Overlay Service, and to identify a vendor to provide these services. It is anticipated that the ICS will be ready to commence operation at the same time as the BI. Participation in the ICS may require minimum service standards for ADIs such as timely funds to customer accounts.
Participants in the BI will be able to send credit payments to each other without the need to join Overlay Services. However, the BI will not specify any ADI/customer standards, including any minimum timing for funds availability to the payee.
Figure 1 below provides a simplified view of the proposed solution components using a
‘Clearing before Settlement’ model. Each credit payment instruction received by the
Switch (flow 1) will be validated and passed on to the Payee Participant (flow 2). The
Payee Participant will confirm that it has received a valid payment for processing
(including validation of the Payee account) and will respond with a confirmation back to the Switch (flow 3) within a specified timeframe. The Switch will pass this confirmation back to the Payer Participant (flow 4) and send a Settlement Request to the FSS (flow
5). Following receipt of a Settlement Response from the FSS (flow 6), the Switch will generate a Settlement Notification message to both the Payer and Payee Participant
(flow 7). In the event that the FSS is unavailable clearing may still continue. These relationships are shown in Figure 1 below.
Figure 1: Simplified NPP Business Flows
The FSS, including systems, software IP and settlement message formats, will be owned and operated by the RBA. The FSS will have an interface to the BI Switch to facilitate settlement processing for each NPP payment. Although the FSS is part of
RITS, the settlement processes used by the FSS will be independent from the existing
RITS system queue and settlement testing process. Each Exchange Settlement Account
(ESA) holder will continue to have only one ESA; however funds within the ESA will be specifically allocated to RITS and to the FSS.
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Each valid payment instruction received will be tested for settlement against the paying
ESA Holder’s FSS Allocation, and will either settle if there are sufficient ES Funds, or be rejected. Rejected payments will not be queued for retesting. Based on the current requirements, the FSS will authenticate Settlement Requests directly with the Switch rather than the individual Participants 2 .
The FSS Project comprises an IT system build, associated changes to RITS, connectivity to the BI Switch and the introduction of 24x7 operations. The FSS will target equivalent or higher levels of resilience, availability and performance as the Switch. The existing settlement arrangements and session times in RITS for other payment systems will remain unchanged.
Liquidity arrangements
New liquidity arrangements for ESA holders were implemented in November 2013 to facilitate the late evening settlement of direct entry obligations. These liquidity facilities will provide the basis for supporting the operation of the FSS on a 24x7 basis. As part of its regular reviews of Member open repo positions, the RBA’s Domestic Markets
Department will liaise with RITS Members on their liquidity requirements in advance of the introduction of the FSS.
Legal basis
The FSS will operate as a RITS service, governed by the RITS Regulations and
Conditions of Operation. The relationship between the Reserve Bank and the Utility
Company is expected to be governed by a separate legal agreement.
The FSS will provide irrevocable and unconditional settlement finality in the same manner as other transactions settled across RITS.
Access
Participants in the NPP (ADIs and other approved entities) must either operate their own ESA at the RBA or use another ESA holder as their settlement agent. ADIs and other approved entities that do not currently operate an ESA, and are admitted into the
NPP, may be eligible to establish an ESA and operate it for the FSS only.
The FSS will be available to any ESA Holder for settlement of obligations arising from the NPP (subject to any particular conditions of an ESA holder’s RITS membership, as is the case now). It is possible that the FSS could be used by other payment hubs.
Operational standards
As the FSS forms part of the RITS system, it will be treated by the RBA as part of its critical payments infrastructure. The FSS will have:


High availability – remain operational even if the RITS functionality for high-value settlement is temporarily unavailable
High performance – target a very high Transactions per Second (TPS) capability to provide real-time settlement while meeting response time requirements.
Initially the FSS is targeting to achieve around 1,000 TPS (a single transaction involves processing a Settlement Request and returning a Settlement Response)
 A high degree of security
 Scalability to meet growth in payments volumes.
