Our digital society has conditioned us to expect news, information, and data in seconds. But what about payments? Is there any reason that we should have to wait days for checks and electronic payments to go through the clearinghouse system? Why can’t the United States enjoy the same systems for real-time payments as other countries have?
This was the question raised by the Federal Reserve in September in a paper titled: Payment System Improvement – Public Consultation Paper. The paper mentions the changing landscape for business owners thanks to technology and higher expectations for speed. It focuses on the Federal Reserve’s belief that strategic changes can be made to the U.S. payment system in order to introduce better efficiency and safety, along with real-time payments.
If you’re a business owner who is tired of waiting days for payments from customers to clear your account, you’re probably wondering why moves haven’t yet been made to adjust our payment system. Sadly, while many banks, payment processors, consumers, financial institutions, and vendors agree that there are opportunities to pursue in streamlining payment processes, there is some self-interest present that causes some institutions to fight against these changes. Profit.
If real-time payments became a reality, then many credit card companies, banks, and other financial institutions would lose a significant portion of their income that is derived from processing and transfer fees. In order to get complete buy-in from the financial industry, they would likely need to develop a replacement stream of income that turns real-time payments into a new kind of opportunity to create revenues.
One way to do this, as suggested by JP Morgan Chase, is to charge businesses for the luxury of receiving real-time payments. This added cost could certainly replace lost revenues from wire transfer and processing fees, but it is unclear how it would impact businesses.
The public sector seems less interested in the argument, but they actually do have a vested interest. When businesses can receive and send money with fewer total fees, it can allow for more innovation and more opportunities for business ownership.
There’s no question that a change is due for the U.S. payment system. The Fed wants it, business owners want it, and even many in the financial industry want it. Hopefully, sometime soon, naysayers will remember that, historically, innovation brings about corporate development and profits.