In April, I took a quick trip to Disney World…well, kind of. The annual conference of NACHA, APCA’s equivalent body in the USA, was held at Disney World’s home: Orlando, Florida. Around 2,200 bankers turned up to hear three days of presentations on the state of US payments – and possibly catch a few rides. I hope they had some fun amongst the work, because these are stressful times for US payment providers. Having weathered the GFC with tightened budgets, US bankers are acutely conscious of new payments system developments in other countries and pressure from the US Federal Reserve to follow suit or be left behind; but they are a long way from agreeing amongst themselves what is to be done, and who will pay. My small contribution was to outline the policy logic behind Australia’s New Payments Platform (NPP) proposal as a comparative example. There was much interest.
To an Australian visitor, there was at times a Mary Poppins quality to proceedings (remember Mr Banks of the Dawes Tomes Mousley Grubbs Fidelity Fiduciary Bank?). Some bankers seemed to be arguing that there was no need for systemic change to US payments, despite the fact that one third of non-cash payments are still by cheque. The most talked about new product in the US is remote mobile cheque capture. You receive payment with a paper cheque, but then use your smartphone to take a picture of the cheque and upload it to your bank for collection. Thus, state-of-the-art technology is used to perpetuate an 800-year-old payment method. The Australian mobile payment apps that enable person-to-person payment instantly between accounts at the same bank, or perhaps intraday between financial institutions, are still a rarity in the US. To be fair, there is another new product, ClearXchange, which offers account-based mobile payment services but it is yet to gain traction amongst banks.
At the other end of the spectrum, the apostles of BitCoin and other cyber-currencies were out in force, asserting that the payments system had already changed fundamentally – banks just haven’t noticed yet, and would eventually go the way of the dinosaur. To my mind, this falls victim to the common fallacy that because something becomes technologically possible, it will definitely come to pass.
There clearly is a policy case for payment systems to take advantage of new technologies to serve the emerging digital economy, but there is room for much debate about how to do it, how much it will cost and what the best evolutionary path is. These are decisions the Australian industry is already facing up to in the NPP program. One useful insight is that the two opposing perspectives noted above are mutually reinforcing. The relative slowness of mainstream payment methods and providers to adapt to the demands of ecommerce and m-commerce encourages the emergence of radical alternatives, and in turn the radical (read risky) nature of such alternatives fuels mainstream debate about the need to ensure stability, safety and reliability. Clearly, a middle path is most likely.
Both NACHA and the Federal Reserve are doing their best to promote sensible debate on this important systemic issue. Consistent with APCA’s efforts here, the key is self-interested collaboration. For a new payments system to emerge, payment providers need to form the view that their longer term best interests are served by having a better platform on which they can sustainably compete for digital economy business not only against traditional rivals but also against payment service newcomers and radical alternatives like cyber-currencies. They need to believe that failure to act eventually puts revenue and market share at risk. Such new systemic platforms are best built collaboratively by the competitors who will use them – both traditional and newcomer. If this is done well, it will also meet the public policy goals of the regulator. It’s simple to say, but notoriously hard to do.
A couple of years ago, a public perception seemed to develop in Australia that our payment services were “falling behind”. But a great deal has happened and my visit to the home of Disney World suggests that is now well wide of the mark. Putting aside the progress we have made as an industry on the New Payments Platform, Australian product development has already outstripped the US in numerous areas – such as chip and contactless cards, mobile apps, bill payments, intraday bulk payments and cheque replacement. In any one of these areas, you can usually find another country that is ahead of us – but there are not too many who can claim to be leading edge across the whole spectrum. As APCA said to the Murray Inquiry, the Australian payments system is building on all round competitiveness and innovation. NPP aims to keep it that way.
