Instant payments adoption is becoming an increasingly important issue as financial institutions respond to changing expectations around payment speed and emerging competition from cryptocurrencies and other digital payment technologies. In Europe, the introduction of SEPA Instant Credit Transfer is adding urgency to the discussion, while the path toward faster payments remains less certain in markets such as the United States.
Comments from European Central Bank officials suggest that instant payments could also provide banks with a way to demonstrate innovation using established financial infrastructure. However, comparisons between faster payments and cryptocurrencies can blur the distinction between technologies designed to address different payment challenges.
It seems a bit of misdirection in the title here, so not really sure if the author of this brief article was intentionally using bitcoin in the title to generate more eyeballs. Suffice it to say that the specific quote mentioned as coming from Yves Mersch, an ECB executive, is clearly about cryptocurrencies (assumed to be used in a blockchain-type construction, although likely not a permissionless bitcoin version). Where do faster payments come in?
”Banks need to implement instant payments as soon as possible and provide an alternative narrative to the ongoing public debate on the alleged innovation brought by virtual currency schemes”
Instant Payments and Cryptocurrency Address Different Challenges
So now that we have that straightened out, we can at least identify what seems to be a debatable opinion as contained in the quote. First of all, we are not aware of much of a public debate going on about virtual currency innovation, unless one interprets ‘debate’ as dozens of weekly articles on multiple subjects, including blockchain, bitcoin’s wild valuation ride, cross-border payments, and so forth. The other half of the quote about implementing instant payments as soon as possible is more or less an expectation in the EU, since SEPA Inst (which goes live in Q1 2018), is the default mandate, although effectively a P2P effort to start. The question about speed of instant payments adoption is far from resolved in the U.S. for sure.
The Payments Innovation End Game Remains Unclear
In any event, the piece goes to make some contradictory points, so not really clear where it was headed. It simply contributes to the generally unclear end game in the payments innovation state of affairs, especially around cross-border effectiveness.
The development of instant payments, cryptocurrencies, blockchain technology, and new approaches to cross-border transactions reflects a payments industry undergoing substantial change. Although these technologies are often discussed together, they do not necessarily compete directly or solve the same problems.
For banks, instant payments adoption represents a more immediate opportunity to improve payment speed and respond to evolving customer expectations. At the same time, questions remain about how quickly different markets will embrace faster payments and what role newer digital currency technologies will ultimately play, particularly in improving cross-border payments.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
