Lack of mandate slows faster payments implementation
The UK is leading the way in operating a system of real-time payments, but other countries need to work harder to coordinate their systems to meet local demand.
The process for the implementation of instant payments varies greatly internationally. Faster Payments in the UK has been in operation since 2008 and has created an aspirational model for the implementation of same day and instant payments elsewhere.
The service has expanded since implementation, with transaction limits increased from £10,000 to £100,000 after just two years. The total number of transactions reached the three billion mark in November 2013.
| The biggest barrier to adoption is often the coordination problem
“Overall, the average Faster Payments transaction now has a higher average value than a Bacs transaction,” says Chris Dunne, payment services director at VocaLink, which operates the Faster Payments platform.
While an average Bacs transaction is £766, a Faster Payment transaction averages at £840. The higher value sum is indicative that the service has gone beyond people sending across small sums to settle payments, and is instead being used to pay bills, and for payroll among small businesses.
Take-up of Faster Payments has so far been concentrated in the consumer space.
Dunne says: “Corporates have been slower to take up the benefits, but they will often have very established processes in place. They have to be able to see the benefit of doing things differently before they will adopt it.”
The figures make for interesting reading in geographies still processing payments during bank opening hours. The push for change has come from the advent of mobile technology.
Customers are used to instant services from their mobile phone and expect the same from their banks. However, in many cases this requires the banks to overhaul their operations, including their back-office systems.
The move to instant payments means changing to a 24-seven operation. Users expect their payments to be processed at anytime and anywhere, and not just during the working week.
Despite the UK’s network running successfully for more than six years, not all other developed and highly banked markets have followed suit. Implementation is dependent on the actions of each individual country – there is no regional or international standard or regulatory requirement for payments to be processed any faster.
Most disbursement in the US still goes the
old-fashioned way of cheques being sent through the post. This expensive and time-consuming
Tom Roberts, SVP, marketing, electronic payments, Fiserv – a technology provider – says: “Most disbursement in the US still goes the old-fashioned way of cheques being sent through the post. This is both expensive and time-consuming.”
For the implementation of a faster system to be successful, the push needs to come from a central task-force that would promote faster payments.
VocaLink's Dunne says: “The biggest barrier to adoption is often the coordination problem. It is difficult trying to get everyone to adopt the same service at the same time.”
US banks have begun to look towards implementation after recent research published by McKinsey showed that the majority of consumers want to be able to complete transactions more quickly, and that they would be willing to pay for the service if necessary.
However, before any changes can be implemented, groundwork needs to be done to even decide on the definition of what a faster payment should be.
|Craig Vaream, at JPMorgan
Craig Vaream, North America head of payables and receivables, JPMorgan, says: “In the US, there is no agreement on what exactly a faster payment means. Is it a same day payment, or is it instant?”
Some initial steps towards offering a faster service in the US have been implemented, driven by consumer demand.
Fiserv has developed the Popmoney service to enable faster payments, with some being cleared instantly for a fee. Payments are not limited to one-off transactions, and can be executed in bulk. To serve the business community, Fiserv launched Popmoney for small businesses, and for disbursements.
Another offering is the clearXchange service, which has Chase, Bank of America and Wells Fargo as its founder organizations. The group has expanded since it was founded in 2011 and now represents over half of the US consumer online-banking market.
To create an integrated national network, Roberts says there will have to be some connectivity between the various networks, adding: “We have connected Popmoney to other networks, such as First Data’s Star, and debit and ATM network Pulse, and we’d like to connect the service to additional networks. We have stated that we believe our network and clearXchange should connect.”
Developing a common system between the various providers might be the most efficient way forward. This could drive the necessary volume for other financial institutions to get on board, and overcome the obstacle of not having a central body calling for the changes to be made.
“If there ends up being multiple and competing possibilities, it is likely that volume projections for each option may never be realized,” says Vaream. “The most successful schemes are the ones that have been mandated.
“There needs to be a common standard that provides ubiquity, coupled with a mandate for its use to realize the full potential of these offerings.”