Everyone is talking about Faster Payments – but this is not a new concept. The idea of faster payments has been around for a long time, especially on the global stage. Government and financial organizations in Europe and Asia have been building digital payments systems accelerating the way money is moved from person to person, and consumers to businesses.
Europe and Asia have lead the charge in furthering Faster Payments – the European Union passed the Revised Payment Service Directive (PSD2) enabling consumers to use third party providers for financial management, and India launched its Unified Payments Interface 2.0 which allows consumers to make peer-to-peer payments using smartphones without entering credit card details. The programs have not been without their faults, but they have jumpstarted the conversation and the rest of the world is primed to join the Faster Payments wave.
Faster Payments is a term used to refer to various payment initiatives launched with the goal of providing effective and secure solutions that allow payments to be processed and funds to be moved faster than they have been historically, taking what in the past could be 24 – 48 hours and reducing it to seconds.
From the consumer perspective, Faster Payments means the transaction immediately shows up at as “paid” on their account with the business. On the other hand, businesses view Faster Payments as seeing the transfer of funds for the payment. The consumer perspective is something we have been doing for years, however the emerging business need of immediately available funds is the current industry focus.
This can be separated into two key initiatives:
- Same Day ACH: the movement of funds at the close of the current day, and the business has the funds available at the start of the following business day.
- Real Time Payments: the immediate transfer of funds from one account to another, so the business has the funds available right after the payment is made.
While the United States has been slower to formally address Faster Payments, it benefits from seeing the obstacles foreign programs faced. The initiatives outlined above are bringing the United States up to speed and are led by industry leaders, such as NACHA with its Same Day ACH Rollout, The Federal Reserve’s Faster Payments Task Force, and The Clearing House’s leading the Real Time Payments charge.
The ubiquity of mobile technology and the exponential growth of digital commerce in recent years has driven the need and the demand for Faster Payments, and is being adopted by consumers, businesses, and financial institutions alike. The biggest push for businesses to implement a Faster Payments solution is their customers. As Millennials gain financial independence, they’ll expect to manage their money quickly and safely online. Faster Payments have arrived in the U.S. and will be changing the way money is transferred from person to person, customer to business, and other financial transactions.
The benefits of Faster Payments are wide ranging and are priming the financial world to become more connected and inclusive. The direction for future payments products has never been more clear – financial institutions and technology companies need to focus on building strong, efficient, and secure solutions that will revolutionize the industry for the next generation.
Bill Morrison is the Chief Product Officer at Transactis. He has held senior roles at First Data, Citibank and Associates Financial developing product strategies and driving product excellence.