Will We Ever See a Faster Payment System in the U.S.?

Originally published on DepositAccounts.com, May 24, 2015.

That’s a question that has been asked for some time. Now though, there seems to be a push toward moving forward.

Earlier this year the Fed announced it will form a task force to take on the issue and plans by 2016, to come up with a strategy for accelerating payments. As reported in American Banker, some of the options it outlined in its report included evolving the existing PIN debit infrastructure to enable real-time payments; using common protocols and standards to facilitate the clearing of transactions over the internet; building a new payments infrastructure that would build on existing technology and only have limited uses; or building a new payments infrastructure that would process a wider range of transactions.

The NACHA, the Fed, banks and other players have been talking about this for 20 years, says Karla Friede, CEO of Nvoicepay, a provider of B2B payment services. "This latest round of talks aims to bring reform to the system in the foreseeable future, at long last."

She said this will be a good thing. "There is no technical reason why payments shouldn’t be faster. Some of the smartest people I know in payments believe we will get there in two years because of the movement of major banks to collaborate and finally make it happen."

What’s the hold up?

In the 2013 AFP Electronic Payments Survey of more than 450 financial professionals, 82% said they experience difficulty convincing customers to pay electronically, 74% had difficulty convincing suppliers to accept e-payments, and 71% found a shortage of IT resources for implementation.

Going electronic can be difficult to implement, as there are sometimes unintended complications for either the company seeking payment, (the seller), or the company that is paying for goods or services (the buyer). The key is to align the buying and selling systems, says Nicole Dwyer, vice president of product strategy at Billtrust.

Adoption has been slow in business-to-business payments because it involves the one thing that companies are most scared about with – their money. "And what’s good for one company isn’t always good for the other. There are some complexities that may account for reasons that e-payments have not fully caught on," she says.

From the seller’s perspective, adding e-payments as one of the many formats by which a company is paid can mean added challenges to how the seller tracks and manages those payments. While an ACH, P-Card or Wire payment can create a high level of efficiency for the buyer, the seller is caught reconciling decoupled remittance data, which sometimes means that processing the e-payment can cost more than the processing of a paper check. In order to keep better track of remittance data, sellers often set up their own electronic invoice presentment and payment (EIPP) portals to send out their invoices and track payments, she explains.

As for the buyer, they sometimes find themselves having to use too many different EIPP portals. While it’s in the seller’s best interest to use an EIPP portal, buyers can quickly find themselves overwhelmed by the process. For a buyer that only has to make payment to one vender, an EIPP portal is not a problem. "But now think about if you’re a multinational corporation with thousands of vendors, and each one has created its own payment portal – navigating and uploading payments to all of those EIPP sites becomes way more complex and time intensive, which can also result in added costs for the buyers," says Dwyer.

One of the biggest problems though, says Alex Gerard, founder of CardMix.com, is the slow response and lack of commitment from big banks. "Just look at Peer-to-Peer (P2P) payments. The industry was buzzing about this feature for a long time, but we do not see a viable solution from big banks yet."

He points out that many people don’t know about the ClearXChange P2P network that was founded by five major U.S. banks. "That network allows you to send money quickly and commission free, but since 2011, not so many people know about it. Banks are slowly incorporating this feature into their internet banking, and every bank is promoting the feature by its own name as a white-label solution. As a result, most of the clients are still using PayPal, despite high commissions, and even Facebook’s money send option looks more promising than the solution from banks," says Gerard.

Banks operating on outdated technology won’t see the risks until it’s too late, warns Mary Ann Miller of NICE Actimize, which specializes in safety, security and operations. "Because ACH is the window to a customer’s prime checking account, transactions have to be scoped for potential fraud in real time, at the customer level," she says.

Then too, ACH often are large batches of transactions, so scoring needs to occur quickly in large real time processes to stop individual transactions in a batch. "Fraudsters will amend payments right before payment cut off times. Risk teams will need to be ready for ebbs and flows in monitoring and alert management."

But for all the challenges, a speedier payment system could come to fruition sooner, rather than later. Says John O’Donnell, chief knowledge officer for Online Trading Academy, "The government will be for it because they want more control and awareness of our financial lives and records for tax and other reasons. It will definitely come if two things don’t deter it: global hackers who game the system and could bring the economy to a screeching halt or the American public does not bring political pressure to stop it."

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