By Paul McMeekin
Imagine a world in which consumers have control over their money and are connected directly to their payment mechanism of choice no matter where they are. In this world, shoppers pay anyone directly from their accounts, banks reclaim a direct relationship with consumers and retailers drive up store spending. Payment stakeholders benefit by eliminating inefficiencies in the payments ecosystem, thereby reducing costs and protecting margins in the face of relentless change and regulation.
Consumers and businesses have multiple electronic options when it comes to paying for goods or services rendered. They can pay by credit, debit or prepaid card, ACH transaction, or alternative networks. Although the current infrastructure works effectively, it was built during an age when paper reigned and in which the mass-market Internet and smartphones did not exist. Technology has shifted that landscape and paper-based payment systems have fallen behind by not leveraging the limitless bandwidth, consumer protections and ubiquitous access to online information that now enable more efficient payment alternatives.
Real-time payments via numerous channels and devices like smartphones, non-branded cards, mobile phones, laptops and computers offer an evolutionary alternative to current payment options, delivering instant, secure and inexpensive payments directly between two parties anywhere in the world — creating a new way of paying called “consumer any to any.”
The term “any to any” describes the connection from one party to any other party, and can include payments involving unbanked individuals with access to prepaid cards. Real-time payments facilitate quick, secure, cheap and regulated transactions between consumers and retailers, financial institutions and billers. Payment stakeholders can make both a direct connection to each other and offer a benefit to their customers by enabling person-to-person, person-to-business and business-to-business payments.
The benefits of real-time payments abound for consumers, financial institutions and retailers. If these benefits are clearly and consistently communicated to all stakeholders and consumers, this communication can drive consumer adoption of real-time payments as a dominant payment option:
- Consumers — Real-time payments return consumers to the center of the payments world with security and speed. Whether they’re paying each other, small businesses, large retailers or billers, consumers control their money. As such, they appreciate benefits like lower cost, instant performance and accompanying real-time rewards (afforded by real-time payments).
- Financial institutions — Financial institutions benefit from the inexpensive, conservative, efficient nature of real-time payments. Although it’s true that financial institutions would lose money from interchange fees, conservative estimates project more than $5 billion annually in new revenue derived from consumption fees on services that consumers are demanding (i.e., P2P payments and increased fraud protection), as well as more effective cross-selling and merchant-funded rewards. Further, there is an estimated $5 billion in savings from lowered attrition and saved acquisition costs.
- Retailers and billers — Retailers and billers benefit from significantly reduced costs as they are unhinged from the existing networks. Additionally, retailers reduce their exposure to card data breaches, enabling them to better protect their brands. Real-time payments give them more insight and control into what consumers buy, leading to increased revenue.
In seeking to replace the current complex card payment systems, real-time payments must gain wide adoption to create a network effect capable of propelling the new system forward. With effective communication and marketing of the advantages of real-time payments (i.e., speed, efficiency, lower cost, regulation and increased economic velocity), as well as fraud prevention and loyalty components, the potential real-time payments network is poised to introduce the next step in the evolution of payments.
Paul McMeekin is manager of business intelligence and market research, ACI Worldwide.