A recurring theme across banking services is that the U.S. lags behind many countries in terms of easy, timely transfers and access to money between banks and people.[i] As a result, firms use in-house systems for immediate transfers within the bank, and options for expedited service across them. The drawback? A hefty fee, to receive and send money in some cases such as wire and expedited ACH transfers.
A December New York Times feature profiles the Ramamurthi couple of Silicon Valley, who bought a bank in Weir, Kansas and set out to devise and implement solutions to some of the common sources of frustration for bank customers, namely slow and costly transfers. Central Bank of Weir offers instant remittance service to India through its website Global Remit, which assesses risk in real-time and only remits funds to reputed banks.
In 2013, the Federal Reserve released its Public Consultation Paper for Payment System Improvement, as part of its expectations that the banking community will collaborate to solve the most common concerns. The summary outlines goals it hopes that banking, non-bank technologists and other institutions will pursue to implement an efficient system that incorporates security and anti-fraud measures while ensuring real-time payments. Two of the proposed strategies are revamping existing payment systems, or designing a new platform entirely. The paper and the full report outlining the Fed’s vision released January 26, announced the formation of task forces to explore options to improve payments systems.
Simply put, we think 10 years is too long a timeframe to standardize and facilitate faster and larger payments. Ten years ago, mobile banking was a fantasy. Pressure will come from outside the banking industry as well, as tech giants like Amazon and EBay improve services for their vast networks of merchants and customers, for whom timely payment, transfers, and refunds are vital. The industry and its consumers need real-time money movement now. Last Monday, the Fed released a detailed report, which outlines four options that it will study regarding strategies to achieve faster payments. For its part, the Fed is hoping to extend the operating hours of the National Settlement Service this year, and is pursuing technology and other changes to operate on weekends or even 24/7. If successful, we hope such a move will encourage banks to broaden their processing and operating times for customers.
The banking advocacy group the Clearing House issued a press release in October 2014 announcing construction of a real-time payment system over the next few years. One of the proposed features will eliminate the need for consumers to share account or other sensitive information to initiate transfers. While that’s an improvement over the ten-year goal set by the Fed, it’s unclear why several years is the proposed timeframe when banks already have instant remittance capabilities. Several banks tracked by Corporate Insight, including Bank of America, Citibank, Chase and Wells Fargo, offer free or low-fee instant transfer services using a recipient’s mobile number or email address through the online and mobile banking platforms. Customers can add and manage recipients within the respective apps.
The Fed is hosting teleseminars to present the strategies, and a live Q& A session in the coming week. We will check back to see the progress of the Faster Payment initiatives, especially to see how banks respond to the proposals. Until then, it looks like for actually delivering on promises to innovations in banking services, we may just be in Kansas, Dorothy.
[i] Tom Groenfeldt, “Federal Reserve Study Says The U.S. Needs Faster Payments” Forbes, November 17, 2014, http://www.forbes.com/sites/tomgroenfeldt/2014/11/17/federal-reserve-to-back-real-time-payment-system-for-u-s/.