"We want it now. We expect it now. Wherever we are. That’s the new world."
That observation from MPD Chairman David Evans points to one driver of the on-demand economy, which is reflected in payments and commerce ecosystem today. Consumers want what they want fast and at the tips of their fingers. Whether it's hailing a cab or making a payment, faster is always better from most consumers' perspectives.
So when financial leaders talk faster payments, what's the problem?
Well, it starts with a few questions that are seemingly simple but, as the people behind the payments scenes know, are quite complex.
Does faster always mean better — and is better always faster? If it were that simple, as Evans points out, there wouldn't be much to talk about with the faster payments subject. That's why he posed six propositions about faster payments to start off the day of the Faster Payments Imperative held in Chicago yesterday (Oct. 6).
That day consisted of lively debates about why "faster" and the various proposals to achieve it may not solve the most pressing issues payments and financial services face today.
So what did Evans propose to get the spirited conversations flowing?
- Faster is better, all else equal. All else is seldom equal. So faster is better sometimes but not always.
- Faster is better, but faster doesn’t mean instant. It takes time to manage risk for all the parties involved in the movement of funds. That’s never going to happen in the blink of an eye.
- Faster is better, but faster isn’t everything. Being smarter, being more flexible and being more powerful are good things, too.
- Faster is better, but faster isn’t free. Faster costs money. We need to make sure the candle is worth the flame.
- Faster is better, but there are tradeoffs between speed, intelligence, flexibility and power. At the margin, it may be better to spend money on a smarter payment system or more flexible payment system than on a faster payment system.
- Faster may be better for one party to a transaction, but it may not be better for the other party to a transaction. People want to make sure they get the goods before they give up their money.
"Today, every financial institution is connected in this country through a fast communication system. As a technical matter, it is possible to move money all across the country and around the world almost instantaneously. And we’ve been able to do that for around 150 years," Evans posed to the audience of financial executives.
So why haven’t we?
"Companies in the money transfer business, including banks, have chosen to impose business processes that take time — mainly to manage risk. Banks, and other companies, also have to comply with government regulations that take time. It takes time to know your customer ... An important question for today is whether advances in technology, especially software, can make these business processes work faster and more efficiently," he noted.
What everyone — whether they're in the inner circle of the payments ecosystem or waiting to see what the outcome is on the outside — wants is smart, secure payments. And that's one thing Evans says everyone is on the same page about.
"If there’s one thing we can all agree on, it’s that there are a lot of frictions in how we do payments today. The faster payments imperative, in my view, is really about removing those frictions," Evans concluded. "It’s about making payments better. Faster is usually better. But better isn’t always faster."
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Peeling The Layers Of The Faster Payments Onion
The Faster Payments Imperative, which was powered by PYMNTS and NACHA, opened up an executive-level dialogue on the business opportunities and critical decisions for the U.S. Ubiquitous faster payments are coming closer to being a reality in the U.S., but there's still a way to go before all the key players are onboarded.
And until then, it's about having the thought-provoking conversation that brings about real change in the real-time payments discussion, which is exactly what Jan Estep, NACHA's president and CEO, says is needed.
"I sound a bit repetitive when I say I think developing a common language across the organizations that need to do something is critically important. So asking the question and asking the question and asking the question again, I think, is really the most important first step, second step, third step, fourth step. Because if we keep saying 'what do we need to do, and how exactly do you plan to do it,' we open eyes and raise the knowledge level of everybody," Estep said, following the eight hours of conversations about the topic.
NACHA's role in the faster payments push has — besides convincing 13,000 FIs to back Same Day ACH — been to educate and bring various parties together in the spirit of moving the payments systems forward.
"There are many approaches to solve payments improvement, which will create many different solutions. There are many different solutions represented in the discussion today. I think that also raises the point that there is not just one to pick," Estep said. "A lot of different solutions vying to be the one or the greater one that will bring us into the future. I think the unanswered question is how would you achieve interoperability if, in fact, you assume that there will be multiple solutions into the future. What is that key for interoperability? What options do we have?"
"Today, I think we were able to peel the onion back a little bit. Over the next year, there will be a tremendous amount of change," Estep concluded. "We need to continue the dialogue. We need to continue to peel away the onion. And I would engage each of you to continue the conversations we had today."
Following the day's discussions, Evans noted that there is still great confusion on what faster payments really means, why it's needed and how "it is we are going to get something that is more, better and different than the Same Day ACH solution that NACHA has."
"I think there is confusion because there is lack of agreement on what the word 'faster' means. It means different things to different people. I think there is a lack of reality on how you get the banking industry, as a practical matter, to adopt a common solution. It's a very hard thing to do. And I think there has been excessive focus on the real-time aspect in payments, as opposed to coming up with a better and more robust platform for payments in the U.S.," Evans said.
Faster is better, but there are tradeoffs between speed, intelligence, flexibility and power. At the margin, it may be better to spend money on a smarter payment system or more flexible payment system than on a faster payment system.
The Private-Public Collaboration On Faster Payments
Speaking about how the payments ecosystem can achieve improvement through collaboration, Esther George, president and CEO of the Federal Reserve Bank of Kansas City, shared how the Fed is working within the private sector to spur innovation. She also gave insight into the Fed’s approach to the faster payments challenge as an operator, overseer and catalyst for change.
