As the global news feeds announce whacky, new, mobile-inspired payment concepts faster than the regulators can dream up new regulations for the banking market, it is fantastic to see the news this week from the The Clearing House in the US.
At last we have real signs that the US Payment Authorities are serious about updating their legacy payment infrastructures, with the announcement from The Clearing House about the plans to build a new real time payment clearing system. Without these new
infrastructures in place, delivering any reliable, real-time payments schemes is nearly impossible. However, once the new payment rails are in place for a country, then new payment schemes can be delivered and innovation accelerated - as shown in the UK with
PayM.
Much has been written about the benefits of real-time infrastructures when implemented properly. In the UK the Faster Payment Service is still growing at about 16.5% per annum. From a standing start it overtook cheques after 3½ years and is on track to
exceed a billion payments this year (270 million in Q2 alone) - no real surprise when you start to look at the benefits which are well understood;
- 24/7 service
- Bank processing charges (versus other immediate methods)
- Convenience and speed for the banks’ customers
- Improved Security
- Reconciliation
- Paper handling costs
- Visibility of cash positions
- Speed of settlement, etc.
Perhaps the bigger question we now need to ask now is; Can Real Time Payments (RTP) provide a positive impact on GDP?
Looking at Europe, Sweden, Poland & the UK all have RTP infrastructures. Much of the EU is either on the edge of or actually back in recession, however UK GDP is growing at 2.9%, Poland is growing at 1.3% (despite the geopolitical issues on their doorstep)
and Sweden is powering on at 2.1% this year - compared to the overall EU figure of only 0.8%. Internationally a number of other developed countries with real-time payments are also performing well, such as Singapore.
I believe that Faster Payments really do help businesses large and small not just the well documented case for consumers. Small businesses have to be “lean” and that means very limited or in many cases no admin staff. RTP enables customers to pay such
things as deposits for projects, or goods and services at the point of delivery, in real time, enabling immediate transfer of funds, simple transaction reconciliation and elimination of dead time. Businesses can now make RTPs in the UK of up £100k, improving
visibility and control of cash.
Whilst so much of the modern world is strangled by red tape and restrictions, RTP is a fantastic example of how technology really makes “doing business” easier, quicker and more profitable for everyone. Removing the down time for small businesses processing
cheques, enabling customers to have immediate benefit at the time of payment really does promote business growth.
Many of the institutions involved in making this happen globally are worried about the cost of delivering new infrastructure for their country or region. Well the good news here is that the UK total cost was estimated to be about £800m. This equates to
about 0.06% of GDP, or just over £2 per capita per annum. It doesn’t take much time saving to recoup £2 per year! Given that the technology to deliver these projects has now been developed, implemented and proven, costs to implement new projects in the US
and elsewhere should be much lower, and timescales much quicker - please just don’t try to reinvent the wheel!
One quick word of caution. An earlier initiative by NACHA to create an RTP project two years ago was scuppered by the Clearing House in the US. Let’s hope that politics won’t play a part in this project. It is essential that everyone involved keeps focussed
on the end goal and the potential benefits, not just for the consumer and business but perhaps even more importantly, its positive impact on GDP.