As mentioned in my
previous blog there is much that's wrong with the existing payment networks, but it is always easy to criticise what others have done and rather more difficult to provide a solution to a problem.
The network I envisage is modelled on the internet itself, with no central hub. Let's have a look at some defining characteristics of a new type of payments network:
Unified payment capability
If money is moving from one financial institution to another the network should be able to support it. Whether the funds are moving from account to account, customer to merchant or account holder to utility provider the network should support it. It should
also support direct debit, ATMs, account to phone or email address and a system to replace cheques. All transactions should work as quickly and efficiently across town or around the world.
Co-operative and competitive
There may be many ways for a payment to get from the sending institution to the receiving one. The network must be able to understand the costs (both transaction costs and currency exchange where necessary) and the compliance requirements of each route and
select the one that will minimise the customers costs while maximising the revenues for the bank.
Instant authentication and settlement
This is a given. The receiving institution should only accept the transaction AFTER the destination account has been credited. If the transaction cannot be accepted with the information given the transaction should be rejected. No more taking days or weeks
to send a payment and potentially losing it down the back of the fax machine! Furthermore, there should be no separation between the transaction and the settlement. An agreement to go ahead is binding.
It must be attractively priced. Both for joining the network and for the actual transactions.
All transactions should be confirmed by the account holder. Either by mandate before the transaction, by acceptance of transaction details or by active 'push'. This builds consumer confidence, reduces fraud and removes all necessity of the PCI DSS.
Simple technology architecture
Wherever possible, opt for lowest common denominator technology. This will aid the adoption and implementation, but also improve the speed and security of the transactions themselves.
Supports the compliance department
Each bank or financial institution will have their own priorities, regulations and business drivers and must be able to make their own decisions about which transactions should be accepted and which should not. The network should ensure that the people and
systems making those decisions have the information they need to do their job as quickly and efficiently as possible. It should be easy to reject a transaction by requesting further information or further time to investigate.
The automated decisioning engine will need to be a complex module and potentially based on AI and machine learning, but included in the model will be (for both source and destination): country, institution, network institution reputation score, account holder,
whether the account holder is fully KYC'd by their institution, whether the account holder is known to be a PEP. Plus the transaction type and value.
Inclusive for all regulated financial institutions
The network should actively encourage, by design, the inclusivity of regulated transaction partners. Since the compliance function is supported and the institution will be mindful of their reputation score it should be significantly easier to join the network
even for smaller entities.
Speed of deployment
There should be no requirement for multiple consultation processes or to create new entities requiring regulation. Such requirements would delay the implementation by years and can be avoided by having the banks settle directly with each other since they
are already regulated. It must be possible to start the network from small beginnings and grow it on the basis of its merit.
Provide value from day 1
There must be value to all parties from a network of just two banks, with the value to each member growing as more financial institutions join. This is crucial since it will take a while to reach the size and scope of the card schemes.
Integrated with existing networks
Until such time as the other networks are no longer relevant the new network must be able to co-exist and provide access to all of the other networks.
Easy to join
If you enter a small cash-based business (a hairdresser or a small café perhaps) or a stall at a school fair, it must be quicker to sign up for a new, network enabled, account than to walk to the nearest ATM and draw cash. This should be true for both the
merchant and the customer. For the merchant there should be no special equipment required and the transaction should be cheaper and more convenient than using cash.
Cool but inclusive
Especially with shopping transactions the network should support all types of technology. Ranging from NFC and ApplePay at one end and all the way down to an old dumb phone with a QR code stuck to the back of it. Since much of this comes from the financial
institutions own user interface it should be possible to plug in a pre-built module that banks can use to both pilot the system and expand the network quickly without disturbing legacy systems. This would also showcase the best practice of how to use it.
This is my idea of an ideal world payment system. There is obviously some detail missing due to space and time. Have I missed any important features?
If you think that this is “a nice dream”, please
contact me. All of the technology to make this happen exists today. All it takes is the will to move it forward.