In the world of banking, the term Funds Transfer Pricing (FTP) may not grab headlines, but it’s at the heart of how banks manage risk, capital allocation, and ultimately, profitability. As Australian financial institutions navigate new regulatory environments and digital disruption in 2025, FTP’s role is more critical—and more complex—than ever.
What Is Funds Transfer Pricing and Why Does It Matter?
At its core, FTP is a framework banks use to assign an internal cost to the funds they lend or invest. It’s how a bank determines the price for moving money between its different business units—effectively, the interest rate that treasury charges to, say, the home loans division, or pays to the deposits team.
- Risk Management: FTP helps isolate and manage interest rate risk by attributing costs and revenues to the correct business line.
- Performance Measurement: By charging (or crediting) business units for their use of funds, FTP reveals which parts of the bank are truly profitable.
- Strategic Decision-Making: FTP enables better pricing of products, more efficient capital allocation, and sharper business strategy.
For example, if the cost of wholesale funding rises, FTP will adjust the internal price charged to the lending divisions, prompting them to re-examine loan pricing or growth targets.
2025: The Year FTP Steps Into the Spotlight
The year 2025 is a turning point for FTP in Australia, driven by several key trends:
- Heightened Regulatory Scrutiny: In response to the evolving Basel IV framework and APRA’s renewed focus on liquidity risk, banks must demonstrate granular, accurate transfer pricing models that align with global best practice.
- Margin Compression: Persistently low interest rates, combined with increased competition from digital banks and fintechs, are squeezing margins. FTP now plays a pivotal role in identifying product lines that are underperforming or subsidised by other divisions.
- ESG and Green Finance: Banks are deploying FTP to support sustainable lending, by offering preferential internal funding rates for green loans and climate-aligned products.
Take Westpac’s 2025 initiative: by linking FTP rates to the emissions profile of business loans, the bank has nudged its commercial lending book towards lower-carbon industries. This is not just compliance—it’s strategy in action.
FTP in Practice: From Spreadsheet to AI
Historically, FTP was a back-office calculation, managed via spreadsheets and basic models. In 2025, leading banks are leveraging AI and advanced analytics to refine their FTP frameworks. This means:
- Dynamic Pricing: FTP rates now adjust in real time to changes in market funding costs, liquidity, and customer behaviour.
- Scenario Analysis: Banks can simulate the impact of RBA rate moves, regulatory shocks, or market stress on their internal pricing and profitability.
- Transparency: Enhanced reporting tools provide business units with clear visibility into how FTP affects their results, driving better decision-making.
For example, National Australia Bank’s 2025 FTP platform integrates real-time deposit flows, wholesale market data, and customer analytics to deliver precise transfer rates for every product line—an edge that’s increasingly essential in a volatile environment.
FTP’s Next Frontier: Aligning Profit, Risk, and Purpose
Looking ahead, FTP is set to become even more strategic as banks respond to shifting regulatory, technological, and social landscapes. Forward-thinking Australian banks are using FTP to:
- Promote sustainable finance by embedding ESG criteria into internal pricing.
- Support innovation by allocating capital more efficiently to digital-first products and services.
- Navigate regulatory change, ensuring compliance while maintaining profitability.
The bottom line? FTP is no longer just a technical exercise. In 2025, it’s a core lever for value creation and resilience in Australian banking.
