Improving lives through better banking
Imagine a world where banks are connected. Not just in the fairly tentative way they are now through all the third-party payment networks like card schemes and SWIFT but really connected. So they can pass rich, detailed messages of any type and where necessary, include real-time settlement with the message.
What would such a world look like?
There’d be no cards or card schemes. Wallets will become unnecessary. Shopping would be a matter of tapping your phone or smart device. Cash would swiftly disappear. Since transactions can also go directly from phone to phone why would anyone bother with cash? The people who produce ID documents will need to come up with ways of putting them on a phone because no one will be carrying a wallet just for that.
Shopping online is a joy. No more having to remember long numbers and so on. Simply tell the website who you bank with, they will tell the bank the details of the transaction and then send you to the bank to approve the transaction. The bank can hold all your usual delivery addresses so you don’t have to enter them on every website you use. Nothing could be simpler, or safer.
Also, given that the bank will know the date of birth of their account holders and the merchant can send product codes and minimum age of restricted goods (e.g. cigarettes and alcohol) the bank can now offer a properly controlled youth account that will allow a child to shop at a supermarket and not allow them to buy things they shouldn’t, even if the transaction is happening online.
Of course, for the bank and the merchant the advantages become even more apparent: an end to online fraud through card theft, an end to trying to fight that fraud through AI instead of fixing it at source and best of all, an end to the PCI DSS and the card scheme fines.
Having the capability of a really rich dialogue between banks presents some additional benefits. The merchant can send a fully itemised receipt with the transaction that will be available on the customer’s bank statement forever. No more shoeboxes full of receipts, receipts that are too faded to read or trying to return products having lost the receipt. The receipts are always safe on your bank statement. I am sure FinTechs will be quick to provide products that can analyse spending, show people where all their money goes each month and generate an alarm if it looks like they will overspend. Lenders can use such information to approach people who are running short or determine if potential customers are a good credit risk. Generating expense claims straight from your bank statement becomes a doddle and even company accounts and book keeping will become a breeze.
How about open banking? It seems that everyone is telling the bank to open their systems to the FinTechs but the way in which this will be charged for is always met with prevarication or outright silence. Open banking without a payment system cannot work. However, with good communication between banks and a payment system to back it up and open banking becomes, not only possible, but obvious and potentially very lucrative.
The payment system is the jewel in the crown. Based on a chain of back to back transactions that are settled in real time with the payment itself it finally gives Treasury Managers an up-to-the-second view of their liquidity positions and the tools to manage them effectively. It gives compliance departments the tools to make informed choices about which transactions to allow, which to reject and which require further investigation, without leaving the customer in the dark about where their money is or when it will get to the destination.
Best of all this system is light-weight and scalable enough to be able to handle the huge mass of micro payments envisioned in the “internet of things”, where payment is embedded into the customer experience with instant notification and receipt.
It would not be overstating the case to say this is the most important revolution in banking for the last 50 years. So how does it happen?
In some ways the technology is the easy bit. Trusek has already built the basic building block of the network. This will handle the communication and settlement between any two directly connected banks and the routing through the network to indirectly connected banks.
It is worth noting that this is not built on expensive, experimental new technologies like blockchain or DLT. Nor does it impose the arbitrary rules of a third-party upon the banks and financial institutions involved in a transaction. Rather, it uses well tested and scalable technology that is run by the banking industry, working in competitive cooperation for the good of themselves and their customers.
The challenge now is to create the relationships with the banks and the regulators to grow the network at pace.