The term “faster payments” has been expanded to not only describe the speed of payments but also to encompass other valuable payment features, such as ubiquity (anyone, anywhere), data extensibility (data accompanying the payment), and strong security. Although speed matters, without these key features, there’s little to no value to the end user. With that said, I will assume these additional attributes exist in a new payment scheme and focus why faster credit push payments (when a credit transfer is made from the consumer’s financial institution to the merchant, as opposed to a debit transfer, or pull payment) matter to consumers.
Faster Is the Expectation in the Digital Era
We can text someone in another country and get an immediate response. When we want to watch a movie, we go online and stream it. When we need to go somewhere, we can use a ride request app and have a car arrive within minutes. So it’s no surprise that consumers wonder why we can’t make moving money fast and simple, given the available technology. The use cases solved by faster payments are endless: emergency funds to a family member, paying a small business owner who has just completed a service at your house, sending insurance money to a victim after disaster strikes, just-in-time bill payment, etc. The obligation is settled for the sender with no loose ends, and the recipient has funds available to meet his or her financial needs.
Cash Flow Management and Budgeting
Beyond these uses, faster payments can enable improved cash flow management and more predictable budgeting. The advent of online banking and text alerts has dramatically improved account and cash flow management. If a transaction posts incorrectly or the consumer incurs an overdraft charge, that person knows almost immediately. In the days of paper statements, finding this out would have taken much longer.
We need to make payments work like many other things in today’s digital world: fast, transparent, and easy.
With that said, one challenge that still remains is that there are several payment instruments (checks, debit cards, Automated Clearing House transactions, bill payment) that all post at different speeds and times. As an industry, we do our best to simplify the process by calculating and displaying an “available balance” that reflects all posted and pending payment activity. Because some of these payments are not digitally initiated, they don’t give us the needed information to provide consumers the exact amount available in their account.
In the new, faster payments world, consumers could use a mobile device to initiate a credit push transaction, view in real time how much money is in the account, and securely make a payment. Because payments will post in real time, the balance in the account will reflect all posted and pending activity, thereby creating a “safe-to-spend” balance. Banks will be able to help consumers manage their money as they spend it by providing alerts and by building applications that enable expense categorization during the payment process. In the end, consumers are better able to manage their account balances and spending habits, and the bank has deepened relationships by providing new services to help consumers meet their financial goals.
Challenges Ahead
We need to make payments work like many other things in today’s digital world: fast, transparent, and easy. As a retail bank, we have been pursuing faster payment connections and building applications to bring this goal to life for our customers. Payments are much more complex than text messages or streaming movies – security, authorization, settlement, currency conversions, fraud detection, dispute resolution, and payment format standards are all critical aspects of a payment system. As a result, this journey will require significant work and collaboration in order to implement faster payments. But when you consider the potential benefits, it’s a journey worth pursuing.
