In response to some questions on the
Catalyst Code blog I thought I might make a few things clearer here, such why I see a real change coming faster than many may realise.
The thrust of the comments was that it would take longer. The reasons proffered are in italics.
These comments could probably be applied to most any new e-transaction system which is not originating inside a bank. The inference in the Catalyst Blog was that it would take longer than three years just to get agreement on standards and interoperability
etc. I'd like to point out that existing standards will be applied where appropriate and out of our control, however elsewhere things will be done to our own (higher) standards.
A little perspective - our perspective - as the transaction processor.
I note that Diner's didn't get group input from every bank before introducing their service to merchants and consumers. I can' find any notes about Amex consulting the banks either.
Issuing banks comply with Visa's and Mastercard's rules and conditions, rather than the reverse.
The object of the exercise is to profit by providing easier, safer, lower risk transactions. The methodology has been determined, no discussion or input is required and no changes will be made to the system unless determined by the transaction processor to
be of benefit to the customers and the transaction processor. ie lower risk or lower costs.
Any assumption that any banks' co-operation or input is required would be erroneous. The service is for consumers and is independent of any customer's bank (although in some cases a bank may have chosen to be a partner in the transactions of a country or territory).
Consumers and merchants are our customers, not banks. The customer can simply put a direct debit or credit authorisation in place to the favour of the transaction processor, or transfer funds to a stored value account with the transaction processor.
Merchants merely enroll with the transaction processor and receive funds from the transaction processor to settle customer transactions.
Banks have an opportunity to participate in promoting the service to their customers (merchants and consumers) and profit through paying lower fees, reducing loss and building customer loyalty (or providing consumer credit or investing in the transaction processor's
1)Setting up rules and regulations including financial risk management, security requirements, responsibilities of stakeholders, enforcement mechanisms etc
It's not a question of a new instrument, just a new method of communicating the wishes of the banking customer. The customer chooses to use the method and agrees to the terms and conditions prior to use. Ditto the merchant in order to benefit from better payment
No committee and no new rules required.
2)Putting in place clearing and settlement infrastructures
No new infrastructure required for settlement but we'll give you some better options anyway.
The method includes providing participating banks with the transaction information in real time, along with the details of the counter-party institution. Whether these banks settle in real time, and how they settle, will be up to the individual banks and
whatever agreements they choose to make between each other. The facilities to settle directly may be provided for banks, however there will be no obligation to use them.
There is no requirement for banks to choose to participate at all.
The customer may simply choose to put in place a direct debit or credit authority on behalf of the transaction service, authorising the service to recover funds that customers have requested to be paid to the merchant's account (to pay for their purchases).
The merchants may receive the funds to their account immediately, unless they choose to participate through their bank rather than through the transaction processor, and agree to different terms with their bank. Customers can also choose to top up a stored
value account from which they make payments.
The transaction processor will be offering instant settlement on debit and even with credit transactions when they are implemented through our system (rather than third-party credit accounts which are subject to their own terms and fees).
3)Designing interoperability tech standards that are needed to connect several players and have the resulting system run smoothly
Any other 'players' will have to adopt the standards and rules set by the transaction service processor in order to participate. Message exchange with the banks (if any) will be in the format provided by the transaction processor. There is no room for discussion.
Direct debit and credit authorities will be in the format presently in use.
4)Laying down scheme’s audit and control procedures, including certifications processes, test platforms etc
The system's audit control procedures are already laid down, and there are stronger audit trails presently built into the system than any existing transaction system. Certification is available only from, and upon 100% compliance with the rules set by, the
transaction processor, us.
Testing is solely conducted by the transaction processor and the system has been designed to easily integrate into existing bank structures and processes, however there is no requirement for any bank to participate directly.
Banks may not be required to provide consumer credit or consumer loans.
Customers (even merchants) may be given the option of opening a credit account. Their credit worthiness will be determined and a risk profile ascribed. If a customer wishes to 'borrow and pay by credit' their request will be determined on a case by case basis
in real time.
All customers (including merchants) will have the option of joining the community lending program (similar to Prospero) and they may allocate excess funds towards investment in other customer's credit requests. Customers would have a profile and could choose
an investment profile to suit their risk choices and make those excess funds available for consumer loans to other customers who fit their chosen lending criteria (in the case of merchants - even their customers). Investments will be split and spread across
multiple loans within the same profile to reduce risk in the event of any individual default. The funds can be automatically allocated on behalf of investors through participation in a real-time pool which would provide loans as requested and approved in real
Portfolio's may be split across various profiles and loan types, and even location. Our one world lending program will permit customers to allocate funds across borders and races to borrowers in particular countries, states, cities and villages, and/or by intended
usage i.e. business, student loans, consumer loans,emerging nation development, no interest, etc.
Banks would be able contribute to the automatic pool and to bid for consumer lending in the same manner as consumers, by winning a bid.
The system has been designed to allow the transaction processor the option of bearing the risks, and the risks are measurable and manageable, unlike current systems, and significantly lower. There are laws which must be observed and regulations to be satisfied
and licenses to be paid, but I don't see a requirement to consult any banks or committees.
To design a transaction system with the intention of going to market with reliance on mass agreement with banks or requiring permission from any particular bank would be short-sighted.
Products and services succeed in the marketplace based on their merits and more importantly through their uptake by customers.
Customers (including merchants) want low cost, easy to use and lower risk choices.
Our intention is to fulfill the customers' and merchants' wants in every way we can, and make profits doing so. Customers - consumers and merchants - are not happy, we know we can make them happier - and make them our customers by doing so.
If any bank wishes to share in the work (promoting the service to their customers) and the rewards (retain their customers, merchants and fees) it may be prudent for them to seek a way to participate - as some already have.
Our business plan is not contingent upon receiving bank co-operation (or funding) and neither is our success.
I'm still thinking 2-3 years. Correct me if I'm wrong.