By : Robert Johnston
April 16, 2015 08:30 AM
Banking experiences are important and it’s hard to think of an everyday transaction as crucial as payments. More consumers are using debit and credit cards to buy goods in stores and online; bills and other regular monthly payments are increasingly settled digitally.
That’s why the decision by the US Federal Reserve to press ahead with plans to launch a real-time payments system is so important. It will make the everyday easier by enabling payments to happen instantly, instead of having to wait days for payments to clear.
How will real-time payments make a difference?
Convenience is at its heart as customers can move money around more easily. Bank statements, which are checked online and via mobile a lot more regularly than in the past, will be up-to-date, offering consumers a clear picture of their financial position.
Bills will be a lot easier to manage, too. Instead of making sure the check is in the post a week or two in advance, the consumer will simply need to transfer funds on the day that payment is due. This could have a major impact on many households as it could reduce late payment charges.
Another example is for big-ticket items, as customers won’t need to get a cashier’s check for significant purchases like a car. In fact a study the Fed commissioned from McKinsey says check use will fall by around a third with real-time payments.
A real-time system will spur consumers to actively use electronic payment channels more. This has many knock-on benefits, not least on the broad economic health of the country. One Visa study reckoned card usage in the US increased consumption by 0.3 percent, adding $127 billion to the economy between 2008 and 2012.
“A safer, more efficient and faster payment system contributes to public confidence and economic growth," said Federal Reserve Board Governor Jerome H. Powell.
According to the Fed, driving adoption of electronic payments will also mean more of the millions of people without a bank account are drawn into the financial mainstream.
For businesses, visibility of cash positions will improve. For example, businesses in the UK can make real-time payments of up to £100,000 (roughly $150,000), which makes it easier to monitor and control cash. Another benefit is reducing the 'down time' for small businesses processing checks, which will boost cash flow considerably.
A caution for banks themselves, however, the benefits they are likely to enjoy will only be realized in the longer-term, according to the Federal Reserve’s initial outline plan, while costs will be front-loaded in the period between 2015 and 2025. But more details about costs in a future blog.