2 This is an element of the ‘trust model’ which is still under discussion with the Industry.
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Business continuity plans for the FSS will aim for continuation of settlement, including in the event of a wide-scale disruption, and rapid recovery of operations in the event of an outage. This will require highly resilient architecture with high availability and no single point of failure across multiple sites.
The FSS delivery is a stream of work within the overall NPP program. The RBA reports the progress on the FSS project to the NPP Steering Committee on a monthly basis.
The following diagram provides an outline of the current indicative BI and related FSS timetable and key milestones for Members.
Figure 2: BI and FSS Summary Schedules
In determining the final FSS design, the RBA will be consulting with the selected BI
Switch vendor to validate the FSS interface requirements. The FSS schedule aims to ensure that the design and build will be completed ahead of the BI schedule, so as not to be on the critical path of the industry project.
Settlement process
Each eligible Settlement Request, irrespective of its value, will be tested for settlement against the Payer Participant’s ESA credit balance available to the FSS (called the FSS
Allocation), as illustrated in Figure 3 below. If a Settlement Request fails due to insufficient funds or any other validation error, it will be rejected, without the settlement being completed. There will be no provision for a failed Settlement Request to be queued and retested.
ESA holders will be encouraged to ensure that there is always a sufficient level of ES
Funds available for FSS settlement. Unlike RITS, there will be no facilities available to change the order or priority of Settlement Requests processed by the FSS. Upon successful settlement, the Payee Participant’s FSS Allocation will be credited
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simultaneously with the debiting of the Payer’s FSS Allocation. This will remove settlement risk from the exchange of NPP payments.
This settlement model obviates the need for complex batch processes and failure to settle arrangements.
Figure 3: Key interactions between the FSS and the Switch
 The Switch creates a Settlement Request based on the details of a cleared valid payment and sends it to the
FSS for settlement.
 FSS receives the Settlement Request and carries out validations. If any of the validations fail, the Settlement
Request is rejected with an appropriate code in the Settlement Response. The FSS will not validate any date related information.
 FSS settles valid Settlement Requests by debiting the Payer Participant and crediting the Payee Participant
FSS Allocations based on the details of the underlying Settlement Request.
 FSS sends information about the settled transaction or the rejected Settlement Request back to the Switch with relevant settlement or rejection details. For settled transactions, this is expected to include, as a minimum, the Settlement date/time and resulting FSS Allocation for both Payer and Payee Participants. The settlement dates will rollover at midnight.

The Switch receives the settlement details and sends it to the Payee Participant and the Payer Participant.
This step enables the Payer and Payee Participants to receive confirmation on whether interbank settlement is complete for that payment instruction or whether it has been rejected.
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Liquidity management - Allocation Transfers
The RITS user interface will provide members with access to view their FSS Allocation, settled transactions and any related administration functionality. RITS Members will also be able to view their Total ESA Balance (including their FSS Allocation) at any time through the user interface. Existing RITS functionality will be upgraded to assist with the management of a Member’s FSS Allocation through automated allocation tools (see
Figure 4 below) during RITS settlement hours, and for enquiries, reports and statements.
The proposed liquidity management arrangements will enable RITS Members to set upper and lower trigger points to automatically allocate ES Funds to or from the FSS
Allocation (see Figure 4 below) so that:
 If the balance in the FSS Allocation falls below the lower trigger point (in the example below, $10 million), RITS will automatically initiate a top-up from the
RITS Allocation to restore the FSS Allocation to a Member nominated reset point
(which must be between the upper and lower trigger points) . These top-up requests will have a “Priority” status on the RITS queue.
 If the balance in the FSS Allocation rises above the upper trigger point (in the example below, $50 million), funds above the reset point will be automatically withdrawn from the FSS Allocation and those ES Funds will be added to the RITS
Allocation.
The use of upper and lower trigger points to automatically top-up or withdraw funds between RITS and the FSS will only occur during RITS settlement hours. This will help ensure that the FSS Allocation balance stays within a Member determined range during
RITS settlement hours.
