A new payments network…for a brave new world
As mentioned in my previous blog there is much that is wrong with the existing payment networks, but it is always easy to criticise what others have done and rather more difficult to provide a solution to a problem.
Let’s look at some defining characteristics of the new payments network that I have in mind:
- Unified payment capability
If money is moving from one financial institution to another the network should be able to support it. Whether the funds are moving from account to account, customer to merchant or account holder to utility provider the network should support it. It should also support direct debit, account to phone or email address and any currency exchanges that might be required on the way.
- Instant authentication and settlement
This is a given. The receiving institution should only accept the transaction AFTER the destination account has been credited. If there is any sort of a problem the transaction should be rejected. No more taking days or weeks to send a payment and potentially losing it down the back of the fax machine! Furthermore, there should be no separation between the transaction and the settlement. An agreement to go ahead is binding.
- Cost effective
It must be attractively priced. Both for joining the network and for the actual transactions.
- Simple technology architecture
Creating a new network is not about showing everyone how clever you are, but about a hard-headed dedication to getting the network built. It should be based on proven IT technologies rather than doggedly following the principals of the existing financial networks.
The network should actively encourage, by design, the inclusivity of both regulated transaction partners and also end users. In fact it should encourage the replacement of all that has gone before, including cash.
- Speed of deployment
There should be no requirement for multiple consultation processes or to create new entities requiring regulation. Such a requirement would delay the implementation by years. The network I have in mind should be able to be operational, to a small way, in the summer of 2017.
- Provide value from day 1
The network can start with two transaction banks and one Settlement Bank. There must be value to all parties from the beginning, with the value growing as more financial institutions join.
In order to create a network that can achieve all of the above we have designed a system based on an interconnected network of nodes where each node has a defined set of settlement rules and costs.
By definition a payment network connects the digital infrastructure (DI) of various financial entities. If financial entities do not have their own DI, their DI is not up to standard or if they simply don’t want the new network to impact on their existing DI it will be necessary to be able to supply DI to those financial entities in order to grow the network at speed.
This digital infrastructure or core accounts platform must be tightly integrated with the new network so it can demonstrate the network’s value and it should be easily plugged in as a soft entry for those that would like the benefits of the new network, but have not completed the integration yet or would prefer to keep the new network away from their existing DI in the first instance. Smaller entities and those in less developed markets may decide to continue to use the platform supplied to them to run their business.
For obvious reasons there are some areas where I have glossed over the detail of how the new network should work, but if you are interested I am more than happy to go through these with you in as much detail as you wish under NDA.
Give me a call if you would like to discuss this further.