Instant payments should be a platform not a product
Writing in the Journal of Payments Strategy and Systems, Steve Ledford SVP for Product and Strategy at The Clearing House makes a good point
Steve is commenting on the global transition to immediate payments infrastructure (such as the Faster Payments Service, FPS, in the UK) in the context of the US discussions in response to the Federal Reserve consultation on the topic which Consult Hyperion, amongst a great many others, responded to. The Federal reserve, as you will recall, called for “a safe, ubiquitous, faster payments capability” and The Clearing House is one of the organisations that has responded to this call by announcing that it will create a national real-time payment system. Surely, you might think, it can’t be that much effort to create a low-cost real-time payment and settlement service in an era of laser beams, transistors and the thingternet. Well, yes and no.
[Gene Neyer, SVP Fundtech says] “The marginal cost of making payments is low. Much of the cost [today] involves risk management, exception handling, and research.” Faster payments are actually cheaper, but this is not to say they are risk-free
This a fair point. In the US, there are concerns about the impact on fraud of shifting to instant payments, particularly because the US favours evolving current infrastructure rather than building a new national infrastructure as was done in the UK.
Banks must therefore architect a solution to evolve ACH while the ship is moving. This is a much better approach than that taken by the UK of mandating faster payments… (one bank was losing 30M GBP a WEEK from fraud when launched).
Steve makes a number of observations on the need for security in such an infrastructure. He makes a number of very practical suggestions to satisfy that need for better security and suggests that tokenisation, credit-only transactions, imposition of robust access security, real-time anti-fraud/anti-money laundering/sanctions screening and network activity management might be a key elements in constructing an infrastructure capable of meeting the goals for real-time (or near real time) settlement. I’m sure he is correct about all of these, and they are all topics that I’ll return to in the future.
He then goes on to make what I think is a crucial point about the next phase of evolution. He says that instant payments are particularly well-suited to provide value beyond fast money movement because of their fundamental feature of real-time communication between senders, receivers and the relevant institutions. In other words, a perspective that sees money as just another kind of messaging. I rather like this because the ability to send remittance advice, invoices and other related documents along with payments means more efficient systems can be built on top of those payment networks.
I can’t help thinking about the case study of Venmo in this context. One of the reasons why it gained traction was that it interacted with social networks in a way that appealed .Venmo shifted $1.6 billion last year and are growing at an amazing rate. In fabulously interesting and entertaining discussion about twenty-somethings use of Venmo in the US, I noticed a curmudgeonly intercession from someone a bit like me:
this is a particularly american affliction, since other countries’ banks actually have functioning online payment systems