ESA holders will also be able to manually request the FSS balance be moved back to the defined reset point during RITS hours.
ES Funds not allocated to the FSS will be available for other settlements in RITS.
Figure 4: ES Funds Allocations between FSS and RITS
During periods when RITS is not open for settlement, the FSS Allocation will revert to the Member’s entire ES Funds balance. When RITS reopens for settlement each business day morning, the FSS Allocation will be returned to the Member nominated reset point with excess ES Funds transferred to the RITS Allocation.
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Alerts
A suite of alerts and advices will be set up in the FSS to provide Members with automated notifications when certain triggers or events occur. These optional alerts will be generated when:
 an Allocation Transfer occurs (only applicable during RITS settlement hours)
 an FSS top-up request to RITS does not immediately settle (only applicable during RITS settlement hours)
 there is an FSS settlement failure due to lack of funds
 the FSS balance falls below a Member-nominated level(s)
Email and SMS alerting capability will be provided. Members will be able to nominate up to 5 email addresses and 10 mobile phone numbers to receive these alerts.
Additionally, an optional periodic email advice providing relevant FSS information will be produced and sent to Members outside of normal RITS settlement hours.
ESA interest
ESA interest will be calculated on the basis of total end-of-day ESA balance, at midnight, seven days a week. ES Funds in both the RITS Allocation and FSS Allocation will be included in the end of day calculation. Interest will be paid monthly in arrears as is the case with existing ESA interest payments i.e. on the first RITS business day of each month.
Reporting
Statements and reports will be available for transactions settled in the FSS. Reports will include a daily listing of all settled NPP transactions and a daily listing of all settled
Allocation Transfers. Members may elect to receive these reports via SWIFT FileAct or
COIN in either (ISO XML or CSV format) or alternatively download them via the RITS user interface (PDF or Excel).
It is expected that existing RITS reports (i.e. for RTGS transactions) will remain largely unchanged. The SWIFT End of Day ESA statement (MT950) will be amended to include one line item representing the net FSS movement for the calendar day. The statement will be sent seven days a week shortly after midnight.
Internal monitoring of FSS Allocation
A few ESA holders currently mirror their running RITS ESA balances within their internal systems through the combination of unsolicited advices from RITS (via SWIFT FIN) and the Fin-Copy Settlement Response for SWIFT high-value payments. These messages will continue to be provided, and the unsolicited advices will include the option of being advised of top-up and withdrawal transactions that change the RITS Allocation.
For NPP settlements, the FSS will return the resulting FSS Allocation balance for both
Payer Participant and Payee Participant in the Settlement Response to the Switch, which will then send the relevant notification to the respective parties. No separate message will be provided to advise the resulting FSS Allocation balance after an
Allocation Transfer has taken place.
Fees
The RBA intends to operate the FSS using cost recovery principles similar to RITS.
These currently provide for the RBA to recover its operating costs from Members, with the capital and development costs of major upgrades and functional enhancements being absorbed as a policy-related expense. The RBA is in the process of determining
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the fee structure for the FSS to assist the industry in making price related decisions.
The NPP Steering Committee will be advised of these estimates in due course.
Next steps
The RBA is in the process of incorporating feedback from the FSS Member consultations into business specifications. Once the industry firms up on the NPP vendor, the external design of the FSS will be finalised and issued to NPP Members. This process is expected to complete by the end of 2014. The final build of the FSS is expected to complete after mid-2015 by when it will be ready for external testing with the BI Switch.
Updates to this Information Paper
This Information Paper will be updated from time to time to reflect developments and decisions taken relating to the FSS.
Questions about the Fast Settlement Service should be directed to:
Warren Wise
Senior Manager, Payment System Projects
Payments Settlements Department wisew@rba.gov.au
(61 2) 9551 9894
Or
David Brown
Program Director
Payments Settlements Department brownd@rba.gov.au
(61 2) 9551 9952
Payments Settlements Department
14 April 2014
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