New ARNECC Reviews find no compelling case for interoperability

• Sympli’s “practitioner first” access model unlikely to deliver competition outcomes and could lead to a 5–10% drop in successful on-day settlement
• Cost benefit analysis finds “practitioner first” would cost $42 million to implement and impose an overall negative cost of $7 million
• Functional Requirements Review finds all proposed models would deliver less innovation, less functionality and negligible benefits
• Even assuming successful implementation, all proposed models have large costs of up to $151 million and produce net benefits of at most $800,000 a year
• Functional Requirements Review confirms PEXA has protected intellectual property that must be accommodated in any changes to market structure

PEXA acknowledges the publication of the Functional Requirements Review (FRR) conducted by Integral and the Cost Benefit Analysis (CBA) conducted by Nous, both on behalf of ARNECC.

The FRR found that all the proposed interoperability models are likely to increase costs, diminish the customer experience, and impede innovation, with no certainty of improved competitive benefits.

The FRR also confirms PEXA’s substantial intellectual property claims and the need for them to be fully accommodated in any interoperability design.

The CBA found three pathways could realise modest economic benefits but with a maximum financial benefit of $16 million over 20 years, or $800,000 a year, based on the most optimistic assessment of the “direct connect” model. However, the separate FRR found that “direct connect”, while technically feasible for only two ELNOs, would be “slow and difficult to implement. There is a real chance that after more years of work, the project will not succeed.”

“(even if) … direct connect can be achieved within the timelines assumed for this analysis, there is a risk that the ability for it to deliver competitive outcomes in the long-term may not be achievable due to the time and costs involved.” 
Cost Benefit Analysis – page 3

The CBA found Sympli’s proposed “practitioner first” model would cost $42 million to implement and impose net economic costs of $7 million. Full “direct connect” using “practitioner first” as an interim step would cost $91 million and deliver net economic benefits of $11 million between 2026 and 2046 – or $550,000 a year. Both estimates assume that implementation runs on time and on budget – in contrast to the history of interoperability over the past 5 years.

The FRR reiterates what industry experience has long signalled: that interoperability is “more complex than currently understood”. It also finds that the interoperability model pursued to date would require years of additional work, reduce innovation, degrade existing functionality, lower onday settlement performance and effectively prevent the entry of a third ELNO.

PEXA CEO and Group Managing Director, Russell Cohen, said: “PEXA’s position remains unchanged – we welcome competition and champion Australian innovation – but cannot endorse models that risk system stability, and degrade functionality, national economic efficiency and consumer experience.

“These Reviews firmly reinforce that position: there is currently no proposed alternative model that offers a better outcome for customers and Australian home buyers and sellers.

“The Reviews confirm the complexity and cost of interoperability and, for the first time, concede there may be no competition benefit, while there would be a real reduction in functionality. It outlines several more years of development and escalating cost, while PEXA continues to carry a disproportionate burden despite delivering exceptional value and service to Australian consumers.

“The Reviews raise the fundamental question: Why would Australia pursue a reform that will add cost, result in a worse transaction experience for end consumers, and the practitioners and financial institutions that support them?”

The FRR notes that if ARNECC continues to pursue interoperability, it would be better to implement the “practitioner first” model proposed by the ATI Group – but only if it was a pathway to a full Enterprise Service Bus (ESB) model. However, the CBA finds that implementing the ESB model via “direct connect” would cost $151 million and impose net costs of $50 million, ultimately delivering no benefit.

The FRR notes that “practitioner first” has a low likelihood of meeting the desired outcomes.¹ It finds that PEXA functions will be limited in interoperable transactions (including “practitioner first”), which banks say may lead to a 5-10% drop in on-day settlement, which may keep a substantial number of Australians out of their new homes for longer

The FRR warns that achieving “functional equivalence” – ensuring that users are no worse off in an interoperable transaction than in a transaction on a single platform – will be unachievable.

“In our view, where there are major system changes, functional equivalence broadly defined will not be possible for any model. Changes will break things. Participants in an IOP transaction will likely have a loss of some functionality, at least compared to a transaction taking place today.”
ARNECC Functional Requirements Review – page 8

PEXA acknowledges these Reviews are not Government policy, and though it appreciates the detailed analysis and careful examination undertaken in their preparation, notes that any policy decisions arising from the Reviews must consider the wider impacts on competition, the true cost and time of implementation, and whether these reforms genuinely improve consumer outcomes. 

¹Model 3 Flexibility once completed, (Least) Regulatory Complexity; (High) – Likelihood of meeting desired outcome (Worst) – page 18

-ENDS-

Reports can be found on ARNECC’s website here

About PEXA Group
PEXA Group is a world-leading ASX-listed digital property exchange platform and property insights solutions business. The PEXA Group of companies, including .id (Informed Decisions) and Value Australia, also delivers a new generation of data solutions that empower businesses and governments to make more informed property and place-related decisions. PEXA Exchange is the leading digital property settlements platform in Australia. PEXA is a licenced operator of Australia’s largest Electronic Lodgement Network (the PEXA Exchange). Since 2013, PEXA has facilitated more than 20 million property settlements through the PEXA Exchange in Australia, with 90% market reach, and in 2022, PEXA launched in the UK.