Author: Tammy Wilson, TaWilson@jackhenry.com
Pull up any payments related trade publication and try to wrap your head around all that is going on in the industry today, and it will quickly overwhelm. While it is an exciting time to be in the payments arena, it is a challenge every day to identify initiatives with staying power from those that quickly become passé. Those of us that have been around a while know that money movement has not historically been a terribly exciting or innovative place. It was a necessary function with an emphasis on reliability and security.
Then something changed.
It’s possible that the payments industry was just stagnant for so long that it was due for a period of crazy innovation. Maybe, but I think it is far more likely that the maturing Millennials who think so very differently than prior generations about everything, including banking and payments, are dragging us Gen Xers and Boomers along into a new future where we are torn between cliché statements like, “What was wrong with the simple, easy to understand, old way?” and the admission that all this new stuff is pretty cool.
When you look around the world, payments everywhere are changing. Several other countries have already migrated to a “faster payments” model. There is much the U.S. should learn from the trials and successes of others. As a follower, we can mimic what worked and learn from what didn’t. Right now, the Federal Reserve Banks are working on an extensive study regarding ways to improve the domestic payment system, and that study includes a review of these global initiatives. It is an interesting project because the traditional U.S. banking system is perceived as terribly slow to adopt innovation.
Undeniably, our financial system playground is much different than other countries, so there are justifications for our lag. However, the Millennials are creating disruption with their demand for better, faster, cooler options. As a result, we are beginning to see new plays in the payments space that seem designed to satisfy the desire for solutions that better fit their life. As elusive as significant improvements in traditional channels have been to this point, the Me Generation with their smartphones and disdain for the status quo, will likely win the battle to have it their way.
The U.S. payment system’s attempts to evolve seem a bit like Sisyphus pushing his boulder up the mountain, and just when it seems like we are gaining ground, breaches or new regulatory guidelines send us crashing back to the bottom of the hill. Still, it feels like change is inevitable. We know it can happen. Consider Check 21. While image exchanges floated around for a while on a limited scale, a single point of disruption on 9/11, and the resulting standstill of check settlement around the country, made us look at things differently. While it was painful, it proved that we CAN make meaningful, effective improvements to our payments systems.
So maybe the thing to do now is to identify the right next steps. Do we take those familiar but aged check and ACH rails and polish ‘em up so we can stop moving like a steam engine and step up to a high speed solution? Or, are those old rails better left in the dust in favor of promising, but untried revolutionary paths? There are several groups entertaining solutions. With the help of outside consultants, the Reserve Banks’ Faster Payments study is considering the options. They have outlined five desired outcomes1:
Relying heavily on industry engagement, the central banks are trying to determine which route seems the most viable and establish their strategic road map forward. From evolving the ACH network for expedited funds movement, considering expanded use of the debit card network, to building a completely new infrastructure, the alternatives are on the table. Additionally, both The Clearing House and NACHA are working on multi-year initiatives to provide faster payment alternatives. The Clearing House is talking about plans for a real-time solution, while NACHA revisits the Expedited Processing and Settlement topic for Same Day ACH.
It is a challenging task because the ROI is questionable, and the other global initiatives for faster payments have admittedly been strategic decisions not financial ones. But consider the risk if we sit here and watch outside industry innovate their way right past us. And innovate they will in order to satisfy the immense demands of the Me Generation. We should be thankful that the latest Apple Pay solution does not disintermediate the traditional payment channels, but instead innovates on top of them. The next time, we may not be so lucky.
1http://fedpaymentsimprovement.org
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