Electronic money transfers between banks will be finalised within one minute from next year.
New banking technology means customers will be able to transfer money between two separate financial institutions in real time.
New Payments Platform chief executive Adrian Lovney said the initiative was set up by Australian banks to build the system.
Mr Lovney said funds would appear in the recipient's bank account in as little as 30 seconds.
"We're putting in place a new system which will sit alongside the old system which will make payments move instantly between bank accounts and that'll happen 24-7, 365 [days]," he said.
The New Payment Platform system acts like a secure network between two separate banks such as National Australia Bank and Commonwealth Bank.
Mr Lovney said the new technology would allow messages to be sent in real time, allowing funds to be sent instantly.
"The system that we're using today is about 50 years old and it was designed around the principle of tape exchanges, and transactions were stored until a certain time and then physically those transactions moved in a batch to the receiver's bank," he told SBS World News.
"We're speeding that process up so it's instantaneous settlement, so it meets the needs of consumers in today's digital economy."
Currently funds go through a lengthy settlement process overseen by the Reserve Bank.
Transferring money from one financial institution to another can take between two to five days.
Associate Professor of Finance Eliza Wu, from The University of Sydney, said it was a strategic move from the banks.
"There's been a decline in the use of ATMs to withdraw cash. So it's a small saving in order to win some brownie points back with their financial consumers," she said.
But the new technology has also raised security concerns and banks are ensuring they are doing extra to protect customers from fraud.
While some finance experts are predicting a cashless society by 2020, Assoc Prof Wu believes cash will still be in the wallets of some.
"For the reason that cash is still preferred to be used by certain segments of the population, particularly the older generation, but the use of electronic payment methods - those tap 'n' go cards, credit and debit cards - that's highly preferred typically by people in their 30s and 40s and of course the younger people," she said.
"But in the older generation they'd prefer to use cash for a lot of things."
