In a world driven by progress, sometimes it’s easy to expect changes that are further away than they may at first seem. Such is the case when it comes to the realm of faster payments. Faster payments refer to a system of transfers that are instantaneous or almost instantaneous. The way systems work now, both individuals and companies alike can end up waiting days before their funds are transferred.
Faster payments would enable consumers and businesses to send and receive payments in real-time, allowing for more dependable cash flow and budgeting. This could help avoid accidental overdrafts and the need for short-term financing or loans. This alone could change the way small companies conduct business, giving them the ability to do more by having a flexible and dependable method of quick payments.
While speed is the primary benefit, faster transfers have other advantages that can come through its implementation. Studies conducted in the UK, Singapore and Mexico show that faster payments have reduced the number of payments that utilize cash or checks. This can help reduce the cost of maintaining the infrastructure and operation for paper-based payment options.
Faster payments also reduce the risk factor that our current system has by reducing the amount of time between payment initiation and reception. While the speed of faster payments would require higher processing standards and security operations, this would benefit both financial institutions and customers alike in the long term.
It would also keep the US competitive with the rest of the world, where most of the first world countries have already adopted faster payments or are in the process of laying the foundation for it.
As it currently stands, faster payments may not really start to get off the ground in the US for at least a couple of years. When 498 payment professional businesses were surveyed, only 22% said that they would have faster payment capabilities within the next year.
The implementation of faster payments has been spurred on in other countries through government mandates or regulations. In Mexico, Iceland and Turkey, faster payment systems are handled through the central bank, while countries like the UK, Sweden, Japan and Australia manage their faster payments through private operators. However, even in these cases, settlement services are still typically provided through the central bank.
There’s no doubt that there’s a demand for faster payments. Currently, the Nacha network offers same-day ACH credit and debit transactions. The Clearing House Payments Co. LLC and some other private financial institutions also offer real-time payments. Even the Federal Reserve is looking to provide solutions with their real-time payment service, FedNow, which they hope to launch in 2023.
Perhaps the biggest issue presented in the widespread adoption of faster payments is updating legacy payment systems. While there may be comfort in the familiar, continuing to use these outdated payment systems can actually bog down business’ bottom line. Companies have also expressed concern over cybersecurity. Security measures would have to be increased to be rigorous enough to support real-time payments.
At the end of the day, it looks like we’ll have to wait a bit longer for faster payment systems to be standardly available.