Friday, October 24, 2014

Movement to a Small Value Gross Real Time Payment System

I read an article in an excellent on-line publication ( ) that reported the US Automated Clearing House (ACH) (presumably under the auspices of the National Clearing House Association (NACHA) although not mentioned in the article) will develop a real time payment system (see The article seemed to indicate that the system would use a push methodology instead of the payment card pull methodology: “It is expected that the new system will route payments based on tokens that cannot be used to debit accounts, so senders and receivers will not need to provide complex, sensitive bank account details”.
This is a sea change in the payment environment in the US and perhaps the world. Questions, however, abound. Will we see connectivity between real time systems in Sweden, Singapore, and eventually Australia?  Will the mobile payment operators especially in Africa offer a real time platform also? Will we see the simultaneous development of tag based data protocol to originate transactions? How will the large payment service providers react? How will banks price the service? Will the system ensure delivery of goods and services by instituting a synchronization of delivery and payment?

Of all the questions, perhaps the most intriguing one is how the big payment services firms will react. If US politics is the same beast that brought us the “Citizens United” Supreme Court decision (stating companies are people and allowing unlimited spending on behalf of political candidates) then lobbying to prevent the development of the modern payment platform already began. I think the lobbying effort will fail and we will see a new approach. Payment services firms will start to offer digital currency and it may have the advantage to some transaction participants by providing anonymity. Sure the gauging of retailers by necessity will vanish, but the circulation of digital money for years after its purchase will allow the payment services firms an endless supply of tax free loans to compete against the registered payments present in the real time payment platform the announcement promises.

I suspect the private label cards will disappear also. The big box retailers and super stores will begin to issue virtual currency with their own corporate electronic signature and it will circulate freely; perhaps consumers will get discounts if they redeem the currency at the company of origin.

The dark side will also get into the game. As long as governments declare certain goods and services illegal then criminal suppliers will meet the demand and if electronic currency becomes the only viable medium of exchange then suppliers will create their own to meet illicit demand.

Fraud will not go away, but the practitioners of thievery will need to become a lot more sophisticated than scraping data off retail payment initiation devices.  

Next Blog: The growing schism between payment systems for the rich, the middle class, and the poor

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