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Faster Payments: Is There a Business Case?

posted by Adam Levitin

The Federal Reserve System has embarked on a project of exploring the possibility of faster retail payments in the United States.  A similar move has occurred with the UK Payments Council.  At the same time, the Electronic Payments Network is rolling out a faster version of ACH.

Here's what puzzles me:  what on earth is the business case for faster retail payments in the United States?  The U.S. payment system works incredibly well. Yes, it has flaws: the interchange system is unfair and security is atrocious. But those aren't really speed issues.  Real-time authentication is a security issue, but that's separate from speed of payment clearance and settlement.  

Now, it's true that the US lags behind other countries in terms of mobile payment technology.  We don't have anything like Kenya's m-Pesa mobile payment system. But there's a reason for that:  we don't need m-Pesa in the US because we already have a functioning retail banking system, and our banks are better safety-and-soundness risks than our telecom operators.  (Kenya's government owns a large share of m-Pesa, making it quasi-guarantied, I guess.)  

So readers, tell me, what am I missing?  Is there a business case, or is this just about chasing shiny bells and whistles and wanting to have the latest technology just because?  My sense is that we're seeing an "iPhone effect" of wanting the best and newest, even though the current system is just fine. 

Comments

Reduce the need for wire transfers? Better synchronize cross country transfers? Better compete with crypt currencies? An interesting question.

The Fed identified some potential business cases, largely around ad-hoc payments that are currently done by check. This is especially important for people who are not well served by the current speed of the system and have to resort to expensive means of immediate liquidity like check-cashing.

There is also the possible future looking benefits like allowing real-time retail payments without relying on credit card networks, something retailers at least say they want.

To keep it short - I wrote something longer on this topic for my job: http://www.milkeninstitute.org/blog/view/798

Best,

Brian Knight

I don't remember if they addressed the business case but Planet Money did an interesting piece on the speed of our financial "plumbing" here: http://www.npr.org/sections/money/2013/10/04/229224964/episode-489-the-invisible-plumbing-of-our-economy

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