That change, George said, could be considered "one of the biggest undertakings in the payments system in the United States."
"That is this public-private engagement that is taking shape to improve its speed, efficiency and, most importantly, its security. This engagement is designed to meet the growing demands of growing consumers and businesses that continue to shift toward eCommerce and Internet-enabled technologies in their daily transactions. To some it may seem a bit unusual — an unusual approach we've taken — but it's not really a new one at its core," George said.
"Based on the history of mutual cooperation on payments issues between the Federal Reserve and the private industry, we've seen public-private engagements in this country yield important gains in the past. Such collaboration in the past has created outcomes that contributed to a more resilient payment system and provided benefits to the public."
George echoed Evans’ sentiments about the demand for consumers about having products and services delivered instantly. That same addiction for same-day delivery that has rapidly become expected — instead of a perk — has found its way into the faster payments conversation. And consumers want their payments keeping up to speed.
"Among the most profound and pervasive changes that we see has been the rising expectations of the consumer and businesses for continuous improvements in speed and efficiency. People who have come to expect regular upgrades in communication and technology have also come to expect more functionality from those computers, their tablets and their smartphones to help buy things," George said.
For many, that means the development of a safer and faster payments solution that is both ubiquitous and on demand. Of course, as the conversations at the Faster Payments Imperative showed, not everyone is on the same page about how and why that's needed.
Either way, there was one point that was agreed upon by all: The payments system in the U.S. must be modernized. And it needs to account for cross-border payments, which George noted has "not kept up with the pace of globalization."
And, of course, it must be ubiquitous. And secure. And user-friendly.
Is Faster Payments Always Better? A Skeptic's Perspective
Mark Sole, CEO of Sipree, a cloud-based payments company, shared with PYMNTS why he was skeptical before coming into the conversation, and why he thinks many of the faster payments conversations are "aspirational."
The topic of faster payments, he noted, is a good jumping off point to get the conversations started, particularly because it gives stakeholders the opportunity to discuss what it's going to take to innovate the payments ecosystem. But is faster payments the basket the financial community should put all of its eggs in?
Perhaps not, he said.
"Faster payments for faster payments' sake. There's a prosaic question: When is fast enough? Instant payments seem to me to be a very small number of places where that has to happen. Same-day payments seems like something all of us should be doing. In order to find the problem, somewhere between the end of the calendar day and instantly, there's probably a compendium of suitability, and so the advantages of us talking about this again is to see if we can really flesh out if it's worth the effort," said Sole, who was also a panelist at the conference.
"Frankly, I think there are some bigger challenges than just faster payments. I would like to see better identity in the payments. I'd love to see infrastructure for directories ... That's actually more important to me than if we go from two days, to one day, to 15 minutes, to instant ... Faster payments — yes. But, at some point, faster will be fast enough."
Faster is important, he emphasized, but it shouldn't be everything. For example, talking about payment friction and identity services should lead the conversations. He wants more conversations about identification, beneficiaries and how friction can be reduced by using technologies like distributed ledgers.
"The Internet is global, so why can't we have transmission of infrastructure to conduct banking infrastructures," Sole said.
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Why Talk About Faster Payments — And Why Now?
As the payments leaders — both in the private and public sectors — work to make faster payments a reality in this country, there are lessons that can be learned from other geographies that can inform the national dialogue in the U.S. in terms of approaches and experiences.
Ian Rubin, ACI Worldwide's consumer payments practice lead in the Americas, shared his insight into what the defining characteristics are in the faster payments debate and what's driving the conversations today. This begs the all-important question: Is the U.S. lagging in faster payments, or is it right on par?
But, as the executives expressed during the panels, it's not as simple as just comparing the U.S. to other countries' adoptions of faster payments initiatives. But what those countries (like Australia, Singapore and the U.K.) have done, Rubin said, is raise visibility to use cases for faster payments.
"Two years ago, this wasn't on the radar for any CEO. Now, all the banks that I talk to, everyone wants to talk about what we're doing with faster payments," he said. "I think a part of it is they see that there are these use cases that can supply different products to consumers into businesses that help them with liquidity, with cash flow, in ways that we just can't do right now."
From a retailer's perspective, if they're paying for each transaction to a payment network, there's interest in cutting out some of the costs from the system, Rubin noted. Real-time payments comes with the promise to do just that.
"I think that we are in the early adopter group. There are another 15 or 16 countries in the world that have this, it's true, but every country has their own drivers. There's reasons they are facing or trying to solve in their economies," he remarked. "But it takes a while to educate 13,000 banks to get on board and get them educated on how to prepare for it. There's a lot that has to be done at each bank, at each back office."
And that leads back to the beginning of the conversation. Does faster always mean better — and is better always faster? Consumers, FIs and the Fed all have their perspectives and individual definitions of what "real-time" and "faster payments" really mean.
"I think two ways to look at it: Consumer wants funds right away; bank wants funds right away. But there are people that have to make sure these payments are secure, and that adds some drag ... Some of that has to be worked out. It's not just the efficiency," Rubin concluded, rattling off the laws and regulations that need to move along with the faster payments standards. "There are these checks that have to happen along the way."
Faster may not always mean better, and better may not always be faster. Either way, everyone wants that conversation moving forward in order to bring to light the unanswered questions that are needed to advance the payments system in the U.S. today.