Consumers want faster payments
October 15, 2014

For many years, retailers have been drifting away from consumers using direct bank payments. Often, they would refuse to accept checks. The reason for this is quite simple: The speed in which a check is processed is often very slow, taking at least a day to complete. In today's economy, that isn't fast enough to satisfy merchants, which is why they accept debit card payments instead, despite some of the risks associated with them. At the same time, there is an increasing number of consumers who are thinking the same thing about bank payments. They too want faster payments for various reasons.

It's all a matter of real time
The Federal Reserve began surveying correspondents in recent years to understand the current bank payments system in the country was performing poorly. In most other countries, the national system allows for interbank transactions to occur in near real time, sometimes less than an hour. However, the United States has mostly been unchanged for various reasons. The leading reason is that these changes were done at the government level, while the Fed has preferred to leave this business in the hands of the private sector. This has a variety of consequences. For example, people still like to use checks as a way to transfer significant amounts of money to one another, but it means that they don't process for some time. Even with innovations such as check image capture, it still takes at least a day to process the funds.

In addition, consumers are looking for assurances that their payments will go through in the proper manner. They want funds to go through in as close to real time as possible, an assurance that the payments won't get rejected and returned, notification that the check has cleared and masking of account details to prevent account exposure. Most importantly, they want to be sure that the payer's account actually exists with enough funding inside to complete the transaction. Such is the consumer's desire for faster payments that the Fed's survey showed that 69 percent of respondents wanted payments completed within one hour.

The solution has been to improve the automated clearinghouse system. ACH processing remains a secure and reliable method of sending funds between banks. However, that mechanism remains slow. The NACHA is seeking to address the problem by using a phased implementation to make same-day payment settlements possible and likely While only a small step forward, it's going in the right direction.

Nexus: G-WEBCD3