Over the past few years one of the questions popping up regularly in conversations with clients and prospects at banks and processors all over Europe was: “is there a real customer need for real-time payments as we do not see our customers indicating needing it?”.
Since being involved in payments, which spans 15 years already, I have always been convinced that mainstream electronic payments would move to instant execution for payer and payee. It is just the natural direction to go.
What I mean with “natural direction” I would like to explain with a little anecdote:
Two decades ago, in the very early days of my career, I was managing a collection of departments, one of them being a marketing and communications department. It even had a sub-department running large Xerox printers and medium sized offset machines to produce brochures and a wide variety of other print jobs. At the time office printers were still monochrome, the only office printers with color were a kind of plotters used to produce powerpoint (overhead!) slides. This seems ages ago but actually is only just over 20 years ago!
Anyway, one day I walked into a discussion with a group of colleagues from this department, who were discussing the viability of color inkjet printers for office use. These people had been involved in all kinds of “colored” media expressions for years. They all were very eminent about the fact that color desktop printers for office use were just a very expensive fad. What would color add to office printers? Who would have real demand for that?
My position was quite simple:
“We life in a world of color. Our perception of color enables us to marvel about our world while discriminating colors has been essential for our survival as a species. Color therefor is natural, even essential, to us and we will therefore inevitability move towards machines enabling us to see and (re)produce in full color.”
My colleagues looked at me rather bewildered (as they did more often I must admit). They did not accept the “broad and only general” argument provided. After some back and forth they indicated “we do not expect user demand, we do not think people will think they need it”.
I am not recollecting this anecdote to prove I was right, just to explain that some developments are almost autonomous. Actually I learned about the dimension of time and its relevance for business success, customer lock in, processing and warehouse efficiency at the very same wholesale company. For clients (both the suppliers and customers) this aspect of time was to abstract to handle while for the company the management of time and the reduction of lead times was essential to its existence and success.
A network, especially large ones, are running more smoothly when time lags – invoking all kinds of orchestration and coordination needs and interdependencies – are absent. With the advent of the highly connected society via internet this has come all the more apparent.
As our interconnected society spreads out literally and figuratively, our transactions can be made between actors not restricted by geography instantly. The payments made as a consequence of these transactions will become instant too. This is in my eyes just a “law of nature”.
It is like gravity; something can try to stop the water to flow down like a dam in a river but at some point the water will spoil over it, the water finds an other route or the dam is breached. The question is not if but when the water rises high enough to spill over the dam, finds a new route or when the dam is breached.
With these type of meta trends the individual client of a bank (or any other company) is not the one to ask what is needed, required or even what he or she wants as they are captured in place and time as if fixed somewhere on the line of developments (Nb I have posted so many times on our Human nature and (in)abilities that I provide a summary landing page here.) Just remember the quote on the relevance of customer inquiries in case of fundamental changes in the product offerings of Henry Ford:
“If I had asked people what they wanted, they would have said faster horses.”
Steve Jobs is famous for not asking customers for what they want (via Fortune):
“We do no market research. We don’t hire consultants. The only consultants I’ve ever hired in my 10 years is one firm to analyze Gateway’s retail strategy so I would not make some of the same mistakes they made[when launching Apple’s retail stores]. But we never hire consultants, per se. We just want to make great products.
“When we created the iTunes Music Store, we did that because we thought it would be great to be able to buy music electronically, not because we had plans to redefine the music industry. I mean, it just seemed like writing on the wall, that eventually all music would be distributed electronically.
I had expected that by now all parties involved in the incumbent payments chains would take the move towards faster/instant payments pretty much for granted. That it only is a matter of how to do it in a way the (incumbent run) dam itself is adapted to keep on channeling the bulk of the water (the payments) in an interconnected real-time world.
But the last couple of months I have heard this very question popping up several times. I find this remarkable as the UK, Sweden and other countries are offering real time payments all ready. Where does this reluctance to see the inevitable direction – or as Steve jobs would say the writing on the wall – towards instant payments (still) come from?
As much as my former colleagues did not accept my answer that color would be embraced by “law of nature”, I found my counterparts in banking asking on about the development on instant payments also reluctant to agree to my assertion that “it will just happen”.
I will explore the analogy of the dam in relation to speeding up payments infrastructures in my next blog posting. Until then I can recommend you to download and read a very recent FED publication: Strategies for Improving the U.S. Payment System
via Finextra: FED SETS OUT FASTER PAYMENTS OPTIONS: The US Federal Reserve has set out a series of options for speeding up the country’s antiquated payments system.
Update 29 January 2015: An other interesting read in this regard of speeding up infrastructures is the EBA (Euro Banking Association) Working Group on Electronic Alternative Payments: Opinion Paper on Next Generation Alternative Retail Payments: Infrastructure Requirements. (Via Innopay)
Update 10 March 2015:
via Finextra: Finextra news: EBA Clearing forms pan-European instant payments task force:
EBA Clearing has launched a task force to lay the groundwork for a Europe-wide instant payment processing service it hopes to have up and running by 2018.
The move is in response to a call for action by the Euro Retail Payments Board (ERPB), which has expressed concern that the emergence of new domestic platforms, such as the UK’s Faster Payments scheme, might end up creating a fragmented market in Europe for instant payments, similar to what existed in regular payments in the past.