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An in-depth look at the key players, challenges and stakes in the effort to modernize the banking system's plumbing, from the editors of American Banker and PaymentsSource.
March 30 -
The financial industry and the Federal Reserve are finally on the same page about the U.S. payment system's need for speed. But achieving consensus about what the new system should look like remains a tall order.
March 30 -
It took a decade and a government mandate for the U.K. banking industry to develop a set of rails to transfer funds from one bank account to another in seconds.
March 30 -
Fedcoin could have a lot of benefits, such as helping unbanked buy goods and pay bills online. But about those "know-your-customer" risks....
March 29
The first payment Suresh Ramamurthi made with his bank's real-time system was only 25 cents. But that small transfer made a big impression.
"You could see the money show up within minutes of pressing the send button," said Ramamurthi, chairman of CBW Bank in Weir, Kansas. "It was like magic." The $14.5 million-asset bank's
The benefits of real-time payments go far beyond the cool factor. The Federal Reserve's
Some advantages of faster payments come down to convenience. Faster person-to-person payments could help friends more easily pay one another back for burgers and split cab fares, and spare them the social awkwardness of reminding one another about their debts.
But faster payments also have the potential to make a material difference in many people's lives. They can be a major boon for non-salaried workers, according to Jordan Lampe, communications director at Dwolla, a real-time payments startup.
Fast-clearing payments allow "a payroll company to cater to the on-demand economy, paying people hourly wages on an hourly or daily basis," Lampe said. "Instead of getting paid every two weeks, you get paid as soon as you clock out."
More than 90% of the 1,500 payroll professionals
Broadly speaking, "if you're in a real-time scenario, you're eliminating drag," said Andy Schmidt, a research director at CEB TowerGroup. "When you have at least the advice that funds are arriving and that's immediately visible, people can actually make plans and decisions."
Faster payments don't appear to present wildly lucrative opportunities for banks in the short term. By the Fed's own estimate, the business case for speedier transactions is "net neutral to negative" through 2025.
But Americans have become accustomed to on-demand services in the digital age, according to Bob Steen, chief executive of Bridge Community Bank in Mount Vernon, Iowa. Banks risk eventually losing customers if they keep them waiting for payments to clear, he said.
"Customers' expectations are higher," Steen said. "And because of human nature, we want things to work better and faster. You've got a 4G phone, you wouldn't go back to a 3G phone."
"It's a very difficult business case but a critical strategic case," he added. "I didn't invent those words. It's pretty much the consensus."
