We need new payment networks…but we’re looking in the wrong places
“The current payment networks available to the financial institutions around the world are no longer fit for purpose.”
I think that this is a statement that has been generally agreed by all those involved but let’s go through them just to be clear:
- The card networks are expensive to join, expensive to transact on, expensive to be part of (due to PCI DSS and the separate transaction and settlement process) and are prone to fraud (due to the excessive reliance on the secrecy of the card number).
- SWIFT is slow (it can take a week to get a payment credited to a beneficiary’s account), unreliable (transactions can go missing for months) and expensive to join. It is difficult to create a network of partners in order to send payments through and there can be very unexpected pricing per transaction.
- BACS, CHAPS and Faster Payments Service (UK) are all closed clubs that are very hard to join and massively expensive for those allowed in. If you are not a direct member the cost per transaction is high enough to make non-members uncompetitive in the banking community.
- ACH (USA) is ludicrously slow and expensive.
Ant Financial is coming with clean, fast, modern systems that will make western banking look archaic, slow and expensive.
So, what are we doing about it?
Countries around the world are forming committees to address this problem. I listened to an interview with one American man waxing lyrical that with over 400 members on the committee it was such an open and positive experience. But “designed by committee” is an expression that rarely has very positive connotations and tends to involve creating systems that are overly complicated, are difficult to implement and will take a long time to go live.
An alternative approach is what the Canadian central bank has chosen. They have appointed a big international systems integrator (in this case Accenture) in a process they have described as taking several years, involving many parties and being very expensive.
Part of the problem is that there is an ISO standard for payments (ISO 20022), which was also designed by committee and is horribly complicated, so it’s pretty much a foregone conclusion that it will be chosen as the basis for any new payments network.
Interestingly, very few people seem to be looking at the card schemes though. While it is generally agreed among the people I speak to that what the card schemes are providing is difficult to use, suffers from all sorts of non-transparent processes, is expensive, complex and prone to fraud, no one seems to feel there is any choice, so we need to just be quiet & make the best of it.
Then there’s R3 and the holy blockchain. Billions have been invested into blockchain and distributed ledger technology over the last few years, but in my opinion this is another over-complicated, over-engineered solution to a problem that is, while not simple, not as complicated as all that.
What is clear is that most current efforts to solve the problem are looking for a solution within the very systems that are causing the problem.
Surely what’s needed is some fresh thinking, unencumbered by legacy systems & vested interests.
We believe there is a solution.
Give us a call if you would like to discuss it.