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In her 2012 book Bankrupt, Carol Realini put forward the idea of a “banking superhighway” for the US. This sort of thinking has been gaining ground although not, unfortunately, with everyone. The Federal Reserve is having a consultation about it at the moment (it’s just about to close in fact), following on from NACHA’s decision not to move forward in this area.

There’s not much prospect of an inter-account immediate, low-value payment service (ie, a banking superhighway) in the US right now.

But even this incremental move was too much change for a bloc of big banks that played a decisive role in torpedoing the proposal in a vote in August of last year.

[From How Big Banks Killed a Plan to Speed Up Money Transfers – American Banker Article]

The US has no equivalent of the UK’s “Faster Payment Service” (FPS), or anything similar, that could be this banking superhighway and it has no plans to build one. The payment system is staying as it is.

There’s just one problem: the technology banks use to move money dates back to the 1970s. So while the Internet makes it possible to transmit 10 books across the country in several seconds, moving 10 bucks can take several days. And demand for instant payment services isn’t nearly strong enough to convince the banking industry to join the 21st century, experts say.

[From Google, Square thwarted by banks’ 1970s tech – MarketWatch]

This is true, of course. There is no demand for what the article amusingly calls “disco era” systems to be upgraded and no enthusiasm amongst the banks for doing it at their own expense. But, as the UK’s implementation of the Faster Payments Service (FPS) has shown, the system generates its own demand. In our response to the Fed consultation, we highlighted the growth of new services on top of FPS in the UK and M-PESA in Kenya to illustrate the long term opportunities for banks to benefit from, rather than compete with, a better payments infrastructure.

The UK superhighway doesn’t have to be the same as FPS, that’s not the point. But it does need to provide a means for immediate payments between qualifying accounts up to a reasonable level in order to fuel innovation and growth. Building this superhighway is, though, only one part of the solution. It has to have, to continue the metaphor, the on- and off-ramps. Right now, even if this superhighway were to be built, those ramps would be controlled (and tolled) by the banks. In the Europe, this may not be the case in the future as there is another regulatory consultation under way there.

On Wednesday the 24th of July, the European Commission put forward a proposal for an updated Payment Services Directive (PSD). The directive allows for “access to and use of payment account information by third party payment service providers”, or in short, “access to the account (XS2A)”.


For those of you with proper jobs, and therefore no time to follow the twists and turns of European payment regulations, and therefore a limited ability to factor likely downstream regulatory shifts into corporate strategies, it may seem that having the time to read European Payment Council (EPC) newsletters on such topics as the “Regulation of Payment Account Access Services” and indeed European Central Bank (ECB) public consultations on such topics as “Payment Account Services” themselves is a bit of a luxury. It isn’t. If you want to have a long-term (ie, more than a quarter or two) strategy toward payments you have to have some idea of what is going on and the likely outcomes. For many of our clients, access to payment accounts is a really important issue.

So where to begin?

You can see the Commission’s mental model. They’re thinking along these lines: there’s no pan-European FPS, no European banking superhighway but it’s convenient for consumers to be able to give apps the ability to — oh, I don’t know, send tweets for them or make Facebook posts for them — so why can’t you give apps the ability to access consumers’ bank accounts and thereby bypass the evil American card schemes. I paraphrase, but you get the point.

I can think of a few hundred reasons why I would not want to give apps access to my bank account, but I can also think of a few good reasons why I might. Suppose, for example, my Waitrose app could access my Barclays account? I do my shopping at Waitrose, I go to check out, a message pops up on my phone, something like “Waitrose want 35.91 from you, is that OK?” and then I put my finger on the home button or punch in a PIN or something and Waitrose instruct an FPS transfer from my Barclays account, hey presto I just paid. I trust Waitrose and I trust Barclays, so what’s the problem?

To a customer, this would seem just like a regular debit card payment. Indeed, it is precisely the same user experience that you might expect the Waitrose app to display when using V.Me or MasterPass wallet APIs. To the retailer, however, it represents an entirely new class of payment that is, from their perspective, free from the encumbrances of schemes, issuers, interchange, processors, acquirers and so on and so forth. Hence you might reasonably expect them to incentivise consumers to switch. Hence I expect merchants, utilities, public services and many others to press for this kind of service

When I chaired a closed-door session on this with European banks — don’t worry, I won’t mention anything that was discussed — earlier in the year, one of their biggest concerns was, naturally, security. This is completely understandable. They (rightly) fear a Chernobyl unless the Commission mandate a sufficiently high level of security. Watch this space.

But as thought experiment, imagine that Carol’s superhighway does get built and that not only can you send money from account to account, from a bank account to a “near bank” account, from a “near bank” account to a mobile top-up account and so on. And suppose you can grant service providers to right to access those accounts and instruct payments. Then payments would vanish from view. They would be a background activity on your phone.

These are personal opinions and should not be misunderstood as representing the opinions of Consult Hyperion or any of its clients or suppliers

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