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The fast and the furious: real-time payment systems challenging banks

“Time is money and right now money doesn’t move as fast as it could. That costs someone a lot of money.” – the words of Dwolla CEO Ben Milne in revealing his company’s U.S. real-time payments deal with BBVA Compass.

payment systems

BBVA Compass (the U.S. arm of the Spanish banking behemoth) plans to offer real-time payments to its customers in the first quarter of 2015. The Dwolla platform enables these payments using its FiSync protocol, moving real money in real-time. Dwolla doesn’t use the Automated Clearing House (ACH), debit networks or credit advancements. Dwolla simply doesn’t like fees.

The quest for the perfect real-time payments system is a worldwide challenge. In a September 2013 consultation document titled ‘Public System Improvement‘, the U.S. Federal Reserve Banks stated that they are “interested in fostering an environment where innovative payment services can be developed to meet the changing payment preferences of end users without sacrificing the efficiency advantages of near-ubiquity.”

The problem is that banks fear the consequences of a ubiquitous Dwolla-esque system. Dwolla charges $0.25 for all transactions over $10. Ben Milne originally co-founded the company due to the high fees charged by banks and credit card companies for what he considered to be a glacial payments system. The Dwolla system cuts card schemes out of the loop, but BBVA Compass is the first major bank to embrace the real-time payments idea. Disruption has met conservatism, yet BBVA Compass is taking a brave, pioneering step in the U.S. payments world.

There are currently 36 countries that offer real-time payments. Some are moving at speed, while inertia is causing consternation for others.

Worry in Australia over stagnant payment systems

Australia is not a regressive country when it comes to payments. It is a world leader in terms of penetration of contactless payments and the number of taps per month. Yet there are worries Down Under that stagnation is setting in when it comes to payment systems innovation. The Reserve Bank of Australia (RBA) Governor Glenn Stevens, speaking recently at the Australian Payments Clearing Association AGM in Sydney, struck a worried tone when he asked if Australia was languishing behind comparable countries when it came to the integration of real-time payments:

“In the area of real-time payments, we have seen major initiatives launched in Sweden and Singapore,” he said. “The Swedish system was launched in December 2012 … which enables households to send real-time payments via their mobile phones on a 24/7 basis, 365 days a year. Singapore’s system . . .  was launched in March this year. Is there a plausible reason to accept Australia falling behind?”

Governor Stevens’ remarks came against the backdrop of stagnation in implementing a plan to create a new Australian payments platform. The RBA wants Australian banks to work together to modernise the system so Australians can make retail payments in real-time as well as make and receive payments outside of normal banking hours.

The concerns of Australian banks are shared the world over. Gareth Lodge, senior payments analyst at Celent, and author of the report ‘Real-time payments: dispelling the myths’, recently stated that banks are now at a crossroads: “The impacts of real-time payments are wide and potentially profound, and, crucially, very real. How and how well banks respond is likely to define their future success.”

What is Sweden doing that has Australia questioning itself?

For ABBA in the mid-1980s it was all about ‘Money, Money, Money’ but now Bjorn Ulvaeus (yes, that Bjorn) is one of the pioneers promoting the idea of a cashless society in the progressive Scandinavian country.  The former ABBA member is a cash-free evangelist in a country where the central bank, the Riksbank, predicts it will achieve this aim by 2020. The ABBA museum in Stockholm has been cash-free since May 2013.

A December 2013 European Central Bank report found that just 27% of transactions in Sweden were in cash. The report, however, did not take into account online transactions. Campaigners believe that the transition to a cashless society protects the environment, reduces costs (cash handling fees would be eradicated), and reduces crime. Last year, for example, one would-be bank robber was embarrassed when his chosen Stockholm target turned out to be a cashless bank. Bank robberies in Sweden are at their lowest level since recording of crime statistics started in 1975.

Beyond the ethical issues, speed and convenience are cited as the positives of real-time payments. This is driven by a consumer base which is increasingly mobile and digital savvy. Time will tell if the banking system is capable of mirroring this consumer transformation.

Where Aviso comes in

Our modus operandi is to improve efficiencies and reduce the time to market and cost of connectivity. Aviso’s solutions are designed to be cost-effective and, crucially, to be seamlessly integrated into existing payment systems.

At our core we provide flexible EFT switching technology for electronic payment systems. Our innovative approach enables our clients to ring-fence their investment in legacy systems and add a software layer that delivers valuable functionality and security to existing inflexible payment systems.

We understand the need for payment industry stakeholders to innovate in order to drive new revenue streams. We want to incubate that desire. We work with our customers to eliminate the pain associated with implementing wholesale changes in an effort to future-proof an existing system. Time to market is the key driver. The payments industry is in a state of flux. Friction is being reduced and real-time payments are in demand.

The real challenge facing payment industry stakeholders is that almost immediate change is required, yet project size, cost, and consequences can be daunting. Aviso’s solutions can improve existing systems while drastically reducing the time to market.

Our cost-effective payment software solutions accelerate the roll-out of new payment services (potentially reducing implementation time by up to 80%) and provide opportunities to increase revenues by adding new functionality without affecting or bypassing the core payments infrastructure.

Contact us

For more information on our products and services contact us at info@aviso.io, or follow us on Twitter and LinkedIn.