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By Matt Wilcox, senior vice president of marketing strategy and innovation, Fiserv
When it comes to faster payments, the U.S. has reached a tipping point. Mobile capabilities and other technological advances are changing the payment process and fueling consumer demand for real-time payments. In its recently released report, Strategies for Improving the U.S. Payment System, the Federal Reserve outlined next steps for enabling faster payments, which center on collaboration from a number of payment stakeholders.
The report examines strategies for improving the payment system, and is the result of nearly two years of research, analysis and information gathering from key industry participants. The Fed points to four options for building a faster payment system: evolving the existing ATM/PIN debit infrastructure, using common payments protocols and standards to facilitate direct clearing of transactions over the Internet, building a new real-time payments infrastructure to address targeted use cases and leverage existing infrastructure, and building a new real-time payments infrastructure that would process a wider range of transactions.
Time will tell which of these options moves to the forefront, but it’s clear the Fed expects our industry to be engaged in the process. The report calls for collaboration from payment stakeholders, including the establishment of a task force to identify effective approaches “for implementing safe, ubiquitous, faster payment capabilities.”
Growing consumer demand for real-time payments and an increasing payment-speed gap between the U.S. and other countries are driving improvements to the U.S. payment system. Consumers want to manage and move money at the time they choose – instantly, same-day, next-day or on a scheduled future date. A 2014 McKinsey study commissioned by the Federal Reserve Banks found 70 percent of consumers preferred instant or one-hour payments – and were willing to pay for them.
People’s lives are moving quickly, and they increasingly expect to be able to send or receive money in real time. Whether sending money to a friend or family member, paying the rent, or paying a bill, consumers sometimes want or need their funds to be credited immediately. Fueled by 24/7 mobile capabilities, demand for faster payments will only accelerate. According to Fiserv estimates, fifteen percent of financial institution customers are now mobile-only, accessing their accounts using only their smartphones. This new category will be the driving force for a payments experience that is frictionless and user-friendly as possible.
Next-generation payments will be defined by speed, and consumers and other payment stakeholders will also demand the highest levels of security, convenience, scalability and efficiency. The Federal Reserve estimates that increased payment speed is especially needed in certain use cases, which would initially impact 12 percent of total U.S. annual transactions, or about 29 billion transactions per year. These include certain person-to-person payments, person-to-business payments, business-to-person payments and business-to-business payments. As consumers and businesses begin to take advantage of increased payment speed, the Federal Reserve expects payment volumes – and use cases – to increase.
No one entity will be able to build a faster payments infrastructure on its own. Collaboration will be required to enable more ubiquitous real-time payment capabilities. Just as ATM networks developed independently before ultimately connecting to better serve consumers, payment stakeholders will need to come together to improve the payment system and facilitate faster payments. It’s these connections that make money move faster and more intuitively.
Fiserv is already working toward this goal. In 2014, the company launched the NOW Network with a vision to make sending payments as easy as “who, what, when.” The NOW Network not only connects everyone that people want to pay – from other people to businesses – it also connects other networks. Fiserv previously announced connections with the Star and Pulse networks for Popmoney person-to-person payments, enabling real-time person-to-person payments capabilities for financial institutions that are members of those networks, and Fiserv continues to pursue connections with other strategic networks.
Payment stakeholders, including those with existing connection points, scale, assets and comprehensive relationships with financial institutions, will be key influencers in the move toward faster payments. The Federal Reserve has established a timeline for seeking input from stakeholders, and in March opened applications to two taskforces of financial institutions and nonbank payment processors. Cooperation among these stakeholders will be necessary to meet milestones as the U.S. moves toward mass adoption of real-time payments.
When people, their money and those they pay are all connected, the payments experience becomes profoundly simple – consumers should only need to know who, how much, and at what speed they want the money to move. It’s time to work together to deliver payments just as quickly as people want them.