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Widespread adoption of same-day settlement will level the competitive playing field for all financial institutions and allow all account holders to benefit from expedited settlement.
September 17
Last year the U.S. contributed close to
But this is not a globally progressive payments system.
Last year Celent reported that
The most common justification for the lack of support for the EMV standard apart from the fact that merchants, banks, issuers and networks can't agree on adoption terms is that the U.S. intends simply to leapfrog EMV and go straight to mobile. The most logical move on that front would still be adopting the revised EMV standard for
Many payments experts have dubbed NFC a collective failure, with the technology receiving the nickname "
Despite the U.S.'s lackluster support of NFC, contactless transactions in Europe, Australia, China, and Southeast Asian countries are accelerating at a measured pace. Compared to countries like France, the U.K., Australia, Poland, etc. which record volumes of contactless transactions in the 20% to 40% range, the U.S.'s 1% of contactless transactions looks shabby. NFC is currently being trialed in
From the outside looking in, the U.S. is quickly becoming a massive closed-loop payments system. There is plenty of activity within the local system, but interoperability with the rest of the world is suffering. The U.S. is fast becoming a payments island with, in the case of checks and card standards, a system that is 10 years behind the rest of the world.
The U.S. has more than 7,000 banks and a like number of credit unions, making it the most complex and diverse banking market in the world. Bradley Leimer, digital strategy lead at Mechanics Bank in Richmond, Calif., pointed out to me recently that there were more than 280 mobile payments startups in the U.S. alone. This is free-market economics at its best, something that in the past has produced incredible innovation.
PayPal is obviously one of the most successful global payments businesses in the world today,
Google Wallet and ISIS have invested close to $1 billion in their respective wallet technologies in the last couple of years, but the lack of suitable POS infrastructure has hampered their progress immeasurably.
Then you have the
This doesn't even start to tackle efforts like P2P payments, QR code payments technology like
With the exception of Square and PayPal, all of these innovations are very U.S.-specific. While that's great for U.S. citizens, the lack of interoperability means the vast majority of these apps don't work outside U.S. shores, and, hence, limit the ability to send money across borders or purchase from overseas merchants.
Each year close to
While the market is producing potentially remarkable innovations, adoption of standards that result in lower cost of delivery, interoperability on a global stage, less payments friction and higher adoption rates should not be viewed as an antithesis to progress.
There's a simple way to illustrate what is going on in the U.S. right now. There appears to be in a philosophical battle over who will dominate the future of mobile payments, but it is like a fight between VHS and Betamax, while the rest of the world has moved on to streaming movies. The chances of a payment technology like Clinkle or MCX's wallet quickly becoming ubiquitous and moving offshore to create a new de-facto interoperability standard that competes with EMV and faster payments is a statistical long shot. PayPal did accomplish that for the Web, but it wasn't competing against 280 other payments startups, and an established global ecosystem that was already working efficiently.
The only solution to payments reform in the U.S. is a parallel approach. Aggressive adoption of the EMV standard along with lowering the friction behind secure element support for NFC would be a promising start. While NFC clearly has some competition from emerging technologies focused on cardless payments, it is still the most workable approach to retooling the existing networks to accept mobile payments in the short term. The adoption of expedited processing and settlement on the ACH network would also be a basic step on the road to real-time payments enablement.
I think the simplest way to rally the troops around this would be for U.S. regulators to mandate EMV interoperability for issuers and merchants tied to Durbin reforms (merchants, you don't get interchange reduction without it beyond 2015; issuers you can't issue new cards beyond 2015 unless compliant) and for the Fed to propose a basic across the board check-processing fee of $2.50 per check. This should solve the intractability of the various players, and provide enough incentive for larger payments reform.
Like that is going to happen!
Brett King is founder of Moven, Bank Technology News' 2012 Innovator of the Year and author of "Bank 3.0."