Tuesday, February 20, 2018
In July 2017, a Federal Reserve-commissioned task force issued a call to action with the ambitious goal of making faster payments available to every consumer and business in America by 2020. While "faster payments" is a relative term and many issues are as yet unresolved, recent research by Mercator Advisory Group indicates progress is being made, especially among four faster-payments solutions with "compelling use cases." Mercator is an independent research and advisory services firm exclusively focused on the payments and banking industries.
"[P]ayment platforms and products that offer the ability to send and receive transactions within seconds (or at least minutes) are beginning to be launched in the United States," Mercator stated. "Not since ACH and wire transfer became available has a truly new way to move money been introduced."
In Faster Payments: U.S. Forecast, 2017–2021 Mercator identifies the top four faster payments solutions as Zelle, Mastercard Send and Visa Direct push payments, The Clearing House RTP product, and same day ACH. It discusses these competing options and offers projections through 2021 of person-to-person, business-to-business and business-to-consumer transactions, while also noting that "adoption will depend on the value that faster payments provides the counterparties, the comparative price of a faster payment option, and the number of competing options available in the market."
Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group and author of the report, stated that without a regulatory mandate requiring uniform adoption of a single faster-payments platform, the U.S. market is developing several solutions to move payments quickly. "At this early stage of faster payments development, we have seen creative development for specific markets and use cases," she said. "This approach is fostering a competitive market with multiple options, but for financial institutions, processors, and other participants, it will be difficult to know when, how, and with which services to jump into the faster payments fray.”
Mercator also identified four highlights from the 16-page report, as follows:
So, is it realistic to expect a major shift in the way the nation's payment system operates in less than three years? According to Patti Murphy, Senior Editor and long-time columnist for The Green Sheet, the answer is no.
"It took seven years to implement the United Kingdom's Faster Payment Service – a system the Fed has pointed to as something to emulate, and by most accounts, it only handles a fraction of that nation's payments," she wrote in "Road to faster payments is still a work in progress," The Green Sheet, Aug. 14, 2017, issue 17:08:01. "Seven years is fast compared to the pace of change in the United States. The ACH, for example, was created in the 1970s as a faster, better alternative to checks. But ACH transaction volumes only surpassed check volume a few years ago; the biggest shift has been among consumers shunning checks for debit cards. Nearly half of all business-to-business payments in the United States are still made by check, according to the Fed."
She also mentioned the difficulties encountered with the U.S. transition to EMV (Europay, Mastercard and Visa) technology. "Despite several years' prep time and the threat of ruinous financial liability if EMV devices are not deployed and customer card data becomes hacked, millions of U.S. merchants still authorize cards using mag stripe readers," she wrote.
Still, the Fed, not known for embracing rapid innovation, has provided vision, and according to Mercator, some of the industry's most powerful players have stepped up to heed the call for change.
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