If you ever watched Star Trek, you know the transporter was a machine that could instantly send a person from the deck of the starship Enterprise to the surface of an alien planet. Star Trek foretold so many technical innovations: think cell phones and 3D printing. And, while no one really expects to be able to instantly send a person from point A to point B, they do expect to be able to send their money from their bank to the recipient of their choice. And they expect the transaction to be instantaneous, with the money moving perhaps thousands of miles in less time than it takes to say “energize.”
Banks these days offer some payment transactions in real time, others in simulated real time, and still others in a day or two. But the pressure is on. In a culture where people “want it now,” faster payments is a resolute rallying cry for most financial services professionals.
The Federal Reserve was taking public comments on its faster payments proposal through the middle of last month. My hope is the Fed commits to providing a payments infrastructure that makes real time settlements on a 24/7/365 basis a reality for all banks, particularly community banks. Real time payments add an element of risk to payments processing that larger banks can absorb more easily than smaller banks, so it is essential that the Fed remain involved to level the playing field.
Settlement and payment are two different things, and I am sure a lot of community bankers will have some thinking to do in the coming months about how closely those two concepts need to align to meet the demands of their customers. Many bankers can create the appearance of a real time payment by making funds available right away even if settlement is hours away. Therein lays some risk. Do you accept that risk? Accept it with limits? Or, accept it with fees? One P2P payments app I use charges $2.50 if I want immediate access to a payment made to me, but waives the fee if I am willing to wait two days to get it.
The public expects insured, fraud-resistant electronic payment services from their bank. Such services require bankers to manage risk more diligently than ever. Even if the Fed commits to providing the infrastructure that allows all banks to compete evenly, banks will have to adjust plans and procedures to meet the public demand without taking on excessive risk.