Thursday, September 11, 2014

Does Government have a Role in the Evolution of Payment Systems?

Lawmakers cannot define a payment hub. When they try, they make laws like defining pi as 3.141 to make construction budgets (and therefore timed payments) precise. Other than being really funny (forgive my odd sense of humor), such bizarre attempts raise a legitimate question, namely, does government influence on payment system architecture needlessly force modifications or does it have a benefit. 
I think payment hub design requires data elements that support the only legitimate government concern, taxes, and fight back on government encroachment on anonymity due to cross border or value inspections. Governments wanting to know specifics of transactions traveling within payment systems need warrants based on probable cause other than detection of a large value because of a large tax payment.   

I am not naïve; governments can, have, and will use payment systems, like any other commercial infrastructure, as a weapon or an intelligence platform, so be it, but that requirement should not influence efficient design. This discussion leads naturally to a question of a cash pools, their union, and the obvious attraction they garner from thieves and governments alike.
No reader yet has contradicted me on the published premise that payment systems require speed between initiation and settlement to reduce risk. So why are we not seeing various economic sectors teaming together to form small value gross real time payment systems (SVGRTP) based however loosely on the Bum’s Pocket I described earlier in this blog

My vision of a patron at say an Indian casino in Michigan with a windfall of winnings, leaving with nothing more than a passport, and traveling to Macau and back without a payment card, cash, or anything except the ability to transfer funds immediately from the casino to the taxi, the airline, the hotels, the restaurants, and tips in cash when required, without any trepidation, remains only a vision.

Certainly the toothless antitrust authorities in the US do not stand in the way and the other G20 nations endorse cross small value transfers using the haphazard pull methodologies implemented by cards and other tokens set up in advance under careful host government scrutiny. Why financial institutions let large payment networks dictate the relationship between them and their retailers and force apart their natural conduit of fund movement remains a true mystery.

I do understand the reluctance of financial institutions (FI) to meddle with a working system regardless of leaky pipes and archaic data structures. However, at what point do FI look around and realize that their customers demand rapid movement of their funds in a secure reliable way and they will go elsewhere to get that service as manifested by growth of private label and pre paid cards. True governments such as the US making prohibitions for instance on gambling, requiring funds reporting, allowing the immediate ex-judicial seizure of cash in or out of bank accounts, enforcing card issuer and payment network monopolies by allowing the price fixing of fees, and many other nanny policies increase the search for alternate payment methodologies. However, FIs need to pull their collective heads out of the sand and compete in a realistic manner or they will find themselves on the losing end of a retailer revolt that creates self sustaining models of the bum’s pocket.

Next Blog: A PED design for access to the Bum’s Pocket

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