Some good insights on faster payments are available in a Bob’s Guide article that includes an interview with Tom Hay, one of the architects of the UK’s Faster Payments processing platform. It provides a good retrospective on how we got to this point in the global faster payments market:
“At the time faster payments was being debated – one option on the table was making payments ‘faster’ but just next day. One of the schemes was called ELLE – ‘early for late, late for early’, so if I submitted early it would get to you early and vice versa. But the other option was why not make it absolutely instant, so the payment happens in seconds, like it does in the card world.”
“That was the option that the industry went for – driven by one or two vocal proponents saying let’s build something useful in 10 years’ time and look to the future rather than build something that works for the next couple of years.”
Also included was a succinct understanding of the hurdles facing faster payments success:
“Banks need to both change their internal infrastructure to handle real-time as well as connect to the relevant national payment scheme or schemes. Critically the implications aren’t purely technical – there are major operation requirements to ensure governance, not to mention business considerations around how the core system will power forward-looking products and services. Sophisticated routing decisions have to be instantly taken, fraud and anti-money laundering checks now need to be handled instantly, and exception-handling processes require automation.”
“The problem for mid-sized and smaller banks is they only have a sledge hammer to crack a nut.”
“For example, large global banks may already have a payment hub that they can use in their core markets, but such systems are difficult to customise and costly to deploy in smaller, subsidiary markets. They are expensive to license, inefficient at lower transaction volumes, and often hide additional professional services fees. The price tag increases further when middleware and database licenses and the requirement for heavyweight infrastructure are factored in.”
“So yes, cost is one of the biggest barriers, and it is particularly acute for smaller banks asking for a lower cost way to provide the speed of execution their customers need today, and the digital services they expect tomorrow.”
Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group
Read the full story here