Same Day ACH is now a reality and, with much fanfare, represents the first ubiquitous faster payments initiative in the United States without an attendant regulatory mandate.
But as Karen Webster noted in the latest installment of Topic TBD, even as faster payments takes a step closer to reality in the U.S., that adoption begs a much broader set of questions. Among them: Is speed alone the key to a better payments experience?
“Faster payments should not only be about speed,” said Webster, who maintained: “Sometimes, they might need to be slower, and they always need to to be flexible and smart, to accompany useful data and always be secure. So, faster payments is about a lot more than just speed.”
In an interview, Craig Saks, group president for strategic products at ACI Worldwide, said that, for the moment, speed “is an appealing factor” and what has grabbed the lion’s share of attention.
“People really like the notion of immediate gratification, whether practically needed or not … It is becoming something of a rallying cry,” said Saks, and is conceptually a natural evolution of demand that has evolved as technology has evolved, too.
And now, added Saks, the questions become: “How do we use it, and what we do with payments, as opposed to do what we did in the past, and how can we make it faster?”
For consumers, there’s a significant boost to confidence, maintained Saks, as it is appealing to the average consumer to know that an account balance can be “a reflection of the current reality” at the time of the transaction and that debits are no longer dragged out by as much as three days in settlement and eventual impact to bank accounts. And there is no longer second-guessing as to whether a person has adequate funds before or after a debit.
The natural evolution will impact how people manage their money and also expect to actually see their money on a daily basis, said Saks, across a range of subtleties.
The change in behavioral aspects can also open a lot of doors to changing the way payments are conducted in a creative manner, posited Saks, who noted the people with access to overdrafts and credits may perceive the use, and availability of, money may be quite different on a daily basis than those who live far more hand-to-mouth.
Saks likened the “early days” of faster payments as one analogous to the advent of credit cards, which eventually shaped the way eCommerce is conducted.
As for institutional change, Webster asked if banks would be eager to recognize the opportunity of faster payments tied to behavior change. Saks noted that some financial institutions might see such opportunity. In many parts of the world, the question of faster payments adoption is rendered moot, mandated as it is by various governments around the world.
Those firms that would voluntarily sign onto faster payments, or Same Day ACH, must “wrestle with the business case” and recognize the benefits that can accrue over two levels: the short-term business environment for the banks themselves and then the “greater good” of the financial ecosystem, which includes consumers, corporates, merchants and the FIs that serve them.
Key benefits include better connectivity and richer data, Saks said. But many firms may look to faster payments initiatives as a “cost of participating perspective,” and those costs may have an impact on longstanding (and historically successful) business models. Other risks to the traditional models come from the merchant side of the equation, where money can be pushed in real time from a bank, rather than using a card-based transaction.
Does a price war loom? Banks, said Saks, will, “as long as possible, position such payments as a premium service” for participants, to the point where they actually “secure higher prices,” especially as infrastructure is acquired in an effort to satisfy demand for speed — but the eventuality is one where natural competition sets in and prices are driven lower.
As for the discussion of infrastructure, the balancing act is one of investment in new initiatives versus the ” status quo rails” (which is what people and firms use now), as it so often is among firms eyeing technology adoption.
Though NACHA, of course, has checked the box on ubiquity with the debut of Same Day ACH for each FI based in the United States, it is but one of the players in a growing crop of faster payments initiatives. For instance, The Clearing House has announced a partnership with VocaLink that seeks to bring money movement between banks in the U.S. to real-time status using new rails but is not ubiquitous (or even real yet — it’s been all quiet on the faster payments front since that announcement at the end of 2015).
The tradeoff, as Saks termed it, is “what is fast enough versus what is ubiquitous?”
A debate that will, no doubt, rage for years to come.