Not all transactions have the same need for speed, so the Federal Reserve Banks' financial services unit will start with a narrow focus as it evaluates the development of a faster payments infrastructure in the U.S.
Any new system must find uses that benefit consumers and financial institutions alike, said Philip Bruno, partner with McKinsey & Company. "Providing value to both businesses and consumers and the retail and commercial sides of banks is important," Bruno said Sept. 25 at the annual Chicago Payments Symposium.
Initially, the banks should focus on "just in time" business-to-business payments to suppliers, as well as insurance claim payments, Bruno said.
Person-to-person payments and payroll, temporary wages or jury duty also call for near real-time speed. Finally, a person-to-business payment, such as an emergency bill payment, also calls for faster transaction speed, Bruno added.
In June, the Fed's financial services unit concluded a year of research in determining the U.S. needs a completely new payments infrastructure to develop electronic payments at the near real-time speed enjoyed in other countries like the United Kingdom. Bruno's company provided the Fed with recommendations after studying the complexities of developing a faster payments system.
Banks are studying the potential opportunities for faster payments, said Tom Rea, executive vice president at U.S. Bank.
Technology vendors are bringing new ideas for faster payments in lobbies and at ATMs, Rea said. "We are early in the process, but it is interesting to see what kinds of questions and ideas come up," he added.
Even so, it's not yet clear how long it will take to implement a faster payments system in the U.S.
"We have heard everything from two years to 10 years," Rea said. "It makes for some tricky situations in capital planning, but we are very much engaged in the faster payments discussion and committed to making it happen."
Consumers are not thinking about the benefits for a business or bank in getting a faster payment, said Anita Patterson, director of treasury services for Cox Enterprises. "Consumers are thinking about making sure their payment for their cable, or for a movie or other services are being paid right now," Patterson said.
Time of day doesn't mean what it used to for consumers, Patterson said. "If I come home after work and realize I have to pay my cable TV bill right then, I want to go to bed knowing I will have cable TV tomorrow."
All banks will need to be in on a faster payments scheme because consumers and businesses will not be able to function in a world in which some banks move faster payments and others do not, Patterson added.
The Federal Reserve financial services policy committee has discussed the potential for a payments council or other advisory bodies that could oversee a faster payments system in the U.S., said Sean Rodriguez, senior vice president, Federal Reserve Bank of Chicago.
Working groups and focused marketing and communication about faster payments will also be beneficial, said Rodriguez, who has been instrumental in moving the faster payments agenda forward with various research initiatives and meetings with bank and payments industry executives across the country.
In his keynote presentation on innovation, Steven Johnson, author of Where Good Ideas Come From, Future Perfect, encouraged those in the banking and payments industry to examine the successes of other industries in developing a new payments system.
"There is so much in payments to reinvent because society is trained to accept the current process with a plastic card," Johnson said. "Reach out to unrelated fields for inspiration and look at the world with fresh eyes."
Apple Inc. provides the perfect example, Johnson said, because the computer technology giant was "widely mocked" when it said it was going to open retail stores.
"But they wanted to reinvent the retail experience," Johnson added. To do so, Apple decided to study businesses in which consumers seemed to be extremely happy.
"They studied five-star hotels and how they did things, and tried to incorporate those concepts into a retail setting," Johnson said. The result was a type of store at which people "love to hang out and learn, even if they are not going to buy anything."