As we have long advised our clients, a working push payment infrastructure (ie, smart devices and an immediate settlement network) means that a lot of day-to-day payments will shift to the infrastructure).
The “Push Payments Manifesto” at OpenPayee echoes my views on the long-term evolution of the retail payments sector precisely. I’ve written before about how effective push payments will displace other mechanisms, and the manifesto identifies the core reason why.
Payments made using any form of identity token which gives the payee the ability to pull the payment out of the payer’s account are bad.[From Push Payments Manifesto | OpenPayee]
Quite. And as the manifesto points out, pull payments are a relic from the bygone past when consumers did not have devices and there was no network to connect them to. Now that there is a network and there are smart devices connected to it, there’s no need for these dated hacks. To illustrate the point, as I did at the BayPay London meeting recently, consider the prosaic (and in my case entirely hypothetical) example of gym membership.
Right now, this system “works” through continuous authorities (CAs) on cards. And, as we all know, these are nothing but hassle. If you’ve ever tried to stop someone from taking money from your card once you’ve given them an authority, you’ll know what I mean. People often find that the only way to do it is to cancel their card and switch issuer!
Now consider the modern alternative. You are walking down the street and a message pops up on your phone: it’s your Barclays app telling you that the gym have requested their monthly tenner. (Is this about right? I have no idea what gyms cost.) You put your thumb on your iPhone fingerprint reader to OK the transaction and go about your day. Meanwhile in the background there is an FPS transfer to the gym account and about one second later they have their money. Now, you probably wouldn’t want to be bothered with this kind of payment trivia all day long, so I expect that you would set your Barclays app to auto-OK future payments to the gym within certain bounds. So actually when walking down the street you would simply see a message on your phone telling you that the gym membership had been paid. Now, when you want to cancel your gym membership, you just tell your Barclays app to auto-decline instead. Sorted. Better for the customer, and better for the bank too.
Bill payment represents the biggest monthly cost on a checking account, by a wide margin (OK, maybe debit processing costs might be more, but that’s offset by revenue[From Is Bill Payment Dead and Gone in Five Years? « Gonzobanker.com]
This might be a weapon for banks to regain some of their lost ground in billing while simultaneously improving service to customers by given them more control over payments.
The percentage of online and mobile payments made on biller sites increased from 62% in 2010 to 69% in 2013. Bank site payments declined from 38% of online/mobile bills paid to 30% (with third-party sites like Check.com picking up 2%) over the same period.[From Banks Are Losing The Online Bill Pay Game | Snarketing 2.0]
How exactly this will work, however, obviously depends on the infrastructure available for the banks and billers to use. In the US, this means that people tend to think about ACH.
If I were at a bank right now, I’d take my fresh, new business intelligence system and identify all of my customers who use bill pay to make regular payments to utilities, phone companies and the like. Then, I’d start a campaign to get them from bill pay to biller-initiated ACH.[From Is Bill Payment Dead and Gone in Five Years? « Gonzobanker.com]
I don’t think this is the only architecture. Given the combination of smart phones, advances in mutual recognition and the reduced management costs of push payments, surely a more likely path is for the biller to message the customer and have the customer respond by initiating a push payment across an immediate settlement network (such as FPS int he UK). It’s a win-win (except for the gym).